When Youre Not Underwater On Your Current Loan
Generally speaking, its easier to find a lender wholl work with you when your car is worth more than your remaining loan balance.
New cars can lose about 20% of their original value within the first year, and an average of 15% to 25% each of the next four years, according to Carfax. So time is of the essence.
Some lenders wont even consider refinancing an older car. Capital One, for example, only refinances loans for vehicles that are seven years old or newer.
If your car is relatively new and still has equity, now could be a good time to refinance.
If You Have Poor Credit Enlist A Cosigner
If you need a car now but dont have time to work on your credit, consider finding a trusted friend or family member to cosign your car loan. With a cosigner, youre essentially borrowing their good credit to get approved for financing. This also means you will be able to access lower interest rates. The downside of this plan is that youre asking someone else to be responsible for your debt. If you default on your loan, your cosigner will be stuck footing the bill. Your friend or family members credit score will also be negatively affected if you cant keep up with payments.
Ways To Cut The Cost Of Your Car Loan
Pamela Rodriguez is a Certified Financial Planner®, Series 7 and 66 license holder, with 10 years of experience in Financial Planning and Retirement Planning. She is the founder and CEO of Fulfilled Finances LLC, the Social Security Presenter for AARP, and the Treasurer for the Financial Planning Association of NorCal.
With financial headwinds like rising gas prices, a slowly-recovering economy and continued job scarcity, reducing costs in every corner of our financial lives have become a necessity. Unfortunately, our cars aren’t concerned with our economic troubles. When they break down for the last time and we are forced to buy a new one, finding the best deal on financing becomes a necessity.
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Process Of Refinancing A Car
The process of auto refinancing 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.
Compare Car Loan Rates
Another way to make sure you’re getting the lowest auto loan rate possible is to rate shop among dealerships and lenders to see which one offers you the better deal. For this to work though, you have to move fast, applying for a few different auto loans within 14 days. When you do this all the inquiries for credit show up on your credit report, but only one of them impacts your credit score.
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Check Your Credit Before Shopping
Pull your credit report from each of the three major credit bureaus before approaching a lender for an auto refinance. Equifax, TransUnion, and Experian all gather information about your financial history and transactions and assign you a credit score.
Although credit is not the only factor lenders consider, your score is one of the main indicators most lenders use to determine the interest rate theyll offer you on a loan: the higher your credit score, the lower your interest rate. Pulling your credit before an auto lender does can allow you to gauge whether you will qualify to refinance and receive a better interest rate, or whether you should work on your credit to get a better rate.
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.
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Do Not Apply Unless You Are Committed
Building up your credit history is a great way to show you can manage repaying a car loan and it may even result in being offered a lower rate. However, you won’t do your credit report much good if you apply for every offer out there.
Each time you apply to a lender, they are required to view your credit file, and in order to do so will create an enquiry on your credit file. The more enquiries in a short period of time, the lower your chances are of getting the best deal, and even quite a few lenders may decline the loan due to excessive loan enquiries.
Get it right the first time and don’t apply unless you are 100% committed and satisfied with that quote.
Another option is to get the help of a broker. Most car finance brokers are able to perform what’s known as a “soft” credit check to determine what your odds of getting credit approval are without making multiple “hard” enquiries as described above.
Dealer Finance Isn’t Always The Best Option
Arranging finance with your car dealer can be a convenient option. With dealer finance, you can get all the new car and new finance paperwork sorted in one place at the dealership.
The downside is that you’re likely to pay for that convenience. Dealers don’t always have access to a wide range of loans or loan features. And those limitations could mean you pay more.
For example, dealer finance isn’t always flexible. So, if you pay your loan out early, you could pay a sizeable amount in loan exit fees.
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Time Remaining On Your Loan
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
If your answer to When should I refinance my car loan? is Soon, review our current refinance rates and take a look at our auto loan refinance calculator to get a better understanding of whether refinancing makes sense for you.
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Capital One: Best For Convenience
Overview: Capital One will let you borrow as little as $4,000, but it requires you to purchase the car through one of its participating dealers. In a lot of ways, its financing works as a one-stop shop for your auto loan and vehicle purchase.
Perks: The Capital One Auto Navigator site lets you search for inventory in your area and gives you the ability to see how different makes, models and features will impact your monthly payment. This will give you a lot of information before you head to the dealer. Also, the quick prequalification allows you to check your rate through a soft inquiry, so your credit score wont be impacted.
What to watch out for: You can only use Capital One auto financing to shop at one of its participating dealerships, which makes this a poor option if you find a car you love elsewhere.
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Tips For Negotiating A Low Car Loan Interest Rate
May 17, 2018 Financing & Leasing
Buying a car is a big financial commitment especially if you have to take on a car loan to make the purchase happen. The good news is you dont have to be an accountant to make sure youre getting the best auto financing agreement from your dealership or lender. The vast majority of people need to take out a loan to cover the cost of buying a vehicle. Most buyers are unaware that they can negotiate the terms of their contract before they sign the dotted line. In this post, well give you six ways you can get a lower interest rate on your car loan.
