Is There A Right Time To Refinance
You can refinance an auto loan whenever you want as long as you qualify. In order to get approved to refinance a car loan, your credit score needs to have improved from when you took out the original loan. This means that you usually have to give yourself some time to accomplish this.
If your credit score is up, the next step is to check to see if you have equity in your vehicle. Equity is when your car is worth more than what you owe on the loan, and negative equity is when the vehicle is worth less. You typically can’t qualify if you are upside down, but you can always pay off any negative equity out of pocket in order to move forward.
Another requirement that has to be met are the lender’s age and mileage restrictions. Generally, lenders don’t refinance vehicles that are older than seven to 10 years old with more than 100,000 miles on them, but the specifics vary from lender to lender.
Additionally, in order to qualify, the loan amount you’re refinancing has to fall within the new lender’s acceptable limit, and you have to be current on your loan payments.
Can You Refinance A Car Loan
If you aren’t happy with your current car loan, you can refinance into a loan with a different interest rate and new terms. Refinancing a car loan means taking out a new loan that replaces your existing loan. It’s a brand-new loan that you often get from a different lender. Depending on the new lender’s requirements, you might be able to keep the length of the loan the same, shorten it, or extend it.
When you refinance, your new loan amount will generally be the balance you have left on your current loan. However, some lenders allow for a cash-out refinance. Just keep in mind that taking out cash on a car with limited equity could cause you to owe more on the vehicle than it’s worth.
Refinancing A Car Loan
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Every year, you go through long-term budget arrangements and try to find new ways to save. Car refinancing has the potential to improve your monthly budget. Those who entered into a subprime auto loan and have since gotten a raise, reduced debt, or improved their credit, may be eligible for refinancing. To learn whether auto refinancing is the right step, its important to learn the options available to you. Armed with this information, you can make an informed decision and choose the best possible refinancing arrangement.
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Refinancing Options Available At Resource One Credit Union
At Resource One Credit Union, we are happy to speak with you at any time about your options for refinancing an existing auto loan. Whether your current loan is with us or another bank or credit union, you can trust us to provide a fair and honest loan offer with a competitive interest rate. If you need help deciding which loan term is right for you or other loan specifics, we can lend a hand. Contact us today to start a conversation about auto loans and unlock the extra financial comfort and freedom that a well-timed refinance can bring.
Risks Of Refinancing Multiple Times
Remember financing your first auto loan? Refinancing your auto loan often comes with many of the same pitfalls, plus a few new ones.
Lowering your credit score. You have a 14-day window in which you can apply to multiple lenders and it counts as a single credit inquiry, resulting in a slight, temporary drop to your credit score. If you wait longer than that to complete your loan shopping or to accept an offer, youll have to fill out another application, which could count as another inquiry.
Becoming upside down in your loan. If you refinance to a longer term, you risk owing more than what the car is worth or becoming upside down or underwater on your loan. An upside down car loan can create problems if you later decide you want to sell the car.
Paying more in the long run. If you keep extending your auto loan, the interest charges may add up to much more than what you would have paid for your original loan.
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Refinancing A Car Loan With The Right Lender
You arent going to know if youre getting the best available deal if you stick with your current lender. Even if you have a great relationship with them, and they have a great refinancing offer, you should see what other lenders can do, as well.
When you rate shop for a refinancing deal, you apply with multiple different lenders. This gives you options to choose from that you can compare side by side. At the very least, you should get three different refinancing quotes. Make sure you rate shop within 14 days to avoid multiple hard inquiries affecting your credit score.
Myautoloan: Most Popular Marketplace
Starting APR:1.89%Loan terms: 24 to 84 monthsAvailability: 48 states Minimum credit score:575
Rather than a direct provider of auto loans, myAutoloan is an online marketplace where you can compare offers from a number of lenders in one place. After you enter your personal information, lenders will provide loan offers for you to choose from.
