What You Need To Refinance
To refinance an existing loan, you need the following :
If Your Financial Situation Has Changed Or You Just Want Better Car Loan Terms Refinancing Your Car Loan May Be A Good Move
When you refinance your car, you take on a new loan to pay off the balance on your current car loan. Maybe your credit has improved and you might qualify for a lower interest rate, or your financial situation has gotten better and you want to remove the co-signer from your original loan. Refinancing with a new loan could mean getting better terms and rates that are more in line with your current financial needs and long-term plans.
Read on for tips to help you determine if a refinance is right for you, and to learn how to refinance a car loan.
Process Of Refinancing A Car
The process of refinancing vehicles is actually fairly straightforward. It works in a similar manner to the original purchase. However, unlike haggling about the value of the vehicle, you are locked into the cost associated with the original purchase. Essentially, the new lender buys your debt and then lends that amount to you, typically at a lower rate and with an improved term.
There is some key information to gather before taking the leap. Approach the lender and discuss the interest rates available, along with any fees you will be expected to pay. Find out if there are penalties associated with refinancing and learn what the term of the new loan will be. Determine whether the costs of refinancing, both immediate and over the long term. From there, you can decide if it is amenable to your financial situation.
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Compare Auto Refinance Loans
Before applying for an auto refinance loan, you should be sure to compare quotes from multiple different providers. Some factors to take into consideration include:
- Loan amounts: Most lenders have minimum and maximum loan amount requirements, usually somewhere between $7,000 and $100,000. Make sure that the loan you want to refinance is in between these limits.
- Rates: One of the main goals of refinancing an auto loan is to lock in lower rates. Make sure to compare rates from multiple different providers to ensure youre getting the best possible deal.
- Repayment terms: Whether you want to pay off your loan faster, or need a longer term length with smaller monthly premiums, look for an auto refinance loan with repayment terms that meet your needs.
- Some lenders have minimum credit score requirements for borrowers. If your credit score isnt where you want it to be, consider holding off on applying until you raise your score.
- Car requirements: Not all lenders will issue auto refinance loans for all cars. Make sure that your car meets the requirements for any lenders that youre interested in.
Apply For Your Auto Refinance Loan
There are a few steps youll need to take in order to apply for an auto refinance loan. Once youve decided on a lender, youll need to gather all of the required documents before applying. This can include information about yourself, like your name, address, and social security number, as well as information about your vehicle and your previous loan.
If youre interested in applying for an auto refinance loan, its a good idea to wait to apply until your finances are in order. For example, if your credit score is near a threshold, you might want to take steps to raise your score before applying in order to qualify for lower rates. Once your application is accepted, youll need to begin repaying your new loan. Its a good idea to set up automatic payments each month to make sure you never miss a payment.
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Can I Refinance My Car With The Same Lender
The automotive industry in America hit record highs in 2019 with an estimated $1.2 trillion in outstanding car loan balances. Today, 85% of new passenger vehicles are financed, with the average first-time loan payment rising to $554 a month.
If youre like many Americans, you may be paying an auto loan that is too costly. If your financial situation or your credit score has improved since you applied for your loan, you can renegotiate your loan terms.
But what if you like your lender? You may be wondering, Can I refinance my car with the same lender? For many lenders, the answer is yes. However, you must make sure that you review your refinancing options to ensure that you get the best loan terms for you.
Home Appraisal Vs Vehicle Bookout
Both types of refinancing involve an appraisal which will determine the current market value of the property.
The appraised value of your home or car is important because its used in calculating your loan-to-value ratio, or LTV. Its a percentage calculated comparing your loan balance to the propertys value.
To lenders, a lower loan-to-value ratio poses less risk to them. Because you owe less on your loan than the car or home is worth, that positive equity makes it easier to recoup any potential losses .
How much is your current car loan balance?
What’s your car’s current value?
A loan-to-value ratio over 100% means you owe more on your loan than your vehicle is worth. An LTV over 125% can make it harder, but not impossible, to qualify for a refinance loan.If your LTV is less than 100%, your car’s value is higher than what you owe on your loan. The lower your LTV, the better.
