(1) When you want to save money by reducing your current loan rate without extending the terms of your loan.
For example, suppose you borrowed $15,000 at 9% one year ago and planned to make payments over a four-year period (48 months). Now auto loan rates have fallen to 7% and you want to refinance for the remainder of the loan term, 36 months [48 - 12 months]. You will save over $2,000 on the total price of your car and lower your monthly payments.
(2) When you are having financial problems and want to lower your current monthly payments
In order to lower your monthly payments, you will have to extend the term of your loan, meaning you will want to take a longer period of time to pay it off.
Suppose you financed $15,000 at 7% for 36 months (3 years). Your monthly payment would be $463.16. By extending the term of the loan from 36 months to 48 months (4 years), you can lower your monthly payment to $359.19, freeing up $103.97 each month to meet your other expenses. If you extended your loan from 3 years to 5 years, you could reduce your monthly payment to $297.02, saving you $166.14 each month.
(3) When you want to reduce the length of the loan in order to reduce your total interest expense.
Suppose you originally borrowed $15,000 at 7% and planned to pay it back over the next five years (60 months). By refinancing and agreeing to pay back the loan over a four year period (48 months), your monthly payment will go up slightly, but you will save hundreds of dollars in interest charges.
(4) When you need to get cash from your current vehicle lease or loan by refinancing and drawing out the equity
If you've almost completed paying off your current lease or loan (for example, if you're $2,000 away from paying off a $15,000 loan) you can refinance the existing loan for equity giving you cash now to pay other debts.
