Wait Until You Understand How To Refinance A Car Loan
Refinancing your auto loan means that you apply for a new loan. When you refinance, your loan essentially starts over. Your new loan will come with new loan terms, including a new interest rate and loan repayment term.
Before you can refinance your auto loan, youll need to collect all of the necessary paperwork. This can include your:
- Drivers license
- Car registration
- Proof of insurance
- Proof of income
- Proof of residence
- Cars information
If your credit score is in the low 600s or lower, or if you have missed payments or have other issues with your credit history, you may need to provide credit card or other loan statements to show that youre able to pay your bills.
Wait To See What It Will Cost You
Most of the time, an auto refinance loan doesnt come with closing costs like origination fees or processing fees. You may need to pay a title fee, but that usually doesnt cost more than $100.
However, your existing loan may include a prepayment penalty. Prepayment charges can vary from a fixed fee to paying off all of the remaining interest on the loan. Check and see if your loan comes with a prepayment penalty. If it does, make sure the fee doesnt cancel out what youd save by refinancing.
Pros And Cons Of Refinancing A Car Loan
Now that you know the potential savings, let’s hit the brakes and look at the advantages and disadvantages of refinancing your car loan.
|Pros of Refinancing|
|You have the opportunity to lower your interest rate and monthly payment||Your refinanced loan could have a higher interest rate than your original loan|
|Lowering your monthly payments could increase your cash flow||Some lenders may issue a prepayment penalty for paying off your original loan early|
|You could save money on interest if you shorten your loan term||You could pay more over time if you extend your loan term|
Those are some of the basic pros and cons of refinancing a car loan. But one area that could be a pro or a con is your credit score.
Read Also: Mountain America Mortgage Rates
Shop Around For A Lender
Shopping around is important if you want to find the lowest rate and best terms. You also need to make sure you meet your lenders qualification guidelines. Use our guide to the best auto loan refinance lenders to get started, and see what rates are available with each lender you consider. Make sure you look for lenders that prequalify using a soft credit pull, so it doesnt impact your score.
How Soon Should I Ask To Refinance My Car Loan With Bad Credit
And it cant hurt to buy: Based on the credit report template, any car loan application submitted within a specified period of 14 to 45 days is considered an application. Next Steps Automatic loan refinancing can help you access new payment methods that better suit your needs.
Recommended Reading: Usaa Auto Loans Review
Read Also: Loan License In California
Loan Terms: How Long Should I Finance A Car
Its not just about the rates how long it takes to pay back your car loan matters too.
In the first quarter of 2020, the average loan amount for a new vehicle was almost $34,000 and $21,000 for a used one. During that same period, 85% of new vehicles and 39% of used vehicles were financed, according to a Experian report.
While many of us focus on getting the lowest interest rate or lowest monthly payment, equally important is choosing the right loan term for our car loans and refinance loans. After all, your loan term impacts how much youll pay over the life of the loan.
Lets break down car loan terms and how to pick the one that best fits your financial situation.
2021 Auto Refinance Rates
Read Also: How To Get Loan Originator License
Best Online Refinance Loan: Lightstream
- Minimum credit score: Not stated
- Loan terms : 36 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.
- : As low as 2.49% with autopay
- Minimum loan amount: $5,000
- Repayment terms: 36 to 84 months
- Recommended credit score: Not disclosed
- Availability: All 50 states
LightStream, the online lending arm of SunTrust Bank, offers a completely online lending process. Borrowers can receive a direct deposit as soon as the same day. For those with excellent credit, LightStream offers some of the most competitive refinance rates available with a wide range of loan terms. There are also no major restrictions on the type of vehicle you can refinance.
Keep in mind that LightStream may do a hard pull on your credit right away when applying. Some lenders will let you see rates and details with just a soft pull. However, you can’t escape getting a hard pull if you want a loan, so it’s not a big difference.
You May Like: Should I Do Fixed Or Variable Student Loan
Interest Rates Have Dropped Since You Took Out Your Original Auto Loan
Interest rates change regularly, so theres a possibility that rates have fallen since you took out your original auto loan. Even a drop of 2 or 3 percentage points may result in significant savings over the life of your loan.
