Do I need to refinance my car During a Recession? Advertiser disclosure You're our first priority. Each time. We believe that everyone should be able to make sound financial decisions without hesitation. And while our site doesn't include every financial or company product that is available however, we're confident that the advice we provide, the information we provide as well as the tools we design are independent, objective simple, and completely free. How do we earn money? Our partners compensate us. This could influence the types of products we review and write about (and where those products appear on the site), but it in no way affects our suggestions or recommendations, which are grounded in many hours of research. Our partners are not able to promise us favorable ratings of their goods or services. . Should I Refinance My Car in a recession? If you're looking to save money Refinancing your car in a recession might make sense. By Shannon Bradley Lead Writer | Personal finance, car buying, loans Shannon Bradley covers auto loans for NerdWallet. While in college, pursuing the degree of a journalist, Shannon completed an internship which led her not to the newsroom but to a bank marketing department. She worked for the next 30+ years as a journalist and content manager within the financial services industry and created educational content that covered a wide variety of business and personal financial subjects. After being a frequent NerdWallet user for several years, Shannon welcomed the opportunity to join the NerdWallet team as a writer and help others with financial decisions. Shannon is based at Newburgh, Indiana. Dec 1st, 2022 Editor: Julie Myhre-Nunes Assigning Editor Auto loans Consumer credit Julie Myhre is an associate assigning editor for NerdWallet. She has been working in the area of personal finance for over ten years. Before being hired by NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been featured by Forbes, The Boston Globe and CNBC throughout the years. Julie's articles have been published in USA Today, Business Insider and Wired Insights, among others. Email:
. The majority of items featured here come from our partners who pay us. This influences which products we review and where and how the product appears on the page. However, this doesn't influence our evaluations. Our views are our own. Here's a list of and . Refinancing your car in the recession might be a smart idea, but your individual circumstances will determine if auto refinancing is a good idea for you. A recession -- as defined as such by the National Bureau of Economic Research as a substantial decrease in economic activity that is spread throughout the world and lasting more than a few months -- isn't positive for either businesses or consumers. Based on the standard definition it is true that it's not a recession in the U.S. isn't currently in a recession. In a recession, cutbacks result in more unemployment, less employee hours and lost income. As a result, numerous people need to come up with ways to cut down on the cost of their household, and lower their monthly payments. Is it possible to lower car payments in a downturn? If you're able to refinance to take over the existing automobile loan with one that comes with the lowest interest rate or longer repayment term, it's possible to reduce the amount you pay for your car regardless of whether it's a recession or not. recession. The reduction of your interest rate can lead into a recession, and occasionally during the early stages of a recession, interest rates rise. In order to reduce inflation and increase consumer spending, it is recommended that the Federal Reserve increases the federal funds rate, which drives other rates , such as auto loan rates. Later in an economic downturn the interest rates tend to decrease in order to encourage people spending more. If you had financed a vehicle leading up to a recession you were eligible to refinance it to a lower interest rate and cut your payments later during a recession. This is especially true when you agreed to a high price at a dealership and may have been eligible for a lower rate. Also, if you were offered a high rate because of bad credit, but have since upgraded your credit. Like all times it is important to look around for loans and to get the lowest rate. The extension of the term of your auto loan term is another way to reduce your monthly payment is to refinance the remaining loan balance to extend the loan period. This isn't always the best method because you'll have to pay more interest and more in total over the course of your loan. However, it's more secure than not paying your bills, defaulting on the loan and having your vehicle repossessed. You can utilize NerdWallet's tool to compare your existing auto loan with refinancing loan possibilities. Calculators can help you understand how the changes in rate or timeframe will impact your monthly payment, along with the amount that refinancing would cost you or help you save overall, which includes interest. Additionally, don't forget to take into account any fees associated with it like loan origination costs or lender processing charges, as well as title transfer fees. Although rare, you might be subject to a prepayment penalty for your current loan. Reasons to avoid auto refinancing during a recession In addition to evaluating the rate of interest and terms there are additional factors to take into consideration when deciding to refinance your car. Having negative equity Before an economic downturn, prices can be overinflated. When a recession is in full swing price drops. If you've paid an exorbitant price for your vehicle, and its value starts to drop and you end up having to pay more than your vehicle is worth, or in the position of being . While many lenders will refinance more than the vehicle's book value, that may not be enough to cover the entire amount. To refinance, you might need to pay the difference out of your pocket, which could be difficult in the event that you're already financially stretched. Another option is to roll the difference into your new refinance loan, but this will increase the amount of your loan and cost you more in interest over the long term. The current financial condition of your situation If you've lost money or are behind in payments on your car or other debt It will be more difficult to get the right refinance loan to improve your financial situation. But, lenders are known to increase their credit requirements during an economic downturn, so the only refinancing loan that you are eligible for may be one with a higher interest rate and with a longer duration than your current loan. Talk to your current lender prior to deciding to become behind on your loan in the event that you aren't able to refinance, or if refinancing will not make a difference to you financial position. Some lenders offer hardship plans for borrowers struggling to pay their bills. Determining whether auto refinancing is the best option, regardless of whether the economy is experiencing a downturn or not, you must follow basic guidelines to follow when deciding whether to refinance your car. Consider the reason you're refinancing. If you're looking to remove a co-buyer from the title of your car or you've received a raise and want to cut the length of the loan in order to pay off your loan faster The decision on refinancing should be pretty simple. But If you're trying to refinance to alleviate strained finances, you should put more thought into the decision , and consider the pros and cons of auto refinancing. For instance, does the savings you make outweigh the costs of refinancing? Refinancing, even if you end up paying more interest in the long run reduce your monthly payments enough to stop you from defaulting on the loan? In the event of a financial crisis is cash-back refinancing for your car a good option? be less expensive than an payday loan or other short-term loan alternatives? Be sure to evaluate the alternatives irrespective of the reason you wish to refinance your vehicle look at a variety of refinance lenders look at offers, and compare them to find the lowest interest rate with the shortest term. Plug numbers in an online calculator for auto refinance and be sure to know the total cost you're committing to before you decide if auto refinancing even in the midst of a recession, makes sense for you. The author's bio: Shannon Bradley covers auto loans for NerdWallet. She worked for more than 30 years in banking as a writer of financial education content. In a similar vein... Explore even more deeply in auto Loans Get more smart money moves delivered direct to your inbox. Subscribe and we'll email you Nerdy articles about the topics in finance which matter to you the most and other strategies to get more value from your money.

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