When Should I Refinance My Auto Loan
Jun 21, 2021 Refinancing your auto loan can help bring down your monthly costs or reduce your interest rate. Read on to learn when to refinance.Consider refinancing if · When is the right time to refinance?
See rates for new and used car loans and find auto loan refinance rates from lenders. The higher your credit score, the lower APR youll receive.
The annual percentage rate. Usually referred to as the APR, this is the effective interest rate you pay on your loan. The loan term. This is the amount of time;
Beware Of Balloon Payments
Some car loans offer a balloon payment . This option means you pay off part of the loan as regular repayments, and then pay the final amount as a lump sum at the end of the loan.
This may look like a good deal as your monthly payments will be smaller. But you’ll have to repay the lump sum with interest, so the total cost of the loan is higher.
If you choose a balloon payment, you’ll need to be able to repay the lump sum plus interest when it falls due. Otherwise, you could end up needing another loan to pay the lump sum and interest.
Simple Interest Car Loans
Most auto loans are simple interest loans, which means that the amount of interest you pay each month is based on your loan balance on the day your payment is due. If you pay more than the minimum due, the interest you owe and your loan balance can decrease.
On a simple interest loan, interest is front-loaded and amortized. With an amortized loan, part of your monthly car payment goes to the principal, which is the amount you borrowed, and part of your payment goes to the interest charges. Because the loan is front-loaded, a larger portion of each car loan payment applies to interest at the beginning of the loan term and at the end of the term more applies to the principal balance.
For example, If you have a $25,000 car loan with a 48-month term and a 4% interest rate, youll pay an estimated $83 in interest and $481 in principal during the first month of the loan term. By the last month, youll only pay an estimated $2 in interest, and $563 will apply to the principal amount.
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How Do I Reduce The Interest On My Car Loan
If one of the reasons youre looking for a car loan with a low interest rate is to avoid paying a lender too much more on top of your cars value, it might be worth considering making additional repayments on your car loan.
However, this may not be a valid option for every low-interest car loan. Some lenders charge payment fees for making additional repayments, or early repayment fees for paying off a car loan ahead of schedule, to compensate for the interest payments theyd be missing out on.
Fixed-rate loans tend to carry more restrictions, often locking borrowers into tight repayment plans. Variable rate car loans tend to have more flexible repayment options, though some lenders do still charge these fees. Make sure youre familiar with the car loans terms and conditions before signing on.
If your low-interest car loan allows you to easily make extra repayments, theres sometimes an added benefit beyond just bringing you closer to the end of the loan early. If your car loan also includes a redraw facility, youll be able to claim back the extra money youve paid onto your car loan if required.
As well as adding extra flexibility to your car loan, a redraw facility can help you make those extra repayments with confidence youll be able to get ahead on your loan without locking up your spare cash in a loan where it cant be easily accessed.
Compare Loans Before Visiting A Car Dealer
It’s important to look at loans before you go to a car dealership. You’ll be able to negotiate better, as you’ll know:
- exactly how much you can spend
- the best interest rate you can get
- how much your repayments will be
Car dealerships will try to sell you add-on car insurance. This includes loan protection, gap cover, and tyre and rim protection. These products are not good value for money. Don’t feel pressured to buy them.
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How Do I Get A Car Loan
The process of getting a car loan is similar to that of getting any other type of loan. Here’s how to start:
- Shop around: It’s usually best to compare rates and terms from at least three lenders before moving forward with an auto loan. Try to find lenders that have APRs and repayment terms that will fit your budget.
- Prequalify: Prequalifying with lenders is often the first step of the application process, and it lets you see your potential rates without a hard credit check
- Complete your application: To complete your application, you’ll likely need details about your car, including the purchase agreement, registration and title. You’ll also need documentation like proof of income, proof of residence and a driver’s license.
- Begin making payments on your loan: Your payment schedule will start as soon as you receive your auto loan. If needed, set up a calendar reminder or automatic payments to keep you on track with your monthly bill and avoid late payments.
Research Alternate Financing Options
Before all car buyers go to the dealership for financing, its wise to shop around and apply for auto loans at local banks or credit unions. Doing your own homework to see what car loan rates are available for you will let you know how competitive your car dealerships loan interest rates are. This goes for both new car loans and used car loans.
