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How Soon Should I Refinance My Car Loan

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Wait To Find The Best Rate

When Should I Refinance My Car After Purchase?

Dealer financing can be competitive. When dealers make offers, theres nothing to stop them from recommending the financing options that work best for them.

Take some time to shop around for a good interest rate with another financial institution or lender. Your local credit union or an online lender may have competitive car loan refinancing rates.

Youve Developed A Relationship With A Lender

Some institutions offer low rates for their members or customers. And some have special deals to attract new borrowers. 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 ensure youre getting the best rate possible.

You Need A Lower Monthly Payment

On the other hand, you might need to refinance because things are starting to turn bleak. Maybe you could afford this car payment when you first got the loan, but now youve run into some bad luck. Refinancing may help to lower your monthly payment.

It will likely mean youll have to extend the term of the loan, which could mean that you pay more in the long run, but if you need to free up some cash now, refinancing could be the answer.

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Determine If You Qualify For Refinancing

Find out whether youd meet a lenders requirement for a refinancing. Capital One, for example, wont refinance loans for cars that are more than seven years old, and the payoff amount on your current loan must be between $7,500 and $50,000. Like many lenders, it also wont refinance a loan that it issued in the first place.

Does Credit Score Matter When Choosing A Car Loan Term Length

Should You Refinance Your Auto Loan?

CFPB found that borrowers who took out longer auto loans had lower credit scores than borrowers who opted for 60-month loans. The average credit score for borrowers with 72-month auto loans was 674 compared 713 for borrowers with 60-month loans.

Keep in mind that your credit score is just one part of your auto loan or refinance loan application. There are other factors like debt-to-income-ratio, loan-to-value ratio, etc. that affect what kind of loan offer youll get.

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Should I Refinance My Car Loan To Get A Shorter Or Longer Loan Term

This depends on your personal situation. If your income is higher or youve recently paid off other debts, getting a shorter loan term can save you money by paying less interest over time. On the other hand, if your finances are getting a little tight, a longer loan term can lower your monthly payments. While youll end up paying more interest overall, the lower repayments can give you some breathing room every month.

When Refinancing Doesnt Make Sense

Refinancing your car loan isnt always the right choice. If you are close to paying off your loan, refinancing may not save you money. Just stick with it unless you desperately need to extend your loan term to reduce your monthly payment.

Being upside-down on the original loan will also make it difficult to refinance. Lenders typically wont approve you if you owe more on the car than it is worth. This is also known as being underwater on the loan and it is a tough spot to get out of.

If your car is older or has quite a few miles on it, lenders may not want to refinance. This usually looks like a vehicle that is 10 model years old or has more than 100,000 miles, although the specifics vary by lender.

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Refinancing To Save Money

When you refinance your car you’re closing out your original auto loan and signing a new contract, often with a new lender. The main reason people refinance is to lower the monthly payment on their auto loan, and you can do this by either extending your loan term or qualifying for a lower interest rate.

The combination of a lower interest rate and longer loan term will ultimately give you the most savings each month, but if your goal is to save money overall, you need to qualify for a lower interest rate. If you extend your loan term without getting a lower interest rate, you will pay more overall than you would have without refinancing.

Carefully Consider Your Options Before Refinancing

How to Refinance A Car Loan (The Right Way) / Ask The Money Nerds

Refinancing your car loan can be a good idea in some situations, but not necessarily in others. If you’re thinking about replacing your current loan, make sure you understand your reasons and options.

Start by checking your credit score to see whether you’ve made progress since you first got the loan. Then consider why you want to refinance and what potential drawbacks and costs are associated with the process. Then compare auto loans based on your credit score to determine whether refinancing can save you money or if it might end up making things worse.

There’s no one-size-fits-all answer to whether refinancing is right for you, but following this process can help you come to the right conclusion.

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Wait For The Right Reason To Refinance

Be honest about why you want to refinance your auto loan. Here are the top reasons why car owners refinance:

  • Lower monthly loan payment: You can lower your monthly payments by refinancing to a lower interest rate or waiting for auto industry interest rates to go down.
  • Pay off your car loan faster: If you have a car loan with a repayment term thats 60 84 months long , refinancing can help you shorten the loan term, and that can help you own your car sooner.

If youre facing a cash crunch and need to lower your monthly expenses but cant get a better interest rate, re-extending your auto loan at the same interest rate over a longer term can also help lower your monthly payments, but itll cost you more in interest over the life of the loan.

Read The Terms And Conditions

Refinancing an auto loan is like refinancing any other type of loan: a new loan is taken out to pay off your existing loan, and then you make payments to your new lender. If your current lender has prepayment penalties, that means you could get hit with a charge if you pay off your existing auto loan before the prepayment terms are up.

You might be able to skip out on the prepayment penalty if you wait a little bit longer to refinanceso check your lease terms and do the math. If the penalty amount is higher than what youd save when you refinance, it might not be worth it. Not all lenders have this penalty, however, so its critical to view your loan terms first.

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When Not To Refinance A Car Loan

Knowing when you shouldnt refinance a vehicle loan is every bit as important as knowing when to refinance. Thats because refinancing at the wrong time could cost you more money over the life of the loan or hurt your credit score.

Here are some situations in which you might want to avoid refinancing your auto loan:

How Does Auto Refinancing Work

How Soon Can You Refinance a Car Loan

When you refinance your car, you apply for a new loan to replace the one you currently have. Upon approval, the lender pays off your existing loan, and you resume payments, but on the new loan.

