Your Credit Score Has Increased
Your credit score may have been lower when you took out your original car loan than what it is today. If youve earned a substantially higher credit score in the year or so after you took out your car loan, you may want refinance. Chances are youll be able to lock down a car loan with a much better interest rate.
Refinance Your Auto Loan With Psecu
If it seems like refinancing your auto loan is the right choice for you, consider joining PSECU. You can use our financial tools, like our financial calculators, to estimate your new payment. Our loan refinancing process is easy, with low rates and flexible terms to make car ownership even better.
The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.
You Got A Bad Deal On Your Current Loan
This can happen if you financed through a dealership without doing your due diligence. Dealership financing typically comes from banks, independent lenders and captive financial arms or those that are owned by the car manufacturer. But sometimes dealers dont quote those lenders best rates and instead quietly mark them up to pad their profits, says Daniel Blinn, managing attorney of the Connecticut-based Consumer Law Group. The best course is to avoid this in the first place by carefully comparing rates and negotiating a better rate or financing elsewhere. Consumers who have their financing in place before they visit a dealership will be in a much stronger position to negotiate the best possible deal, said Blinn.
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Interest Rates Are Going Down
If interest rates are dropping, you may be eligible for a lower interest rate than you were able to secure with your original car loan. In March 2020, the Federal Reserve cut rates in response to the coronavirus pandemic. So now may be a great time to refinance your car loan and save some more of your hard-earned cash.
Can I Refinance A Car If I Don’t Have Great Credit
Although it may be harder to get approved, refinancing a car loan with less than ideal credit isn’t impossible. Sometimes, it’s as easy as finding a creditworthy co-signer. Or, you may need to wait a bit while you build a higher credit score or show you have a better payment history to prove your eligibility. Asking your lender about your refinancing options will help ensure that you can get a competitive rate.
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How Long Before I Can Refinance My Car Loan
Question: How long before I can refinance my car loan? I am not happy with the interest rate or local bank the dealership used to finance my new car. My credit rating is ‘fair’, but I feel my rate is way too high. Prior I had refinanced my trade-in with a credit union that gave me a great interest rate and lowered my payment considerably. I asked the dealership to use this credit union, they stated that this credit union was in their network, but didn’t use them. How long do I have wait before I can refinance my new car with the credit union that gave me such a great interest rate? Thanks
Youre Looking To Change Your Monthly Payments
There was a change in your financial situation and your car payment is straining your budget. Refinancing at a lower interest rate for a longer term can lower your monthly payment and make it a bit more manageable. Keep in mind, as your vehicle decreases in value, you may owe more on the loan than the car is actually worth. Although it might be tempting to refinance for a longer term, even with a lower interest rate, you may be paying more in interest over the life of the loan. Do the math for an accurate picture. On the flip side, if youre income has increased, perhaps you can afford a higher payment. If you can find a lower interest rate and can refinance and shorten your term, even if your monthly payment increases, you will be saving in overall interest.
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How Difficult Is It To Refinance
Each lender has a variety of requirements. It can be difficult to sort through them all, but Credit Karma can help you narrow down some of the options.
One lender requirement youll want to be aware of is mileage.
LendingClub will refinance a personal vehicle with fewer than 120,000 miles. But for some lenders, lower mileage could mean better rates. Navy Federal Credit Union, for example, offers loans with rates as low as 1.79% as of May 2020, but only for vehicles that havent logged 7,500 miles or more.
Also, be aware that some lenders may not refinance loans for your vehicles make or model. For example, if you drive an Oldsmobile, Daewoo, Saab, Suzuki or Isuzu, you cant qualify for an auto refinance loan through Capital One.
You may also need to look outside your current lender for a loan. While some lenders, like Bank of America, will refinance an existing loan theyve given you, other lenders wont.
Does Refinancing An Auto Loan Hurt Credit
In a perfect world, youd refinance your car loan and keep your credit score where it is. The reality, however, is that refinancing can hurt your credit because lenders will assess your creditworthiness or how worthy you are to receive credit.
To do this, theyll likely pull a hard inquiry, which may bring your credit score down by up to five points. Lets dive deeper into how refinancing an auto loan may hurt your credit.
Refinancing A Car Loan During The Pandemic
Consider these five factors before moving forward with a refinance:
1. The interest rate on your loan. If the interest rate on your current car loan is higher than youd like, look around at different banks and credit unions to see what comparable lenders are charging. Getting a better interest rate is the main reason people refinance, as it means lower and more manageable monthly payments.
Even if you can only reduce your car payment by just a bit, that small amount might be worth the effort and up-front expense. For example, lowering your car payment by just $25 per month when you have three years left on your loan can result in $900 of overall savings.
2. The state of your credit scores. Your ability to secure a lower interest rate through refinancing depends on your credit history and credit scores. Therefore, you are in a good position to refinance if your credit has improved since you got your current auto loan. Refinancing can also help improve your credit scores if youre struggling to make your car payments on time and in full.
If your credit has not improved since getting your original auto loan, you probably will not benefit from refinancing as its unlikely that youll qualify for a better interest rate.
Additionally, its important to remember that a shorter loan term will mean that you increase the amount you pay each month, so make sure this additional expense is something youre prepared to cover in your monthly budget.
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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How To Lower My Mortgage Payment Without Refinancing
Category: Loans 1. Lower your mortgage payment without refinancing Feb 25, 2020 A mortgage recast lets you lower your monthly payment, without the large upfront cost of refinancing. Learn more about mortgage recast here. How to Lower Your Mortgage Payment without Refinancing · 1. Re-Amortize Your Mortgage · 2.
