How To Refinance A Car Loan: 6 Steps
If you secured your original auto loan through the dealership, you may not have received the most favorable interest rate. And falling rates might make your current rate seem like even more of a bad deal.
Heres a step-by-step guide to evaluate your current loan and submit an application to refinance your car.
Look At Refinance Rates
Refinancing could help you get a lower auto loan APR. The less you pay in interest, the faster you can pay off the negative equity. A shorter loan term can help you qualify for a lower rate and cause you to pay off the loan even more quickly, speeding up the time to get right-side up again on your car loan.
If Youre Struggling To Make Your Auto Loan Payments Or Want To Take Advantage Of Lower Interest Rates You Might Want To Consider Refinancing A Car Loan Even If You Have Bad Credit
Although there are no guarantees, you may be able to refinance your car loan with bad credit. Whether you want to refinance to lower your interest rate, reduce your loan payments or get a loan with better terms, some lenders focus on auto loan refinancing for people who have bad credit.
Here are some steps to consider if you want to refinance.
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Lower Your Monthly Payment
Sometimes, an expensive occurrence such as having a baby, unexpected medical bills, or a natural disaster can put you in a situation where you have to reduce your monthly expenses. Refinancing might allow you to extend the duration of your loan, thereby lowering your monthly payments. For instance, if you owe two more years on your current loan, it may be possible to refinance and extend the term to four years.
Adding two years onto your loan should substantially lower your monthly payment, depending on the interest rate you get. You will be paying for two years more, but you will free up some cash on a monthly basis, helping you get through a rough patch. Keep in mind, though, that this will also mean that you’ll pay more interest over the total life of the loan.
Changing lenders can be a pro or a con, depending on the relationship you have with your current lender. If your lender has poor customer service, changing lenders could be a benefit. If you like your lender, you can try to refinance with them, but you may need to look elsewhere to get the best rate.
You May Not Qualify For A Top Rate
If it has only been a short time since you got your initial loan, your credit score still may be suffering from the temporary hit as a result of a hard inquiry to your credit report, especially if youve also applied for other types of credit, such as a mortgage or one or more credit cards. However, just shopping for car loans should have a minimal effect on your score, reducing it by fewer than five points for about 12 months, says Dave Shellenberger, vice president of scores and predictive analytics at FICO. Your refinancing rate also may be affected if youve missed or were late on your loan payments, or if you havent had the loan long enough to demonstrate that youll consistently pay on time, especially if you dont have a long credit history.
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But Dont Wait Too Long
If you wait too long, you may lose out on any of the benefits of refinancing. To see a benefit, youll want to have at least 2 years left on your current loan.
Also, different lenders have different refinancing requirements. In addition to your credit score and payment history, lenders will look at the size of your loan balance and the age or mileage on the car.
If you hold on to your car too long, your lender may decide that the cars condition or the size of the loan makes it ineligible for refinancing.
Figure Out Your Current Loan
Start by determining the rate on your existing loan and finding out how much you still owe. Its also wise to get your current so youll have some idea about whether youd qualify for lenders advertised top rates. Dont forget to check for special deals. and to find. And remember that if you have a late-model vehicle, you may be eligible to refinance at a lenders new car rate, instead of higher used car or general refinancing rates. So check that, too.
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Best Online Refinance Loan: Lightstream
- Minimum credit score: Not stated
- Loan terms : 24 to 84 months
If youre looking to apply to refinance an auto loan online, LightStream is a great option. With low rates that reward borrowers with good credit, LightStream also features a fast online application and same-day funding.
0.5% discount with auto pay
No restrictions on make, model, or mileage
Online application only
LightStream offers competitive rates, a wide range of refinance options, and an entirely online process for refinancing. It also gets strong customer service ratings, receiving a top score in the J.D. Power 2020 Customer Lending Satisfaction Study.
Cons Of Refinancing An Auto Loan
- Paying more in interest: If you extend the term of your loan, you will end up paying more interest over the life of the loan. Use our auto loan calculators to help you determine if you will end up saving enough money overall for refinancing to be a good choice.
