Your car can be forever, but your auto loan doesn’t have to be.

Should you refinance your car? For budget-conscious drivers, or those who have repaired their credit since they first got their auto loan, refinancing might be a good way to reduce overall car payments. But it can be trickier than it looks, so before you dive in, here’s what you need to know.

What Is Auto Refinancing?

Really, auto refinancing is fairly simple. You replace your current car loan with a new one, by borrowing the remaining money owed on your car from another lender, paying off your old lender, and then paying back the debt with a new loan. The goal, of course, is to reduce the overall price of your car; refinancing almost always saves money with lower interest rates, although you might be able to also swing a shorter term, meaning you will pay off your loan faster. Needless to say, the idea of paying less every month is appealing, but that does not mean it is a good idea for everyone.

When Should I Refinance My Car?

There are a few circumstances where you should refinance your car. If your credit score has improved, if overall interest rates have gone down, if your loan has a high interest rate, or if you are buying a car you have leased, refinancing is a smart option.

Conversely, if you just bought your car, if your overall loan principal is below a certain amount (usually $5000), or if you own an older car, refinancing is probably not a financially saavy move and may not be available to you in the first place. Refinancing is only available over a certain threshold, depending on the bank; older cars are not worth as much and are therefore more of a financial risk. If you just bought your car, you would essentially be starting your loan over again and refinancing will essentially mean simply wasting your first few payments.

The absolute financial slam dunk is if you can refinance your car at a lower rate, but keep making the same payments. That will ensure you pay your car off much faster, meaning you will pay less interest and save money on your car.

Refinancing your car can lift financial burdens.

Is There Any Other Reason To Refinance My Car?

Another reason to refinance is to add or remove a cosigner. For example, you might want to refinance your car at the same payment but add your spouse to the loan, so he or she can claim ownership more easily or reduce the insurance costs. Or perhaps you co-signed with a friend or family member to secure the loan but your credit has improved enough that you want to lift that potential burden off his or her shoulders.

In this particular scenario, you should check your refinancing options, but also explain the situation to your current lender. After all, they would like to keep your business, so you might be able to add or remove a cosigner without having to pay refinance fees, or possibly even get a reduction in your payment by asking. Remember, the worst that happens when you ask is a polite “no.”

Refinancing your car is worth consideration, but always do it the smart way, and be sure to consult the research from CarFoundMe..