Determine If A Refinance Makes Sense
It only makes sense to refinance your car loan if youll save money either on your monthly payment and/or interest over the life of the loan. To figure this out, use our auto refinance calculator below. Youll need to enter your current loan amount and terms alongside the new terms for the calculator to compare.
As you look at how much you could save, know that you would have to subtract any prepayment penalty fees. Contact your lender to find out if your current loan has any prepayment penalties and how much it could cost you.
Beware that if you choose to extend your auto financing term, you may pay more overall in interest. To find out what interest rate you could expect, read below to see average auto refinance rates based on credit score.
Are You Unhappy With Your Current Auto Loan Maybe Its Time To Consider Refinancing
The principle behind auto loan refinancing is simple: You take on a new loan to pay off the balance on your existing auto loan. If youre struggling with a high interest rate or an unaffordable monthly payment, refinancing could be the key to finding better, more favorable terms.
Refinancing your auto loan could help lower your monthly payments by lengthening the term of your repayment. Or it could help you save money through a lower interest rate.
Your expected monthly payment would go down to $364, and youd pay a total of $1,830 in interest.
In this case, refinancing your auto loan would save you $23 per month and a whopping $1,366 over the remaining life of the loan.
Use The Auto Refinance Calculator To Find Potential Savings
Bankrates auto refinance calculator can help you determine how much money a new rate would save you on interest, monthly payments, or even both. To use it, input the details of your current loan: your monthly payment, remaining balance, interest rate, and the remaining loan term.
Next, play around with the interest rate and term for your new loan until the estimated savings or monthly payment are in your favor. Once you have an idea of what term and interest rate will make refinancing worth your while, its time to get prequalified. See current offers from Bankrate lending partners to compare different rates and terms on auto loans.
Also Check: What Is The Maximum Fha Loan Amount In Texas
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.
Why Refinance My Auto Loan
Depending on the details of your original loan, refinancing can save money on interest, reduce your monthly payment, or both. Here are the situations where it makes sense to consider applying for an auto refinance:
- If your car dealer financed your loan. Dealers often add a few points as a commission. So if your original loan was financed by your car dealers preferred lenders, theres a good chance you didnt score the best rate possible.
- If your credit score has improved. A difference of just 30 points on your credit score can make a huge impact on your rate. If your score has improved since your original auto loan, theres a chance youll save money with a refinance.
- You need a lower monthly payment. Refinancing for a longer loan term can reduce your monthly rate.
Read Also: Can You Buy A Mobile Home With A Va Loan
Pay Off Your Old Loan And Start Making New Monthly Payments
Depending on your lender, much of the transition from your old loan to your new one can be taken care of by the lender. For example, your new lender might pay off your old loan. But be sure to reach out to your previous lender to get confirmation that its been paid in full before you stop making payments on that loan.
Once your original loan is paid off, you can focus on making on-time payments on your new loan each month, which may help boost your credit.
When Should You Not Refinance
It doesnt make sense to refinance if you cant afford the closing costs. A Longer Break-Even Period. One of the first reasons to avoid refinancing is that it takes too much time for you to recoup the new loans closing costs. Higher Long-Term Costs. Adjustable-Rate vs. Unaffordable Closing Costs.
Read Also: What Is The Maximum Fha Loan Amount In Texas
When Should I Refinance My Auto Loan
Consider refinancing if Refinancing your auto loan can help bring down your monthly costs or reduce your interest rate. Be sure to crunch the numbers
Jul 14, 2021 Refinancing a car loan could help you save money in the long run. Give it extra-serious thought if your financial situation has improved or
Example: Cut Your Interest Payments By $29000 With A Refi
Your previous home buying or refinance process wasnt easy. There was a lot of red tape involved, and the closing costs were expensive. So why would you want to repeat all those steps again?
There are plenty of good reasons.
First, you may be able to save a lot of money. In 2020 and 2021, mortgage rates reached their lowest levels in history meaning thousands of dollars in savings for many. Current rates are still at historic lows.