Lets say your original auto loan was for $25,000,with a 7% interest rate and loan term of 60 months. If you keep this loan,youll end up paying a total of $29,702 on the loan. After a year of paymentson this loan, your balance is now $21,000. If you were to refinance and get aloan for $21,000 for the remaining 48 months with a lower interest rate of 5%,youd end up paying a total of $23,214 on your refinance loan. Combined withthe $4,000 you paid on the previous loan, youd have paid a total of $27,214 tofinance your car $2,488 less than if you had kept your original loan.
Determining If Your Vehicle Has Equity
To figure out if your vehicle might have equity, start by contacting your lender and requesting a 10-day payoff. The total includes the current loan balance plus 10 days of additional interest charges.
Once you have the payoff, you can get an estimate of your cars value by using online valuation services such as Kelly Blue Book or NADAguides. These sites only provide a quick estimate of your vehicles value, but theyre a good starting point.
Then, compare the estimated values to the payoff amount. If you owe less on the auto loan than what the car is worth, congratulations, because you may have equity and might be able to do a cash-out refinance if you find the right lender.
However, if you owe more on the vehicle than its current value, youre in a negative equity position, also known as being underwater on your auto loan. You cant do a cash-out refinance, or refinance at all, if you have negative equity.
You can solve this problem by continuing to make payments and waiting things out until your cars actual cash value is more than, or equal to, the loan balance.
Don’t Miss: 1-800-689-1789
Covid + Credit: Refinancing A Car Loan During The Pandemic
Reading time: 3 minutes
The Coronavirus/Covid-19 pandemic has resulted in immense financial strain across the country and left many industries looking for ways to provide relief to consumers while still encouraging necessary sales. For those Americans who remain relatively financially stable, now may be a good time to refinance an existing car loan to secure a new, more manageable interest rate.
The refinancing process involves getting a new secured loan with a lower interest rate to pay off your existing car loan. Refinancing could potentially save you money and result in a better deal than the one you got on your original loan. Many lenders are offering consumers great refinancing options with extremely low even zero percent interest rates in an effort to attract business.
Before you rush off to refinance, though, be sure to consider the following key factors to ensure that its the right decision for you. And remember: If you have recently become unemployed or experienced a similar reduction in income, you may have a challenging time refinancing your car loan. Because refinancing often involves an up-front cost to save you money in the long run, its generally better to consider refinancing your loan only if you are otherwise financially stable.
Disadvantages Of Refinancing A Car
You might pay refinancing feesAuto refinancing can include a variety of costs, including application, origination and title transfer fees. However, not all lenders charge the same fees and some may not charge any at all. When comparing refinancing options, read the fine print and factor in all associated fees. Paying too much to refinance your car loan could cost more in the end than staying put in your current loan.
You could pay more overall interest over the life of the loanIts true that getting a lower interest rate can save you money. But if you extend the term of the loan, you might pay more interest over the life of the loan. For example: If you currently have a $10,000 loan with a 20% interest rate over a 36-month term, youll pay $3,378.89 in total interest. If you refinance that same $10,000 at a 15% interest rate for 60 months, youll pay $4,273.96. Thats almost $900 more.
However, paying extra interest over time may be worth the convenience of lower monthly payments. It all depends on what makes sense for your financial situation.
Recommended Reading: Fha Refinance Rate
How Soon Can You Refinance A Car
You’ve purchased the new car of your dreams, but the payment you’ve agreed has you scratching your head, wondering what you were thinking when you signed those loan docs. Don’t worry. You can refinance your car loan as soon as you’d like after purchase, assuming you meet the requirements of the new lender and the new loan.
In fact, you’re not locked into your current payment arrangement you can opt for different financing before you even make a payment to your current lender on your current loan, although you may need to wait long enough to get your DMV documents such as the title and registration. And you definitely need to ask yourself if auto refinance makes sense.
Your Current Loan Has Prepayment Penalties
Paying your loan off early is one of the best ways to reduce how much you pay in interest unless your loan comes with prepayment penalties. Financial institutions sometimes attach these penalties to loans to make up for the interest they lose when borrowers repay their debts in full before their loan terms end. Prepayment penalties can easily cost as much as or more than youd save when you refinance your auto loan.
Don’t Miss: Do Lenders Verify Bank Statements
Should You Refinance Your Car
Whether you should refinance your car loan depends on your situation.
Here’s when it’s beneficial to refinance your auto loan:
- If interest rates have dropped. Refinancing into a lower rate can reduce the overall interest costs on your loan.
