Do I need to refinance my car During a Recession? Advertiser disclosure You're our first priority. Each time. We believe that every person should be able make financial decisions without hesitation. And while our site doesn't include every financial or company product on the market We're pleased that the advice we provide and the information we offer and the tools we develop are objective, independent easy to use and cost-free. How do we earn money? Our partners pay us. This can influence the products we review and write about (and the places they are featured on the website) however it doesn't affect our suggestions or recommendations that are based on thousands of hours of research. Our partners cannot promise us favorable ratings of their goods or services. . Should I refinance My Car in a recession? If you're looking for ways to cut costs Refinancing your car in an economic downturn might be a good idea. Written by Shannon Bradley Lead Writer | Car buying, personal finance, loans Shannon Bradley covers auto loans for NerdWallet. While in college to earn the degree of a journalist, Shannon completed an internship that led not to the newsroom, instead, to a bank's marketing department. She spent the next 30-plus years as a content writer and content manager in the financial services industry and created educational material that covered a broad spectrum of personal and business financial issues. After being a frequent NerdWallet user for a long time, Shannon welcomed the opportunity to become a NerdWallet writer and help more people with financial decision-making. Shannon is based in Newburgh, Indiana. Dec 1, 2022 Written by Julie MyhreNunes, Assistant Assigning Editor Auto loans and consumer credit Julie Myhre-Nunes works as an associate assigning editor at NerdWallet. She has worked in the field of personal finance for over 10 years. Before joining NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Personal finance insights from Julie have been highlighted in Forbes, The Boston Globe and CNBC through the years. Julie's writing has been published through USA Today, Business Insider and Wired Insights, among others. Email:
. The majority of items featured here come from our partners who compensate us. This influences which products we write about and where and how the product is featured on a page. But, it doesn't influence our opinions. Our opinions are our own. Here's a list and . Refinancing a vehicle during an economic downturn could be a good option, however, your personal situation will determine if auto refinancing makes sense for you. A recession -- described by the National Bureau of Economic Research as a significant decline in economic activity spread across the entire economy that lasts more than a couple of months -- isn't positive for either companies or consumers. Based on the standard definition, there is no evidence that the U.S. isn't currently in the middle of a recession. When there is a recession, cutbacks result in more unemployment, less worker hours, and a loss of income. In the end, many people must look for ways to cut back on household costs, in order to decrease the monthly cost. Is it possible to lower car payments in times of recession? If you are able to refinance and replace your current car loan with one that has the lowest interest rate or longer repayment term, it's possible to reduce the cost of your car -- recession or no recession. Lowering your interest rate Leading to a recession and often at the beginning of a recession rates of interest rise. In order to reduce inflation and increase consumer spending to reduce spending, it is recommended that the Federal Reserve increases the federal funds rate, which drives other rates , such as automobile loan rates. Later in an economic downturn rate of interest, they tend to drop to encourage people to spend more. If you bought a car prior to a recession you were in a position to refinance your loan to a lower rate and lower your monthly payment in a downturn. This is particularly true if you were able to agree to a higher price at a dealership and could have qualified for lower rates. If you've been offered the highest rate due to bad credit, but have since improved your credit. As is always the case, take time to shop for loans and to get the lowest rate. Extension of the term of your auto loan term Another way to lower monthly payment is to refinance the remaining loan balance for a longer loan period. This isn't the most ideal option because you'll be paying more interest and pay more in total over the course that you're able to loan. It's nevertheless superior to not making payments or defaulting on the loan and having your vehicle taken away. It is possible to use NerdWallet's tools to evaluate your current auto loan with refinancing loan options. A calculator can show you the way that changes in rate and term will affect your monthly payment, along with the amount that refinancing would cost you or help you save in total, including interest. Additionally, don't forget to consider any related fees like loan origination costs, lender processing fees and fees for title transfers. While it is not common, you could also have a prepayment penalty for your current loan. Reasons to avoid auto refinancing during a recession , in addition to looking at the interest rates and the terms there are additional factors to consider when deciding whether to refinance your vehicle. Negative equity prior to the recession, prices are exaggerated. In a recession, prices begin to fall. If you've paid an exorbitant price for your car, and its value begins to decrease and you end up owing more than your car is worth -- or even being . While many lenders will refinance more than the car's car's value in book, it might not be enough to cover your entire balance. If you want to refinance, you may have to pay for the extra amount out of your pocket, which could be difficult in the event that your finances are already stretched. Another option is to roll the difference into the new refinance loan, but this will increase your payment amount and result in higher interest in the future. The current financial condition of your situation If you've lost income or gotten behind on payments for your vehicle or other financial obligations It will be more difficult to locate an opportunity to refinance your loan to help improve the financial condition of your. But, lenders are known to tighten their credit requirements in recessions, and your only possible refinancing loan you're eligible for could be a much higher rate and with a longer duration than the current loan. Speak to your current lender before you get in debt on your loan If you're not able to refinance or if refinancing won't improve you financial position. Some lenders offer hardship programs to help borrowers who are struggling to pay their bills. Determining whether auto refinancing is the best option, regardless of whether the economy is in downturn or not, you must follow basic guidelines to follow when deciding whether you want to refinance your car. Consider the reason you're refinancing. If you're refinancing only to get rid of a co-buyer off a car title or you've received an increase and wish to reduce the duration of your loan to pay off your loan earlier The decision on refinancing should be pretty simple. However when you're looking to refinance to ease financial strain You should give more thought into the decision and weigh the pros and cons of auto refinancing. For instance, does the amount you save outweigh the cost of refinancing? Refinancing, even if you have to pay more interest in the long run -- lower your payment enough to keep you from owing the loan? In the event of a financial crisis is cash-back refinancing for your car a good option? be less expensive than a payday loan or other short-term loan alternatives? Take time to compare Regardless of why you want to refinance your vehicle look at a variety of refinance lenders look at offers, and compare them to find the lowest interest rate for the shortest time. Enter the numbers into an auto refinance calculator, and be aware of the total amount you'll be paying before you decide whether refinancing your car with auto financing -- even during a recession -- makes sense for you. About the author: Shannon Bradley covers auto loans for NerdWallet. She worked for over 30 years in banking as a writer for financial educational content. In a similar vein... Get even deeper into auto Loans Get more smart money moves - right to your inbox. 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