Say you recently closed on a $250,000 mortgage for 30 years at a 4.5% fixed rate.
Assume you now have the opportunity to refinance at 3.75%, resetting the 30 years.
Youll save close to $100 a month on your monthly mortgage payments. Add that up over 30 years, and you will have paid almost $29,000 less in interest. And the lower rates go, the bigger savings you could see.
If you count on staying put for a while, this strategy is usually worth it.
It makes sense to refinance if the interest payment savings make up for all the related costs and fees associated with closing a new mortgage, says Cororaton.
Also Check: How Long For Sba Loan Approval
After Youve Been Approved
Once youre approved with several different lenders, compare the various offers carefully. The most important factor is the annual percentage rate and total interest paid over the life of the loan. The APR includes the interest rates and any fees, including the lender and title fees. A lower APR means youll pay less in fees and interest.
You may be approved for several different interest rates and loan terms. Loans with longer repayment terms generally have higher interest rates and lower monthly payments. A loan with a shorter term means youll have higher monthly payments and a lower interest rate.
Look at your budget and decide how much you can comfortably afford each month. Remember, you can also make extra payments on the loan if you choose a lender that doesnt charge a prepayment penalty.
After you select the lender, youll have to finalize the car loan. The new lender is responsible for paying off the loan balance from the old lender, but its a good idea to double-check that this goes through correctly. Its also important not to fall behind on your car payments during this transfer process. Once the first lender is paid off by the new lender, they should return any extra payments you made during that window.
Once the loan is paid off, you can start making payments to your new lender. Consider setting up automatic payments so you dont have to worry about remembering your new due date.
Consider Applying For Prequalification
Take some time to shop around and see which offers you may qualify for. Applying for prequalification can be a good place to start. To get prequalified, the lender will look at certain information, like your credit and type of vehicle. Prequalification is typically considered a soft inquiry, which wont hurt your credit all on its own. But prequalification is not a guarantee of approval, and if you decide to apply for the loan, youll ultimately have to apply for it and face the hard inquiry that goes along with it.
Check around with several lenders and compare the interest rates, loan terms and total cost of borrowing available to you. Find out if any of the loans qualify for an autopay discount. Opting into this feature may lower your interest rate and help ensure you dont forget a payment a win-win for you.
You may be tempted to choose an offer with a longer loan term, which could result in a lower monthly payment. But keep in mind youll end up paying more in interest and increase your risk of becoming upside down.
Above all, consider the main reason you want to refinance and whether each loans terms address that need.
Recommended Reading: Minimum Credit Score For Rv Loan
Youve Developed A Relationship With A Lender
Some institutions offer low rates for their good customers. And some have special deals to bring new customers in. For relatively new vehicles, some lenders will refinance your existing loan at their attractive new car rate. These rates can be better than what you initially took on when you first applied for the car loan. It pays to continually evaluate your loan and your payments to be sure that you are getting the best rate possible.
How Can I Get Additional Funds When Refinancing
When you have a loan against your home and if there is sufficient equity, you may have the option to receive additional funds with a cash-out refinance. With this cash-out refinancing option, you refinance your original loan into a new loan with a higher amount that allows you to access your home’s equity that’s provided to you after the loan closes. Those funds borrowed against your equity can be used for large purchases or other purposes.
Read Also: How To Transfer A Car Loan
If I Shop Around For Rates Will That Hurt My Score More
A common misconception is if you shop around for rates and have your credit pulled multiple times, this will hurt your credit score beyond doing just a single application.
This is not true. The credit scoring agencies of both FICO and Vantage are aware this is happening, and they encourage borrowers to shop around. Making multiple hard inquiries within a few weeks span will behave as one single credit pull as far as your score is concerned.