- If you want to lower your monthly payments. Getting a new loan can help you free up cash for bills and other costs.
- Your credit has improved since you purchased the vehicle. If your credit score has jumped up since you first purchased your vehicle, you might be able to get a better loan.
Here’s when it’s not beneficial to refinance your auto loan:
- If you’re going into negative equity. You don’t want to owe more on the car than it’s worth. If refinancing will put you upside-down on your car loan, consider other options.
- Extending the loan term. Lengthening the term of your car loan typically will cause you to pay more interest over the life of the loan and more for your car. Though longer terms can lower your monthly payment, long-term loans are generally more expensive.
Refinancing your auto loan can help you decrease your payments and the amount of interest you pay over the life of the loan. But whether you should refinance depends on your situation. If you decide that refinancing is the right move for you, seek out a lender and loan terms that meet your needs and help improve your overall financial picture.
What Is Car Loan Refinancing
Auto refinancing is the process of replacing your current loan with a new one. This second loan often, but not always, comes from a different lender. Refinancing is usually done in the hopes of lowering one’s monthly payment or interest rate.Whether or not you’re successful depends on a myriad of factors, including your credit score and payment history.
Recommended Reading: Maximum Fha Loan Amount In Texas
When To Refinance Your Car: A Decision
5-minute readMarch 23, 2022
If youre in the process of paying off the auto loan you took out to purchase your car, you might be wondering if its possible for you to refinance that loan. More importantly, you may find yourself asking, Should I refinance my car?
The great allures of an auto refinance include more manageable monthly payments, lower overall interest costs and even changing your loan term. That said, the cost of the new loan may be more money than its worth.
We broke down a complicated financial decision into a simple screening process for yourself.
Youre Underwater On Your Loan
Finding a lender to refinance a vehicle when youre upside down on your loan isnt easy. Even if you can find a lender, it may not be the best move. The interest rate is likely to be much higher than average, and it will cost you more in the long run.
When you refinance your upside-down vehicle, you add to the overall cost of the vehicle. One way around this is to pay the difference in cash so youre no longer upside down, then you can refinance at a lower rate. Even if it takes you a few months of making a few extra payments, it may be worth it in the long run. Alternatively, you could also take out other financing, like a personal loan or home equity loan, to help you cover the full cost of refinancing.
You May Like: Usaa Home Loan Credit Score Requirements
How Much Should You Put Down On A $12000 Car
A typical down payment is usually between 10% and 20% of the total price. On a $12,000 car loan, that would be between $1,200 and $2,400. When it comes to the down payment, the more you put down, the better off you will be in the long run because this reduces the amount you will pay for the car in the end.
When Can You Refinance A Car Loan
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list ofour partnersandhere’s how we make money.
If you recently bought a car, you may wonder when you can refinance your car loan to reduce the interest rate or lower the payment.
Strictly speaking, you can refinance your auto loan as soon as you find a lender that will approve the new loan. That may be a challenge since most lenders wont refinance until the original car loan has been open for at least two to three months.
Delayed lender approval can be an obstacle to refinancing your car loan, but there are potential benefits to waiting.
Recommended Reading: Refinance Usaa Auto Loan
How To Refinance Your Car
Here are 8 simple steps for how to refinance your car loan in Canada.
Step 1: Review your current car loan.
Check your loan statement or log in to your account to find the following information:
- Monthly repayment
- Prepayment penalty, if any
- Lenders customer service number
While youre reviewing your loan documents, weigh any fees youll be charged for paying off your loan early against potential savings from refinancing an auto loan to make sure its worth it.
Step 2: Check the value of your car.
Your cars current value will determine how much you need to borrow and if refinancing your auto loan is a viable option. To get an idea of how much your car may be worth, visit sites the Canadian Black Book or Autotrader.ca. Your vehicles make, model, mileage and condition, as well as where you live will all impact its overall value.
If your car is worth less than the amount you want to borrow, you could end up paying much more for your car than its worth. Instead, you might want to consider selling it privately or trading it in at a dealership for a less-expensive alternative.
Step 3: Check your credit and eligibility.
Factors like your credit score, debt-to-income ratio, current loan amount and vehicle will all play a role in whether your application to refinance your car loan is approved.
Step 4: Compare your car loan refinancing options.