Look For Credit Score Indicators
Many lenders will share a credit score range or minimum credit score in their FAQs or elsewhere on their site. If youre in the subprime or poor credit category, loan options that are clearly marked bad credit or subprime will be easier to obtainjust watch out for higher than average interest rates and fees.
Your Credit Score Has Improved
Even within the first 12 months or so, your credit score may have improved enough to make you eligible for a significantly lower rate. Perhaps you corrected a mistake on your credit report or paid off most of your outstanding debt. Maybe youve demonstrated that youre responsible by paying all of your bills on time, or youve had a big increase in income. Whatever the reason, an improved credit score can make getting a better loan deal far easier.
When Refinancing Might Be A Bad Idea
While refinancing your car loan can have a positive impact on your finances, there are some pitfalls to watch out for.
- Your loan has a prepayment penalty. A prepayment penalty can kick in if you pay off your loan in full before it’s due. While this fee isn’t too common among major car lenders, it does exist. If your loan documents show a prepayment penalty, refinancing likely won’t make sense if the savings you get from the loan switch don’t exceed the cost of the penalty.
- You want to extend the loan term. While this strategy can be helpful if the alternative is defaulting on the loan and losing your car, it’s generally not a good idea if you can afford the payments you currently have. That’s because if you replace your current loan with one that has a longer repayment term, you will pay more in interest over the life of the new loanunless you can manage to pay it off early.
- You owe more than it’s worth. If you’re underwater on your car loanmeaning you owe more than the value of the vehiclerefinancing is still possible but not always a great idea. This is primarily because your original lender will require you to pay the difference as a lump sum before considering the matter closed. If you don’t have enough cash lying around, you’ll have a difficult time making it work.
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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.
You Financed Your Current Auto Loan Through A Dealership
Dealerships may not offer you the best rates available. If you took out your loan through a dealer especially without negotiating the interest rate refinancing could potentially save you thousands of dollars over the remaining life of the loan.
If youre shopping around for the best interest rate, consider checking out auto refinance rates at a financial institution where you already do business. For many bank members, this could mean accessing special discounts.
For example, Chase offers a 0.25% interest-rate discount if youre a Chase Private Client. And Bank of America Preferred Rewards customers may qualify for a rate discount of up to 0.50%.
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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.
Choose The Right Time Of The Month
Dealerships have quotas not only for the year, but also for the month. If they are not close to meeting their goals, they may offer better pricing or incentives if you shop towards the end of the month.
That said, the very last day of the month may not be the best time, but rather a few days before the month’s end. Each dealership has its own time frame for quotas, and they may not sync perfectly with the calendar month.
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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 My Car Loan Qualify For A Refinance
Auto lenders have rules on which cars are eligible for an auto loan refinance. Most lenders wont refinance a loan for a car with more than 100,000 miles or with a salvage title.
The lender will also assess the cars value before approving a refinance request. If the value is too low, you wont qualify. The lender will calculate the cars loan-to-value ratio, which generally needs to be below 125% to qualify.
Before you apply to refinance your car loan, determine the LTV ratio. To find the cars current value, use sites like Kelley Blue Book, Edmunds and NADAguides. Take the average from all three sites to find a general estimate.
Calculating the LTV is simple. Divide the current loan balance by the cars value: the resulting percentage is the LTV. For example, lets say you have a $9,000 balance on a car worth $11,000. In this case, your LTV ratio would be 82%.
But if the current balance is $15,000 and the car is only worth $10,000, your LTV would be 150%. This is much higher than what most lenders allow, so refinancing is likely impossible.
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Things To Consider Before Refinancing
Proven Ways To Pay Off Your Car Loan Faster
Your monthly car payment doesnt have to hold you back.
Pretty much everyone these days has a car loan. If you glance around your company parking lot or notice the cars you pass on the street, chances are youre looking at vehicles that have yet to be paid off.
According to research from Experian, about 55% of used cars are financed and 85% of new vehicles have a loan on them. Experian also found that outstanding auto loan debt rose by 6.5% in 2019 compared to the first quarter of 2018.
If youre currently paying off a car loan, heres how you can do it faster and how that can save you money in surprising ways.
2021 Auto Refinance Rates
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Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
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.
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How Often Can I Refinance My Car Loan
There is no set amount of times you can legally refinance your car. However, each lender may have its own rules. For example, you may not be able to refinance multiple times with the same lender or broker.
If a lender notices that youve refinanced multiple times, they may even disqualify you from a loan. After all, theyre in business to make money and taking on a borrower who has a track record of refinancing often may not benefit them.
How Soon Can You Refinance A Mortgage
How soon you can refinance depends on the type of mortgage loan you currently have and which refinance program youre planning to use.
- Conventional refinance No waiting period
- Cash-out refinance 6-month waiting period
- FHA or VA Streamline Refinance 210-day waiting period
- USDA refinance 6-12 month waiting period
Heres a closer look at the rules for each type of refinance loan.
Conventional loan refinance rules
If you have a conventional mortgage one backed by Fannie Mae or Freddie Mac you might be able to refinance immediately after closing your home purchase or a previous refi.
Keep in mind many lenders have a six-month seasoning period before a current borrower can refinance with the same company. So youll likely have to wait if you want to refinance with the lender youre already using.
You can get around that six-month rule by simply shopping around and refinancing with a different lender.
But you can get around that six-month rule by simply shopping around and refinancing with a different lender.
While its rare, some lenders charge a prepayment penalty fee that could derail your refinance plans. Check to see if your current loan has a prepayment penalty clause before moving forward.
Its recommended that you shop around before refinancing, in any case, to make sure youre getting the lowest rate possible.
Cash-out refinance rules
Government loan refinance rules
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Mistakes To Avoid When You Refinance Your Auto Loan
When you take out a loan to finance the purchase of a new or used car, you dont have to be stuck with that loan until the end. If you refinance your original loan with a new lender, you could end up saving money by getting a lower interest rate and monthly payment. But as with any financial decision, its best to take time to consider whether or not refinancing makes sense for your individual circumstances. If it seems right for you, make sure you avoid these common mistakes when it comes to refinancing so you can maximize your savings.
What To Know About Paying Off Your Car Loan Early
Paying off a car loan early can be harder than it sounds. Lenders may charge a prepayment penalty, which is a fee for paying off the loan ahead of time. This fee varies for each specific loan and is set by the lender. In some cases, the prepayment penalty may be the total interest remaining on the loan.
Theres no way to get rid of the prepayment penalty once the loan is in effect its part of your contract. Even if you refinance the car, youll still have to pay the prepayment penalty. This is why its important to make sure your lender doesnt charge you a prepayment penalty when you sign up for the auto loan. Youll typically see this in subprime auto loans.
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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.
Consider Refinancing Your Current Car Loan
If your car loan came with a high interest rate or other monthly fees, refinancing your auto loan could provide you with better terms and a lower payment if your credit score has increased since you applied for the loan .
As you look at options for refinancing, keep in mind that your goal is to pay off the loan quickly. Refinancing with a new 72-month loan is still a relatively long time 72 months is six years, more than half a decade. Instead, youll want to look at a shorter term say 60 or fewer months and a lower interest rate, if possible. If you do refinance for a long-term loan, consider paying extra toward the principal every month to pay off the loan more quickly.
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No Need To Worry About Refinancing Too Soon
Refinancing is worth it if you discover that you can save monthly or over the life of the loan.
Most mortgage shoppers arent at risk of refinancing too soon and can apply even shortly after their previous loan closes.
Check your refinance savings and dont miss out on lower housing costs.
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