When Can You Refinance A Car Loan Nerdwallet
Aug 17, 2021 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
Jan 14, 2020 Wait at least 60-90 days from getting your original loan to refinance. It typically takes this long for the title on your vehicle to transfer
May 3, 2021 There arent any specific guidelines on when you can refinance a vehicle. You could theoretically do so just a few months after you originally
Rules For Refinancing Usda Loans
The U.S. Department of Agriculture offers two mortgage programs for rural home buyers: guaranteed loans and direct loans. To refinance a guaranteed loan, you must have had the mortgage for at least 12 months. For direct loans, there is no waiting period for refinancing.
The USDA offers three options for refinancing into another USDA loan. If you get a streamlined refinance or non-streamlined refinance, you must have made on-time payments in the last 180 days. For the streamlined assist program, you must have been current on your mortgage payments in the last 12 months.
How Does An Auto Refinance Work And Is It A Good Plan For Me
When interest rates drop, its the perfect time to refinance a loan to lower your monthly payment and to save money on the life of the loan. Perhaps youve heard of a mortgage refinance, and maybe you even took advantage of low mortgage rates by refinancing your home loan. But did you know you can refinance your auto loan, too?
You May Like: Becu Car Repossession
Is My Credit Pulled When I Apply For An Auto Loan Refinance
Yes, any time you apply to refinance your current auto loan, you are creating a hard inquiry. All this means if the lender will review your credit report as part of their decision-making process for your new loan.
Keep in mind, the hard inquiry may cause a small dip in your credit score because a new loan often means added debt to the credit reporting agencies. With added debt, the chances of a borrower missing a payment increases, thus lowering your overall score.
However, once the credit reporting agency sees the old loan paid off, the amount of debt decreased and a few monthly payments made on time, your credit score should increase again.
Understanding Refinancing Your Car
Refinancing a car loan is like refinancing a mortgage, although its much easier and faster. And none of the lenders we checked charge fees, although you may need to pay a small title transfer fee imposed by your state Department of Motor Vehicles. Essentially, refinancing a new car means that you take out a new loan to pay off the old one. The new loan can be for the remaining duration of the old one or even shorter, though in most cases, it will extend the length of time youll need to pay off your loan. Know that taking on a longer loan could reduce or even eliminate any savings you might get from refinancing. Depending on the rate, term and the amount you still owe, refinancing could save you a lot of money.
One thing to keep in mind, according to Michael Saccucci, the director of statistics and data science at Consumer Reports, is that the earlier you refinance, the more you could save if you get a significant reduction in interest rates.
For example, suppose you were just five months into a 72-month, $32,000 new car loan at 6.6%. If you financed the remaining $30,162 at 3.39 percent for the remaining 67 months of the original loan, youd save about $3,000, said Saccucci.
Read Also: Does Va Loan Work For Manufactured Homes
Understand What Changes When You Refinance A Loan
If your new refinance loan has a lower rate but the same term , you may have lower monthly payments. However, if you refinance with a longer repayment period than what was remaining on your original loan, you may lower your monthly payment, but you may also increase the total amount or interest you pay over time. Keep in mind that you may be able to pay off the loan faster by making more than the minimum monthly payment however, check with your lender first, as some may charge an early payment fee. For more details, review the total cost of borrowing money.
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
Consider If Refinancing Makes Sense For You
Before you start the application process, it’s important to determine if refinancing is the right move for you right now. Here are some factors to consider:
- : To qualify for the best terms on the new loan, your credit history typically needs to be in great shape. If you’re not quite ready, consider waiting and improving your credit score first.
- Prepayment penalty: Some lenders will charge you a fee if you pay off your auto loan earlier than agreed. Check your loan terms to see if you have a prepayment penalty and how much it’ll cost you compared with the potential savings you expect to get from the new loan.
- Origination fee: Some lenders may charge an upfront fee when you refinance. This fee can vary from lender to lender, but it’s important to compare it with the potential savings to see if it’s worth the hassle.
- Length of repayment period: If your new repayment term is longer than your current one and you don’t necessarily need the lower payments, it may not be worth it simply because you may end up paying more in interest over the life of the loan.