After you get a loan offer from your dealership, you can compare the rates and counter the car dealer loan offer with the lower rate youve been preapproved for from a third-party bank or credit union.
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Also Check: What To Do If Lender Rejects Your Loan Application
Factors That Affect Car Loan Interest Rate
There are a number of factors that affect car loan interest rates. These are listed below:
- A credit score of 700 and above is considered a good CIBIL score to avail car loan. In case of a relatively low credit score, you may either get a car loan at a high rate of interest or your application for a car loan may get rejected.
- Income : Income is another factor that ensures the lender of your loan repayment ability. Thus, the higher the income, the lower would be the car loan interest rate.
- Occupation : The rate of interest varies for both salaried and self-employed borrowers. Banks generally have a high rate of interest for self-employed professionals as compared to salaried individuals.
- Existing relationship with the bank : In case you are an old customer of the lender via a savings or investment account, then it is likely that you will be offered a lower interest rate from that bank.
- Your organizations reputation : The reputation of the organization you are currently working for plays an important role in helping you grab a car loan at a lower interest rate.
Refinance Your Existing Car Loan To A Lower Rate
This is a very powerful way that you can chart your own destiny to save a lot of money if you have any existing high APR car loans. Many people get lost in the here and now shopping for a new car, forgetting they are already a prisoner already to a previous high APR auto loan. So remember that buying a new car is not just about this new car, but rather it involves your entire financial picture.
Does your current financial picture involve you having an existing car loan with a high APR? Maybe a car dealer scammed you on a previous deal with a super high car loan interest rate? This happens all the time.
Perhaps you previously had questionable credit scores and were railroaded into high APR auto financing with little time to think it over. Now you are on the mend, but you still have that high APR baggage from your previous life. You could refinance to a lower APR by using online lenders such as LightStream and CARCHEX.
This is a useful strategy for you to use. Not only are you saving money on your new car using all our consumer advocate advice here and also potentially getting a lower new car loan APR. You are also saving more money on your existing loans by stopping your higher interest rate in its tracks. The money you save by refinancing your previous car loan to lower rates can help pay for your new car.
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Choose A Longer Loan Term
Opting for a longer loan term of 72 months or 84 months could help you reduce your monthly payments but youll end up paying more total interest. And when you stretch out your loan term, you may be charged higher rates, too.
Choosing a longer loan term also puts you at risk of becoming upside down on your loan. Your car could depreciate more quickly than you pay off your loan, and youd end up owing more than the car is worth.
Online Title Loans With Low Rates
There is simply no reason why you cant get a low interest title loan when you own your vehicle and attempt to use it as collateral for a loan. There are several title loan companies and if you do some searching you will be sure to find one that offers you a loan that has a low interest rate.
Search and compare the best offers you see for online title loans, until you find one with a low interest rate that suits you and makes sense. Most car title loan companies want to catch with a rate that is better than the annual percentage rate of your current loan because they can then turn around and get around higher costs for you as well as smaller payments.
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How To Lower Auto Loan Interest Rates After Getting A Loan
Even after all your efforts, it’s still possible you won’t qualify for the interest rate you want. Fortunately, that doesn’t mean you’re stuck with a high interest rate for the entire term of your loan. If you can improve your credit score, you may be able to refinance your car loan with a different lender and score better terms.
Here are a few actions you can take that will contribute to your overall creditworthiness:
It’s not always easy to know when to refinance a car loan, but it’s generally best to consider it if your credit score has improved or interest rates have gone down since you took out the first loan.
Again, as you go through this process, it’s a good idea to shop around and compare rates from multiple lenders. When you find the best deal for your situation and the lender approves the loan, it will pay off your original loan on your behalf.
To give you an idea of your potential savings, let’s say you initially took out your car loan when your credit scores were much lower than they are now, and your $15,000 loan had a 15% interest rate and 60-month repayment termthat gives you a monthly payment of $357.
Monitor Your Credit Even After Getting A Loan
Whether you qualify for a 0% APR car loan or opt for an alternative rate, it’s important to continue to stay on top of your credit in case you need to apply for credit again in the future.
Experian’s not only offers you free access to your FICO® Score powered by Experian data but also provides customized alerts on credit report activity, notices when your account balances change, and gives you the chance to increase your credit score with Experian Boost.