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How Do I Find The Best Interest Rate
If jumping at the first interest rate was your primary pitfall on your current auto loan, dont do it again. Take the time to browse credit and lending websites, and research other banks and credit unions in your area to see what kinds of auto APRs they offer if they specialize in auto refinancing, all the better. Dont forget to check with your existing lender, since a refinance with them could make the transition from one loan to another financially easier.
Cant Make Your Car Payments
Having a car provides many conveniences. You do not have to worry about lugging groceries on the bus or waiting 45 minutes for the train. However, for those experiencing financial problems, having to pay a car loan can make owning a car seem more like a burden than a convenience. If you are behind with payments, or worried you will be soon, assessing your financial situation and actively pursuing your options can help you make the best of a difficult situation.
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Can I Refinance My Car Loan With Bad Credit
It can be difficult to refinance your auto loan if you have bad credit, but it might still be possible. If youve made six to 12 months of consistent, on-time car payments even if your score hasnt yet improved a lender might work with you. Apply to multiple lenders, because each one has different credit score requirements. Your bank or credit union might also be more open to working with you because you already have a relationship with them.
If youre having trouble making payments, contact your current lender right away. A representative might be able to help you. For instance, lengthening the term of the loan increases the interest youll pay, but it can lower your monthly payments and help prevent a hit to your credit from missing them.
Here Are Some More Details About Penfed Credit Union
- Membership required You must be a member to qualify for an auto loan from PenFed Credit Union. Joining is easy, and you dont necessarily have to be a member of the military.
- Large loan range PenFed Credit Union offers auto loans ranging from $500 to $100,000, depending on your loan term.
- Doesnt refinance its own loans If you got your current car loan from PenFed Credit Union, it wont refinance your loan. The lender only refinances auto loans from other lenders.
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Here Are Some More Details About Autopay
- Range of loans Lenders in Autopays network offer traditional, cash back and lease buyout refinancing to qualified applicants.
- Large loan range Loans through Autopays lender network range from $2,500 to $100,000 though a lender may offer different terms on Credit Karma.
- All credit considered Lenders in Autopays network consider people across the credit spectrum.
Youve Developed A Relationship With A Lender
Some institutions offer low rates for their good customers. And some have special deals to bring new customers in. For relatively new vehicles, some lenders will refinance your existing loan at their attractive new car rate. These rates can be better than what you initially took on when you first applied for the car loan. It pays to continually evaluate your loan and your payments to be sure that you are getting the best rate possible.
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Best Bank For Auto Refinance: Bank Of America
Bank of America
- Minimum credit score: Not stated
- Loan terms : 48 to 72 months
If youre looking to refinance your auto loan at a big bank, Bank of America is a good option. The lender features multiple refinance options and an easy online application process.
Transparent rates and terms online
Established financial institution
Minimum finance amount of $7,500
Must have fewer than 125,000 miles
Car can’t be valued at less than $6,000
Among big banks, Bank of America offers competitive refinance rates and an easy overall process. It’s open to borrowers throughout the nation and scored exactly the average in J.D. Power’s 2020 U.S. Consumer Financing Satisfaction Survey.
How Can You Refinance An Auto Loan
Each lender has its own process and requirements for refinancing auto loans. However, the steps to refinance are generally similar to taking out an initial car loan. Heres what the refinance process looks like:
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After Youve Been Approved
Once youre approved with several different lenders, compare the various offers carefully. The most important factor is the annual percentage rate and total interest paid over the life of the loan. The APR includes the interest rates and any fees, including the lender and title fees. A lower APR means youll pay less in fees and interest.
You may be approved for several different interest rates and loan terms. Loans with longer repayment terms generally have higher interest rates and lower monthly payments. A loan with a shorter term means youll have higher monthly payments and a lower interest rate.
Look at your budget and decide how much you can comfortably afford each month. Remember, you can also make extra payments on the loan if you choose a lender that doesnt charge a prepayment penalty.
After you select the lender, youll have to finalize the car loan. The new lender is responsible for paying off the loan balance from the old lender, but its a good idea to double-check that this goes through correctly. Its also important not to fall behind on your car payments during this transfer process. Once the first lender is paid off by the new lender, they should return any extra payments you made during that window.