Most borrowers refinance to lower their interest rate and save money or get a lower payment by stretching out the repayment term.

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Six Months To A Year Into Your Loan

Holding off at least six months to refinance your car loan will allow your credit score to re adjust. This, in turn, should ensure you get a better interest rate and terms. That said, if youre a first-time car buyer or your credit isnt up to par, youre better off staying in your current loan for a year. The extra months of on-time payments will allow you to boost your credit score and prove to lenders that youre a good credit risk.

Holding off at least six months to refinance your car loan will allow your credit score to re-adjust.

What Does Auto Refinancing Mean

First, auto refinancing entails swapping your current loan with a new one with different terms. As a result, youll likely get a different interest rate and new loan term. Upon approval, the new lender will pay off your old loan, and youll resume payments on the new loan.

Depending on the change in your rate, you could save money in interest if your credit score has improved. But you could also pay more over the new loan term if youve been paying on the car for a while, as the lender will have even more time to collect interest from you. Still, the more affordable monthly payment on the new loan could make refinancing your auto loan a worthwhile maneuver.

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How Much Do I Want To Pay Over The Loan Term

Would you rather pay more every month in order to pay less money over the life of the auto loan? Or, would you rather have a lower monthly payment now, knowing that youll pay more money on the loan?

Lets look at an example. To keep it simple, lets assume youre taking out an auto loan for $25,000 with an interest rate of 5%.

Car Loan Term Length Comparison on $25,000 Auto Loan
Loan Term

You Wont Be Penalized For Repaying Your Existing Loan

When is the Best Time to Refinance a Car?

Refinancing your auto loan means paying off your existing loan early. This could be a problem if your existing loan contract includes a prepayment penalty clause.

Take a look at your contract to see if youll be charged fees for early repayment. Before applying for auto refinancing, make sure to crunch the numbers so you can determine whether prepayment fees would cancel out the financial benefit of refinancing.

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How To Improve Your Credit So You Can Refinance A Car Loan

  • Review your credit report. Review your credit report to check for any discrepancies. If you discover any errors, you can correct them by filing a dispute.
  • Only use up to 30% of your credit card limit. The percentage of your spending limit that you use up every month affects your credit score. For example, if your limit is $1,000, you dont want to spend more than $300 every month. The closer you are to your spending limit, the more negatively it affects your score.
  • Pay your bills on time. Any late payments will hurt your credit score.
  • Avoid hard credit checks. Every time you apply for a loan, the lender pulls a hard credit check, which dips your score.
  • Dont close old credit accounts. Having only new accounts hurts your score because lenders want to see a long history of responsible debt payments.
  • Consolidate your debts. You can combine your debts into one loan with a lower interest rate.
  • 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.

    $364 60 months

    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.

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    How Soon Can You Refinance A Car Loan


    Soon after the excitement of driving your new or used vehicle begins to fade, you might start dreaming about the day you no longer have to make monthly payments on it.

    While refinancing your car loan soon after the purchase date wont get you out of paying for the car, it might speed up your loan payoff and lead to substantial savings on interest over time.

    Read on for insights to determine if refinancing your vehicle early is the right avenue for you.

    You Took A Rebate Rather Than A 0% Apr Deal

    Should I Pay Off My Car Loan Early or My Mortgage?

    Automakers frequently offer incentives on new vehicles to boost their sales, such as 0% APR financing and rebates. Often, consumers with excellent credit who qualify for these types of deals have a choice between a large rebate or a low-financing offer. For example, you may have a choice between a cash rebate of $2,000 or 0% APR financing. If you take the rebate, youd have a 4.00% APR. If you choose the 0% APR financing offer, you will lose the $2,000 rebate. In the spirit of have your cake and eat it, too, we typically suggest taking the rebate from the automaker and then refinancing in a month to a lower APR from another lender. To continue the example, if you take the $2,000 rebate with 4.00% APR financing, wait a month, and then refinance to 2.99%, you obtain a large cash rebate and a low APR.

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    How Soon Can You Actually Refinance A Car Loan

    If youre interested in refinancing your car loan, you may start looking for new lenders so as soon as youd like.

    Believe it or not, you may be able to refinance right after you buy your car. If you are, just make sure its in your best interest to do so. You dont want to go through the refinancing process and later find out that it actually costs you money or takes a toll on your long-term financial plan.

    Compare Auto Refinance Rates

    Apply To Refinance Your Car Loan

    Keep in mind that if you have multiple hard credit checks within 30 days as you shop for a new auto loan, FICO will count them as a single inquiry. That means rate shopping wont impact your credit report more than once. Financial institutions such as banks, credit unions, and online lenders provide auto refinancing, and many have online loan applications.

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    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.

    How Soon Should I Ask To Refinance My Car Loan With Bad Credit

    How to Refinance a Car Loan (The Right Way)

    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.

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    Look Into More Lenders

    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. Just make sure your current car and auto loan meet the lenders requirements. Most have set maximums on mileage and vehicle age alongside a minimum amount you need to borrow to qualify.

    In general, it is 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.

    How Soon After Purchase Can You Refinance A Car

    Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

    Youve taken out a loan to buy a new or used car and you suddenly discover that youre paying an interest rate that is much higher than it should be. Or maybe you found that you cant afford the monthly payments.

    One option is to refinance the loan at a lower rate and possibly for a longer term, which could save you money and reduce your payment amount, though it may add to your debt load by extending the length of your loan. Refinancing is possible even with a new loan, although there are special factors to consider.

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    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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