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How Much Do Low Interest Car Loans Cost
Youll pay different amounts for your loan based on which lender you choose. You should consider the following factors when attempting to determine how much your loan will cost:
- Interest rate. Youll usually pay between 0% and 6% interest on a low interest loan.
- Fees. You could end up paying hundreds of dollars more based on what fees you pay. These can include origination fees, early repayment fees and late payment fees.
- Length of term. Youll pay more interest with lower monthly payments if you pick a longer term . Youll pay less interest with bigger monthly payments if you choose a shorter term .
Representative example: Casey gets a low interest car loan
Casey wants to buy a new car and has excellent credit. He applies for a low interest car loan worth $20,000 and finds 2 suitable options. There is a loan that comes with an interest rate of 3.5% and a one-time origination fee of 3%. The other loan comes with a 4.5% interest rate and no fees.
This is what Caseys options will look like over a 5-year term.
| Low interest loan details | |
|---|---|
| $22,430 | $22,372 |
In this case, the loan with the higher interest rate is the better option because you wont have to pay an upfront fee.
How To Get A Car Loan
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» MORE: ;Learn the basics of how car loans work
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If Youre Planning To Take A Car Loan Do Note That Most Lenders Would Finance Up To 80%
After months of setbacks due to the Covid-19 pandemic, the Indian automotive industry has started embarking on a recovery path ahead of the much-anticipated festive season. Top carmakers, including , Hyundai and Tata Motors, saw their year-on-year domestic sales grow by 37%, 26% and 101%, respectively, in July this year.
These trends are testament to the fact that many people are prioritizing buying a car to minimize public or shared transportation and avoid getting infected by the feared virus. Buying a car requires a lot of money; however, many prefer using a car loan to finance their purchase especially when car loans are available at competitive interest rates that are usually slightly lower than personal loan rates.
If youre planning to take a car loan, do note that most lenders would finance up to 80%-90% of the cars on-road price for tenures up to seven years, while some banks could lend up to 100% of the cars valuation cost subject to terms and conditions. That being said, the car loan interest rate applicable to you would be determined by the lender based on your age, income, credit score, loan amount, etc, according to BankBazaar.
18 Top Banks Offering Car Loans Starting at under 8% p.a. Right Now
Data compiled by BankBazaar.com, an online marketplace for loans, credit cards and more.
Evaluate The Interest Rate Youre Offered
Customers with an excellent credit score may qualify for a single-digit APR loan, while those with average credit will usually be able to access a loan with 10% APR.
At Birchwood Credit, our average rate is 15%. We will help you find a payment plan that fits your lifestyle and budget, even if you have bad credit.
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Auto Approve: Best For Auto Refinance
- Car refinance APRs start at 2.25%
- Terms range from 12120 months
- Amounts up to $150,000
Auto Approve was the most popular choice for auto loan refinance on the Lending Tree platform by far in Q1, 2021 and it averaged one of the lowest APRs on closed loans. The company does a soft credit pull to show you potential refinance offers from lenders and once you choose an offer, that lender will do a hard credit pull to produce an official offer for your approval.
WHAT WE LIKE
Auto Approve offers lease buyouts and refinancing for motorcycles, boats, RVs and ATVs as well.
WHERE IT MAY FALL SHORT
If you have a specific refinance lender in mind, such as a local credit union, apply to them directly as Auto Approve doesnt have a public list of its lender partners.
HOW TO APPLY
Go to AutoApprove.com and hit the apply button.
How Does A 0% Apr Car Loan Work
Zero percent APR car loans are auto loans with no interest rate. This means you can finance a new vehicle purchase, and 100% of your monthly payment will go toward the principal balance of the loanthere are no interest charges whatsoever.
Car dealers usually offer 0% financing on new cars only, and you typically need to have a very strong credit history to qualify for such an offer.
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Option : For Your Next Car Purchase Buy Used To Lower Your Monthly Payment By $136
Most of us have heard that the moment you drive your shiny new car off the lot, it loses 10 to 20% of its value.;Nothing much has changed except that now youre the owner of a used car.;While the rapid depreciation in new car values is annoying to new car owners, it is good news for used car shoppers.;Cars are now more reliable and last longer than ever before.;All of this means that used cars are better options for many of us than theyve ever been.;And heres the best part.;The average monthly payment on a used car is about $400, while the average monthly payment on a new car is roughly $536.;That $136 difference can help a lot.;