The myAutoloan marketplace can help borrowers looking to refinance their auto loans find rates as low as 1.89%. Those with less-than-ideal credit history can refinance their vehicle loans through the site, which can find loans for people with credit scores of 575 and above. However, the lowest rates are reserved for people with the highest credit scores.
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Is A Refi The Right Choice For Me
If you have a high interest rate on your car loan, and current market rates have dropped, you may want to consider refinancing. Interest rates are at near-historic lows right now, and you may qualify for a better rate.
Borrowers whose credit has improved significantly since they first took out the loan may also be eligible for a better rate. For example, if you had a bankruptcy or default fall off your credit report, your credit score may be much higher now.
If you can refinance with a co-signer or co-borrower, then you may receive better rates if you were the only borrower on the original loan.
Is Refinancing With The Same Lender Worth It
Even though its possible to refinance a car with the same lender, its not usually recommended. Your interest rate and a huge chunk of the terms are based on your credit score, your lenders terms, the debt-to-income ratio, and your finances. If you think your credit score has considerably improved over the last few months, its better to look for a new lender.
The reason its recommended to shop around for a new lender is that you may end up with a better deal and save more money. Its also important to review your current terms with your existing lender, as paying a loan off earlier may also result in penalization.
Now that you know that auto refinancing is possible with your existing lender, its worth noting all the benefits it may accompany:
- You may have a chance at lower monthly payments
- You can reduce or extend the duration of your loan
- You may come across a lender whos willing to provide you with better payment options
- You may get a better deal in terms of the interest rate
One of the best things about shopping around is that there is no limit to the number of lenders you can come across. No matter how crucial your relationship with your existing lender may be, it may not always land you an ideal deal. The whole purpose of refinancing is to get a better interest rate, payment options, and a suitable length of the loan. However, if youre getting a deal only slightly better than your current one, then it may be time to explore other options.
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A Refinance Makes Sense When:
You need a lower payment. You might be able to refinance and reduce your monthly car payment by getting a lower APR and/or getting a longer term.
A long-term auto loan usually means youll pay more in interest over time. You could refinance for a lower payment now, and when your finances improve, either refinance again for a shorter term or put more money toward the loan principal so you can pay it off early. Both ways could help you save money on interest fees.
You could get a lower rate. A main goal of refinancing is to pay less in interest. You may qualify for a lower APR if your credit score or income improved since you first signed for your current auto loan. You can check your credit score here.
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Penfed Credit Union: Top Credit Union
Starting APR:1.79% for 2020 or newer vehicles, 2.39% for used vehicles or vehicles with over 7,501 milesLoan amounts:$500 to $100,000Loan terms: 36 to 84 months Availability:50 statesMinimum credit score:610
Based on our research, PenFed Credit Union tends to offer some of the lowest interest rates for refinancing auto loans in the industry. Its 1.79% starting APR for refinancing new vehicles is one of the lowest rates our team found.
However, the lender has a slightly higher minimum credit score requirement than some of its competitors, so you may not be eligible to refinance your auto loan with PenFed if you have a low credit score. While you need to be a member to get financing, anyone can join either through their job or by making a donation to an approved charity.
The 4 Best Companies To Refinance Your Auto Loan
If youre stuck with a bad rate on your current auto loan, you could be paying significantly more than you need to. Refinancing your auto loan can help you get a better rate and pay less for your car over time if your car is worth more than you owe or your credit score has improved or interest rates have dropped since you got your loan. Auto refinancing may not be the right option if your loan has prepayment penalties or you owe more than your car is worth.
In this review, we at the Home Media reviews team will take a close look at which lenders offer the best auto loan rates for refinancing. Our experts have researched the top lenders in the industry based on their rates, reputations, availability and customer experience to help you get started.
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Can You Refinance Your Auto Loan With Your Existing Lender
The rules for refinancing an existing loan with the same lender vary by financial institution. PenFed Credit Union, for example, does not allow refinancing for cars already financed with the credit union. Other lenders do allow borrowers to refinance an existing loan.