What Is Auto Loan Refinancing
When you refinance your auto loan, you replace your existing loan with a new loan. This strategy can help you save money on your monthly payments via a lower interest rate or longer term. Auto loan refinancing may also allow you to pay off your car loan faster so you can finally own your vehicle free and clear.
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Pros & Cons Of Refinancing Your Auto Loan
When buying a car, many buyers accept the loan package they are offered at the dealership. Though convenient at the time, you may later come to regret the conditions of your auto loan once youve started making payments. Refinancing your auto loan is one way to get better terms and potentially reduce your interest rate and monthly payments, helping you save more money. An auto loan refinance involves taking out a new loan to pay off the balance of your existing loan, and transferring the title to the new lender. While refinancing your auto loan can improve your overall finances, it may not always be the right choice for you. There are a few things to consider before applying for an auto loan refinance.
Love Your Car But Not Your Loan
If you bought a car recently, there was likely a lot to think about. Its possible you gave more attention to the details of the vehicle youd be driving rather than the loan you now have. If youre feeling iffy about your car loan and wondering if theres potential to lower your monthly loan payment, you might want to consider refinancing.
How an Auto Loan Refinance Works
Refinancing an auto loan means you take out a new loan to pay off the balance of the existing loan. For example, if you financed a car at a dealership at a higher interest rate than what your financial institution is offering, refinancing your car loan with a new loan at your financial institution could get you a lower interest rate and lower payments.
When Refinancing Makes Sense
Refinancing your car loan can save you money, but the circumstances need to be right. Here are a few scenarios in which refinancing might be worth considering:
Interest rates have dropped. If interest rates have gone down, its a great reason to refinance. If you can refinance at a lower rate, your monthly payment could decrease. By reducing your monthly payment obligation, you can choose to pay extra and apply more money to the principal. This can allow you to pay off your loan faster and still save on interest.
When Refinancing Might Not Make Sense
Your car is older or has high mileage. If your car is older than 7 years or has more than 90,000 to 125,000 miles, some lenders may not refinance your loan.
Know Your Goals
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How To Refinance A Car Loan In 6 Steps
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Whether your goal is to get a lower interest rate or a lower monthly payment or both an auto refinance loan could help. Before you decide to refinance your car, however, theres a lot to consider, including whether its the right move for you. To help you find out how to refinance a car loan, weve put together six steps you can follow to make your refinance a success.
Accept An Offer And Pay Off Your Old Loan
To accept an auto refinance offer, contact the lender and follow through with the paperwork. You wont have to do anything to decline other offers. Without an acceptance response, auto loan offers expire within 30 to 45 days.
Your new lender will pay off your old loan once youre approved and accept the offer, though the specifics of how this is done can vary. According to Nelson, some lenders, like LightStream, may send you a check or give you a direct deposit and allow you to pay off your old loan yourself. Other lenders will pay off the old loan on your behalf.
Either way, your previous lender will then transfer the vehicles title to your new lender, who will keep it on hand until youve paid off the loan in full.
If your old loan has a payment due soon, you may want to contact them to let them know that your entire loan will be paid off, so you can avoid being charged a late fee.
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Your Credit Has Improved
Has your credit score increased since you took out the loan? Have you consistently paid your debts on time? If so, you may qualify for a lower rate than you did when you first bought the carwhich means savings in your pocket.
You can check your credit report for free on an annual basis to monitor whether things are looking up.
You May Have To Pay A Penalty
Most car loans have prepayment penalties or other fees that youll incur if you pay off your loan early and to go to another lender. And that may determine whether its worth refinancing, says Ryan Mohr, owner of Clarity Capital Management, a Oregon-based fee-only planning and investment firm.
The only way to determine how all of these factors will affect your decision to refinance is to do your homework. No matter how new your loan is, periodically check refinancing offers, especially if interest rates are declining or your credit rating, income or other circumstances have changed.
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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.
The Best Reason To Refinance: Pay Less Interest
The ability to borrow at a lower interest rate is a primary reason to refinance a loan. That lower rate means you pay less for your car after taking all of your borrowing costs into account. Because the interest rate is also part of your monthly payment calculation, your required payment should also decrease. As a result, managing your monthly cash flow becomes an easier task.
When you can replace your existing loan at a lower rate, its best to refinance as early as possible. Most auto loans are amortizing loans, which means you pay a fixed monthly payment with interest costs built into the payment.
Over time, you pay down your debt, but you pay most of your interest costs at the beginning of the loanso get that rate down sooner than later to start cutting costs. An amortization table can show you exactly how much you can save by refinancing.
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How Does That Work
Thats because applications for new credit ding your credit score in two ways. And even a tiny change in your score could make a significant difference to the mortgage rate for which you qualify.
When youre borrowing big sums over many years, even a tiny increase in your mortgage rate can add many thousands to your total cost of borrowing.
The two knocks your score takes when you open a new account are:
1. New credit
Every time a lender checks your credit report to decide whether to lend to you , your credit score takes a small hit. The impact is relatively small and recedes in importance quite quickly. But its real.
Luckily, there are exceptions. When you rate shop for a mortgage or auto loan, all your applications count as one, provided you make them within a focused period. And you can check your own score and report as often as you want without penalty.
2. Length of credit history
The length of your credit history determines 15 percent of your FICO credit score. And part of that is based on the average age of all your open accounts.
When you open a new account, you lower that average age. Closing an old one has a similar effect.
So avoid applying for credit or opening or closing accounts in the months leading up to your mortgage application.
You can see how the additions stack up by looking at Fannie Maes Loan Level Pricing Adjustment matrix below.