Refinancing your car loan can be a great way to save money—under the right circumstances. Here are three times when it could be the right choice:

You should refinance when …

… you forgot to shop around.
Did the excitement of buying a new car leave you unaware of financing options beyond the dealership? By learning how to find and compare loans through services like AAA Auto Loans, you could discover better financing deals.

… something better comes along.
Even if you did everything right when financing your car, interest rates offered by financial institutions are constantly fluctuating, and you may find a more favorable deal.

… your credit score has improved.
Your credit score has a big impact on the rate you get on an auto loan, so an increase of a handful of points on your score can shave percentage points off the rate you would qualify for with a refinanced loan. For example, here’s how a difference in interest rate impacts monthly payments on a 48-month loan for $20,000:

You should hold off on refinancing when …

Learn how to clean up your credit to get a better rate on your next loan.

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… you’re nearing the end of your loan.
Refinancing can make the biggest impact the earlier it’s done in your original loan term. If done later, an improved rate may only alter your monthly payment by a few dollars—possibly not enough to offset any refinancing fees.

… the loan would be extended too long.
Just like when you’re buying a new car, don’t let the low monthly payments of a longer loan term tempt you. As your car depreciates, you may be stuck with negative equity well into the loan.

… you’re upside down in your loan.
If you owe more than the car is worth, refinancing might not be an option. Getting a new loan while your car has negative equity requires excellent credit, and even then, some lenders won’t bite.

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