Keep in mind that it may not always be beneficial to refinance with the same lender. You might find a better deal by refinancing with another institution.
Shop For A Refi Lender
You should apply for an auto loan refinance with several different banks and lenders, including your current bank, online lenders and other local and national banks and credit unions. You can often leverage one banks offer with another bank to get a better rate.
When you apply for an auto loan refinance, it will show up immediately on your credit report and count as a hard inquiry. A hard inquiry can cause a five-point drop in your credit score, so every auto loan refinance request has consequences to your credit.
However, if you submit all the applications within 14 to 45 days of each other, those multiple applications will only count as one inquiry. If you wait too long, you may miss the shopping window. In that case, each application will be treated as separate hard inquiries, and will have a greater negative impact on your credit score.
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Should You Refinance For A Longer Or Shorter Term
In order to decide how to approach your refinancing, there are some key things to consider. A key aspect is the duration of the new loan. The term of the agreement dictates what it will cost you in the long run. Loans with a shorter term will cost more on a monthly basis, though will end sooner. This results in less interest payments over time.
Conversely, longer-term agreements have smaller monthly payments. However, that does not mean you will ultimately pay less. Long-term loans have more time to compound the interest. It results in your paying a significantly higher price for the vehicle than you would with a shorter term.
In order to understand how the term of the loan will play into your households larger financial picture, there are other details to consider.
Financial Situation
Consider your ability to make payments and how much you can afford. Weigh this against your willingness to pay out the loan faster, even if it means some frugality. Additionally, consider whether you will qualify for a better rate. If your credit is better than when you initially entered into the agreement, you should be fine to proceed.
New Loan Term
When you pay out a loan over a longer term, you are eventually spending more in interest. Depending on how well you are able to make your existing regular payments, it may be worth discharging the loan faster. Conversely, if youre struggling and dont have a long-term solution yet, refinancing is a reasonable option.
Monthly Payments
When To Consider Refinancing Your Auto Loan
While an auto loan refinance can save you money, its not the right fit for everybody. You should assess your needs to decide if its a good time to refinance your auto loan before you apply. For example, if your credit score has improved or interest rates have dropped, you may be able to secure more favorable terms than your original plan. If youre having trouble making your monthly payments, refinancing your auto loan can also be an opportunity to lower premiums to meet your budget.
If your credit score is lower than when you initially applied, or if interest rates are much higher, it usually doesnt make sense to apply for an auto loan refinance. You should only go through with an auto loan refinance if the rates and terms are better than your original loan.
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Look Into Multiple Types Of Financing
When you first borrowed money to buy a car, it may have been through dealer-arranged financing. However, many banks, credit unions and online lenders offer direct financing to car buyers and owners.
In general, its best to start with the financial institutions you already work with. In some cases, you may qualify for a loyalty discount based on your existing relationship with the bank or credit union.
Dont stop there, though, even if the terms are excellent. Take some time to compare that quote with rate offers from other banks and lenders. This process can take some time, but the more options you compare, the higher your chances will be of getting the best auto loan terms available to you.
Is Refinancing A Car Loan Worth It
Refinancing can save you money, either in the short term with a lower payment, in the long term with lower interest or both. You can refinance as many times and as often as you want, as long as a lender will do the refinancing. Pay attention, though, to any fees and total interest you would pay. Know how much refinancing will cost you, including the APR in a total dollar amount, to see if its worth doing.
The way to get your best deal and ensure youre paying the least to refinance is to shop around for your best offer.
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Check Your Credit Score
Do you remember what your was when you secured your original auto loan? If youve made smart money decisions since then paying down your credit card debt and making on-time payments, for example your credit score may have improved. Lenders will now view you as less of a risk and offer you better rates.
The bottom line: The better your credit score, the lower refinance rate youll receive from a lender.