- Paying a higher rate: Freeing up cash fast may sometimes be the only reason for pursuing a refinance. But be careful of higher interest rates. Many lenders charge higher rates on older vehicles, starting anywhere from 5-10 years old. If your car is older, you may be surprised the interest rate you qualify for now compared to when you first financed the vehicle.
Its important to consider all of your options and do your research before deciding you are ready to refinance. Shop around for interest rates so you can be sure you are getting a good deal that will help you save money. Also consider the length of the loan, and try keep it as short as you are able to with your budget. Try to find the shortest loan term combined with the lowest interest rate to ensure you are getting the best deal possible on your auto loan refinance.
Refinance and save with Robins Financial to drive home your savings. To find out how much you could save, give us a call or request an appointment at any of our branches. If youre ready to refinance, apply online today.
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When Should I Refinance My Car Loan
The best time to refinance your car loan is when it can save you money in the long term, but it may also help if youre hoping to catch a break on your monthly payments. Here are a few situations where it may make sense to refinance:
- Refinance car loan rates have gone down: Most car loan interest rates fluctuate based on the prime rate and other considerations. If you purchased your car a while ago, its possible that car loan rates have decreased since then.
- Youve improved your credit score: Even if market rates havent changed, improving your credit score may be enough to get a lower rate. The better your credit, the more favorable loan terms youll receive. If youve improved your credit score since signing for your initial loan, you may qualify for better loan terms.
- You got your initial loan from the dealer: Dealers tend to charge higher rates than banks and credit unions. If you took out your initial loan through dealer-arranged financing, refinancing directly with a lender could get you a lower rate.
- You need lower monthly payments: In some cases, refinancing a car loan may be your ticket to a more affordable payment, with or without a lower interest rate. If your budget is tight and you need to reduce your car payment, you could refinance your loan to a longer term . Keep in mind, though, that while you will pay less per month with this strategy, you can expect to pay more over the life of the longer loan.
Is It Possible To Get A Loan With A Bad Credit
Bad loans are help options for consumers with very low or no credit that limit their ability to borrow or prevent them from approving a loan. In order to get loans with bad credit, it is advisable to first think about how to increase your score. Your creditworthiness will determine what type of loan, if any, you can get.
Where Is The Best Place To Refinance Your Auto Loan
A lot of us, when were younger, dont really know exactly what to look for when financing a vehicle. Maybe its the path of least resistance to take out a loan at the dealership, or from the cookie cutter megabank where you already have a savings and checking account. Now that youre ready to refinance, and youve done your homework, you are probably realizing that its time to fly the coop and refinance your auto loan with a financial institution that will give you a better rate, better terms, and better service.
So, what are your options?
There are of course the megabanks. The huge, national chain banks all offer auto loans, though their rates usually arent great, and their customer service is about what youd expect from massively bureaucratic, multinational corporations. Megabanks have branches and ATMs all over the place, which is convenient. But they deal in volume, which means you’re treated more like a number than a person. A lot of times you’ll be directed to a 1-800 number thats answered on the other side of the Pacific.
Kasasa® partners with such community financial institutions around the country to offer a technically sophisticated, easy-to-use auto refinancing loan that helps smaller community financial institutions, the bedrock of local communities nationwide, to hold their ground against the big corporate banks, who are trying to gobble them up.
Shop Around For The Best Refinancing Rates
Interest rates vary widely, so compare deals at a number of banks and credit unions.
Start with the bank you use for other services, such as your checking and saving account. Some financial institutions offer discounts on interest rates for existing customers.
Additionally, compare auto loan rates online to get a clearer view of what top lenders are offering.
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You Already Have The Best Rate
If you purchased your car new, you likely got an attractive new car rate, especially if you took advantage of a special interest offer, which can feature rates as low as 0%. The refinancing rates for some lenders, among them Bank of America, are higher than even their used-car rates, even if your vehicle isnt even a year old. Also, interest rates have been fairly low in recent years, and while a rate drop may be on the horizon, that alone may not be enough to justify a refinancing if your goal is to save a significant amount of money.
