Do I need to refinance my car During a Recession? Advertiser disclosure You're our first priority. Each time. We believe everyone should be able to make financial decisions with confidence. While our website doesn't include every financial or company product that is available We're pleased that the advice we provide as well as the advice we provide and the tools we develop are impartial, independent, straightforward -- and cost-free. So how do we earn money? Our partners compensate us. This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in many hours of study. Our partners do not promise us favorable reviews of their products or services. . Do I need to refinance my car during a recession? If you're trying to find ways to save money and improve your credit score, refinancing your vehicle during the recession could be beneficial. By Shannon Bradley Lead Writer | Personal finance, car purchasing, loans Shannon Bradley covers auto loans for NerdWallet. While in college, pursuing an education in journalism, Shannon completed an internship which led her not to the newsroom, instead, to a bank's marketing department. The next 30+ years as a content writer and content manager in the field of financial services and created educational content that covered a broad range of personal and business financial subjects. After being a NerdWallet reader for several years, Shannon welcomed the opportunity to become a NerdWallet writer and assist more people in financial decision-making. Shannon is located in Newburgh, Indiana. Dec 1st, 2022 Written by Julie MyhreNunes, Assistant Assigning Editor Auto loans, consumer credit Julie Myhre-Nunes is an associate assigning editor for NerdWallet. She has worked in the personal finance space for more than 10 years. Prior to becoming a part of NerdWallet, Julie oversaw editorial teams at NextAdvisor, Red Ventures and Quote.com. Her personal finance insight has been highlighted by Forbes, The Boston Globe and CNBC throughout the years. Julie's writing has been published in USA Today, Business Insider and Wired Insights, among others. Email:
. Many or all of the products featured here are from our partners who compensate us. This influences which products we feature and where and how the product appears on a page. However, this does not influence our opinions. Our opinions are entirely our own. Here's a list and . Refinancing a car during the recession might be a great option, however, your personal situation will determine if auto refinancing makes sense for you. A recession, defined according to the National Bureau of Economic Research as a significant drop in economic activity that spreads throughout the world and lasting more than a few months -- isn't good news for businesses or consumers. In the conventional sense, there is no evidence that the U.S. isn't currently in the midst of a recession. In a recession, cutbacks result in increased unemployment, fewer employees' hours, and loss of income. As a result, many people have to find ways to reduce monthly household expenses, to reduce the monthly payment. Can you lower car payments in a downturn? If you're able to refinance to substitute the current car loan with one that has an interest rate that is lower or a longer repayment period It is possible to lower the amount you pay for your car -- recession or no recession. The reduction of your interest rate can lead to a recession and occasionally during the early stages of a recession, interest rates increase. In order to reduce inflation and increase consumer spending, the Federal Reserve increases the federal funds rate, which drives other rates such as auto loan rates. In the aftermath of the recession the interest rates tend to decrease in order to encourage people to spend more. If you bought a car leading up to a recession when you could be eligible to refinance it to a lower interest rate and reduce your payment later in a recession. This is particularly true if you were able to agree to a higher price at a dealership and could have qualified for lower rates. Also, if you were offered a high rate because of bad credit, but have since upgraded your credit. This is the norm you should shop for loans and get the best rate you can get. The extension of your auto loan term Another option to lower monthly payment is to refinance the remaining loan balance for a longer loan duration. This isn't the most ideal approach because you'll pay more interest and more overall over the duration of your loan. However, it's more secure than not paying your bills and defaulting on the loan and having your vehicle repossessed. You can use NerdWallet's to evaluate your current auto loan with refinancing loan options. A calculator can show you how changes in rate and term will affect your monthly payments, with the amount refinancing could cost or save you all in all, including interest. Don't forget to consider any related fees, such as loan origination costs, lender processing fees and fee for transfer of title. Although rare, you might be subject to a prepayment penalty for the current loan. Reasons to avoid auto refinancing in a downturn In addition to evaluating the rate of interest and terms, here are other factors to consider when deciding to refinance your vehicle. Negative equity prior to a recession, prices are overinflated. When a recession is in full swing the prices start to decrease. If you paid and financed an inflated price for your vehicle, and the value starts to drop and you end up owing more than your car is worth or in the position of being . While many lenders will refinance more than the car's car's book value, it may not be enough to refinance the entire amount. In order to refinance, you could have to pay for the difference out of your pocket, which may be difficult in the event that the finances of your household are stressed. Another option might be rolling the difference into your new refinance loan however this could increase your payment amount and will cost you more interest in the long run. Your current financial situation If you've lost your income or fallen behind on payments for your car or other debt It will be more difficult to get a refinance loan to help improve your financial situation. However, lenders tend to tighten their credit requirements in an economic downturn, so your only possible refinancing loan you're eligible for could be one with a higher interest rate and a longer time period than your current loan. Contact your current lender prior to deciding to get in debt on your loan if you can't refinance it or if it won't help the financial condition of your family. Some lenders offer hardship programs to help borrowers who are having difficulty making payments. Determining whether auto refinancing is the right choice, whether the economy is in a economic recession, or otherwise, there's a few basic guidelines to follow before deciding to refinance your car. Know your reason for refinancing If you're doing it to eliminate a co-buyer from an auto title or you've received an increase and wish to shorten the term to repay your loan faster the decision to refinance should be pretty simple. However, if you're refinancing to alleviate strained finances it is important to put more thought into the decision and weigh the pros and cons of auto refinancing. Consider, for instance, is the amount you save outweigh the cost of refinancing? Refinancing, even if you end up paying more than you would in the end will lower your monthly payment 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 cheaper than a payday loan or other short-term loan options? Consider comparing the options regardless 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. Enter the numbers into an auto refinance calculator, and be aware of the total amount you'll be paying before you decide if auto refinancing even in an economic downturn -- makes sense for you. About the author: Shannon Bradley covers auto loans for NerdWallet. She has spent more than 30 years working in banking as a writer for financial educational content. Similar to... Explore even more deeply in auto Loans Find more money-savvy moves delivered direct to your inbox. Sign up and we'll send you Nerdy posts on the financial topics which matter to you the most as well as other methods to get more money.

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