Once the loan is paid off, you can start making payments to your new lender. Consider setting up automatic payments so you dont have to worry about remembering your new due date.
Is It Easier To Refinance With My Current Lender
Can I refinance my car with the same lender? Can I refinance with a new lender? These kinds of questions are common among auto owners who are considering refinancing.
When you buy a car, you either shop around with different lenders for a loan or ask the auto dealer that you buy from to set up a loan for you. When you refinance, it is smart to engage in the same process of shopping around for the best possible option for you.
You are not locked into using the same lender that currently holds your loan. Your priority should be finding the most favorable loan terms possible, which typically means finding a lender that will offer you the lowest interest rate. In some cases, that may be your existing lenderin other cases, it will be a new lender. Rate shopping will give you a broader sense of the market and what constitutes a genuine deal.
While it may seem easier to stay with the same lender, any lender willing to give you a refinancing loan will work with you to make the process as seamless as possible. Theres no reason to be worried that switching to a new lender will make your journey with a loan more complex.
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Rule Of Thumb Of When To Refinance A Car Loan
The bottom line is that, while there is nothing to stop you from trying to refinance at any time, it is generally better to wait at least a short period of time.
At IFS, we use the following rules of thumb to guide customers on when to refinance their auto loans:
- Wait at least 60-90 days from getting your original loan to refinance. It typically takes this long for the title on your vehicle to transfer properly, a process that will need to be completed before any lender will consider your application. Refinancing this early typically only works out for those with great credit.
- Consider refinancing after six months. If you have fair to great credit, you will begin to have refinancing options after this length of time.
- If you are a first-time car loan borrower, wait at least a year to refinance your loan. A first-time borrower typically needs to build up a good car loan payment history before refinancing.
Before you jump in, it might be a good idea to think about what you hope to get out of refinancing. We did a full write-up detailing three reasons you might want to refinance. Additionally, read our guide covering what refinancing might do for you.
The Refinance Could Lower Your Dti
Plot twist: Refinancing your car loan before buying a house might not only negatively affect your future home purchase. A refinance loan that lowers your monthly payment could also reduce your DTI.
Lets say that refinancing your car loan dropped your monthly car payment from $500 to $350 in the example above. Here are the new numbers:
Pre-tax income: $5,000Mortgage payment: $840
Total debt payments: $1,940
To calculate your DTI, divide your total monthly debt payments by your pre-tax income and multiply by 100.
$1,940 ÷ $5,000 x 100 = 38.8%
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Why Refinance A Car Loan Or Mortgage
Refinancing means using a new loan to pay off an old one, usually with a new lender. You may also get a different loan term, interest rate, or monthly payment.
Nearly any type of loan can be refinanced including auto loans, mortgages, student loans, and personal loans. There is no set limit on how many times you can refinance, and you can often refinance as soon as one month after taking out the initial loan.
Why would anyone need to refinance a loan? There are several reasons.
Refinance Your Mortgage First If Credit Is A Concern
Each time you apply for a new line of credit, such as a refinance loan, the lender will pull your credit to get your score. This is called hard credit inquiry, and it can lower your by about 10 points.
When you apply for the same type of loan within a certain time frame, these multiple hard credit inquiries will count as one. This means you wont get penalized if you apply for auto refinance loans with several lenders within a week or two to shop for rates.
However, that does not apply if you apply for both auto loan refinancing and mortgage refinancing at the same time. Those are two different types of loans and will count as two separate hard inquiries, both dropping your score a tad as a result. You can try services like Experian Boost to help offset the credit inquiries, but you can also just use that bump in your credit score to get an even better loan offer.
If your credit score is lower than youd like it to be or at risk for dropping too low to qualify for a competitive loan offer, it may be wise to focus on that mortgage refinance application first.
You can start with pre-qualification which doesnt impact your credit score. That way you have an idea of what types of loans are available. If youre still unsure, you can speak with a mortgage loan officer or broker to get more information before doing a hard credit check.
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