There are several reasons for refinancing a loan. Obviously, the main idea when refinancing is to obtain a better interest rate; however, you may also refinance to change the payment term of a loan. Even if the terms of your current loan are decent, certain changes in your personal finances may enable you to refinance at a better rate. Refinancing is definitely one of the best things you can do to save money.
Credit Score
Do you remember what your credit score was when you got that original loan? If your score has gone up since then, chances are you can refinance at a lower interest rate. If you don't know your credit score, just go online. There are various sites that allow you to check your credit score for free. Additionally, there are credit simulators that allow you to anticipate changes to your credit based on things like getting another credit card or paying off some of your debt.
Compare Lenders
When you are looking to refinance, make sure to compare lenders. Visit a few different lenders or access a comparison site online. This will enable you to get the lowest possible rate on your refinanced loan. Also, don't just check with major banks. Credit unions and smaller banks are often the best places to refinance a loan. See the Resources section for a link to a lender comparison site.
Examine the Quote
If you get a quote on a refinanced loan, examine the details carefully. The two main goals when refinancing are to lower your interest rate and/or lower your monthly payment. Note that it is possible to accomplish one of these things without the other and in some cases, one may go up while the other goes down. For example, if you get a quote that features a lower monthly payment than your current loan, but also has a longer term, you will likely pay more interest over the long term. Know your goals before getting a quote and make sure your refinanced loan will meet those goals before signing an agreement.
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