When You Shouldnt Refinance Your Car Loan
If youre in the middle of shopping for a personal loan, mortgage or other financing option, now is not the right time to refinance your auto loan. Applying for a loan would hurt your credit score and possibly cause you to receive a higher interest rate on any loan offers.
If your current auto loan has a prepayment penalty, then refinancing could incur that penalty. Depending on the penalty and your current interest rate, it may not be worth refinancing. If youre not sure whether your loan has a prepayment penalty, look up the loan contract or call the lender and ask them. Some prepayment penalties only apply if you recently took out the loan, so its best to verify over the phone or through documentation.
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Getting A Better Deal
The requirements to refinance vary based on why you want to do it. If interest rates have dropped since you originally financed your car and you want to take advantage of the new rates, you’ll need to apply for credit as though you were starting from scratch. The first thing to do is to fill out Ford’s online credit application and enter all of your current information. Next you’ll need to provide proof of income and expenses as well as undergoing a credit check.
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You’ll take the same approach to apply if your personal credit rating has improved and you feel that you can qualify for a better interest rate than you originally got. The difference between a high interest rate and a much lower one could save you hundreds of dollars or more annually, depending on the size of your loan.
If your online application is approved, you’ll get a certificate that you then take to a local dealership to complete the process. If the online application is not approved, it doesn’t necessarily mean that you have been turned down, but rather that you need to go to a dealership and talk in person with a financial advisor about refinancing. You’ll then need to pay some fees to complete the process, which vary depending on your circumstances.
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 it was 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 those of your original loan.
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Things To Watch Out For When Refinancing A Car Loan
Just like with any financial arrangement, it is important to keep your eyes out for red flags. Ensure that the lending agency is reputable and offers a reasonable interest rate. Make sure that you are dealing with a proven institution and be sure to read all the fine print. If you are unsure as to the meaning of a phrase, it is better to ask.
Take a look at the cost of refinancing the vehicle. Are there any upfront expenses? Are you going to be paying more down the line? If so, how much more? Make sure that you have all of the information above before making your decision. As always, avoid deals that seem too good to be true. Understand your rights and the responsibilities of the lender. Be certain that you are comfortable with the arrangement and that it is in your best financial interests.
What Else Is Required
Each bank has specific auto refinancing requirements, so be sure to ask about the details and factors they consider. For example, if you have $7,500 or more remaining on your car loan and the car is less than 10 years old with fewer than 125,000 miles on it, you may be eligible to refinance under certain auto loan offers. Many banks have links to auto loan calculators on their web site that can show you whether refinancing can save you money.
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You May Know About The Benefits Of Refinancing A Mortgage But Did You Know That You Can Also Refinance An Auto Loan To Lower Your Interest Rate And Potentially Reduce Your Monthly Payment Thomas Lazenby Senior Vice President Of Regions Bank Dealer Financial Services Suggests Asking These Questions Before Your Refinance An Auto Loan
1. Under what circumstances might you consider refinancing an auto loan?
- You werent offered the lowest interest rate on your original vehicle purchase
- Interest rates have dropped since your original loan date
- Your or financial health has improved since you first applied for an auto loan
- You currently lease your vehicle, and you want to purchase it
2. What factors could make it difficult to refinance an auto loan?
- If your credit score has declined, you may not be able to lower your rate
- If your vehicle valuation is less than the amount you owe, you may not be able to lower your rate
- If you have a history of delinquent payments, you may not receive loan approval
3. What should you consider before refinancing an auto loan?
- Increasing the term of the loan may change the total costs overall
- Some existing loans may include a pre-payment penalty or early-termination fees
- Refinancing your auto loan may change or void any warranties, service contracts, or other related products that may not be covered under a new loan
4. What steps should you take to start the process?
- Collect all your original loan documents
- Check your credit history
- If youre changing lenders, call you current lender to find out the payoff amount
- Use a loan calculator to determine the interest rate and term you will need to save money on interest
If you think you may benefit from auto financing, talk to your lender about your options.
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