Refinancing, or transferring your loan to a new bank, may benefit you financially more so than purchasing a different car. The amount of benefit depends on your current interest rate, amount you owe and any loan transfer benefits. Before deciding which avenue to pursue, you should compare several long-term cost variables.
Pricing
Call your bank to get your vehicle's loan payoff amount. Once you have it, decide if you want to spend more on a car or get one of equal value. If you don't want to pay more than you already owe, you might have to purchase a vehicle with equal or higher miles than the car you own. If you plan to downsize your current vehicle, such as from a minivan or sport utility vehicle to a compact, you might be able to get a newer vehicle with less miles.
Interest Rate and Term
One of the reasons people refinance a car loan is because of lower interest rates. If you can obtain a better interest rate for the same or a longer term than you have, you can save a substantial amount per month or over the term of your loan. New vehicles have better rates than used, so look at your overall payback costs before deciding.
Warranty
A vehicle warranty, whether provided from the factory or extended warranty purchase, can save you money during your term of ownership. Since no car is guaranteed reliable, you can face unexpected and expensive repairs at any time. Compare the warranty of a car you might purchase to the one you have now. Basic warranties start about $1,000, worth consideration if your car already has a warranty.
Vehicle History
If you've maintained your car well, you probably already know its service history and what work you need to do in the future. If you're considering a used car, take it to a mechanic for a proper inspection. However, if you know your car does need repairs, purchasing a different car may prove a good decision if a mechanic ensures its maintenance history. Repair and maintenance items can add up quickly, so compare service costs of your current car to a potential purchase before deciding which to pursue.