You Wont Be Penalized For Repaying Your Existing Loan
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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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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With Average Monthly Payments On A New
In the second quarter of 2020, new-car payments averaged $568 per month and used-car payments werent far behind at an average of $397 per month, according to the Experian State of the Automotive Finance Market report.
Its no wonder that data from the Federal Reserve Bank of New York shows that nearly 5% of auto loans were more than 90 days delinquent in the third quarter of 2020.
If youre struggling to make payments on your current auto loan or if youre shopping for a car loan and want a lower payment than what youre being offered there are several possible ways you might be able to lower your car payment.
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Trade In Your Car For A Lower
If you have positive equity in your vehicle, meaning your loan balance is less than the car is worth, you may be able to lower your monthly payment by trading it in for a less-expensive car.
Say you owe $5,000 on your auto loan and your vehicle is currently worth $8,000. Youd have $3,000 of equity that you could use as a down payment toward another car. A down payment reduces how much you need to borrow, and if you choose a more budget-friendly vehicle, you may be able to lower your monthly payments even more.
Lowering Interest Charges On Your Auto Loan
You dont have to refinance to save some money on interest charges, though. Auto loans are typically simple interest loans, which means youre charged interest daily on what you owe. This means that after each payment, theres less to be charged interest on. The faster you pay off the vehicle, the less interest youre charged.
Making some lump sum payments lowers your loan balance and decreases the amount youre charged interest on. Additionally, you could also pay a little extra each month when you can. Or, you can make extra car payments whenever youre able to. Anything you can do to lower your auto loan balance more quickly helps.
If youre about to take out a car loan, and you dont have the best credit, you can be proactive. A way to mitigate the amount of interest youre going to be charged is to prepare a sizable down payment and opt for the shortest loan term you can afford. Bad credit and long loan terms can spell lots of interest charges and often long loan terms mean paying way more than the vehicle is worth!
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Don’t Stop At The Dealership
Just as your car dealer is a middle man when selling you a car, they are also a middle man when they want to set you up with a loan or a lease. Middle men always get paid for their trouble, and the person paying is probably you. Of course, you should get a financing quote from the dealer but if you stop there, you may very well end up paying too much for your loan. You probably did some shopping around for your car. Do the same for your loan.
Stretch Out Your Car Loan Term
There are pros and cons when you decide to stretch out your car loan term. The main pro is that it can reduce the size of each of your car loan repayments. However, it will increase the total amount of interest you have to pay on your car loan.
If you think you cant support your current car loan repayment, you can ask your financial institution if its possible to extend your car loan term.
You can also explore our car loan calculator to get an estimate of your car loan repayments. To use this calculator, you just need to indicate the value of the car, interest rate, loan term, initial deposit, and the balloon payment.
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Get Car Financing Online Instantly Instead Of Through A Car Dealer
Over the years the savviest visitors to our site wait until their credit score improves, then they obtain pre-approval instantly from online auto loan sites such as LightStream.
What is the benefit to you and I from applying for car financing online? You get your financing ducks in a row before ever stepping foot into the car dealer. We bypass the car dealer and get much better interest rates online.
Unless you are approved for one of those rare 0% loans subsidized by the car manufacturer, you could be paying high APR interest rates through the car dealer’s financing.
Quite often the efficient online car finance sites with lower overhead beat the rates of the car dealers and some lenders deposit the loan money right into your bank account to use for buying your new car.
Compare that to applying for your car financing at the dealer, where they will sometimes call a week later to tell you the deal fell through because their lender rejected you.
This nonsense never happens with online lenders. You are in control here, not the car dealer. You get your answer a yes or no right away and no games. Once approved, you car loan money is in your account quickly or a check is sent via overnight delivery.
How To Refinance A Car Loan
The steps to refinance a car loan are quite simple. There are more and more companies that have entered the refinance space. Here at YAA we dont directly advocate for one or another. Its important that you understand how refinancing companies make money so that you can be informed as you go through the process.
Refinance companies do not make money by placing you in a loan. Instead, refinance companies make money by selling their customers ancillary products
If youre going to refinance your car loan , then be aware that the refinance company will try to sell you their insurance products. As always, be sure to negotiate the price of those products if they interest you, and get a quote from YAA for the extended warranty so that you have leverage.
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How Do I Refinance My Car Loan
Refinancing a car loan is essentially just taking out a new car loan so the steps for applying are mostly the same. You’ll need your driver’s license, Social Security number and proof of income, as well as details about your car. If approved, you’ll use the funds from your new loan to pay off your old car loan, then begin making monthly payments with your new interest rate and terms.
Ready To Find Your Next Auto Loan
Whether you’re shopping for the best interest rate before you buy, or are ready to find something with a more affordable price tag than what you’re driving, CarsDirect wants to help.
You can research new and used cars on our site, and when you’re ready, you can fill out our free auto loan request form from the comfort of home. Once you do that, we’ll get to work matching you to a special finance dealer in your area that’s signed up with subprime lenders who are ready to help get you into the vehicle you need!
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Option : Refinance To Lower Your Car Payment By Extending Your Term
For car loan terms, a shorter loan term means less interest paid over the life of a loan. However, lengthening your loan term can reduce your car payment every month, sometimes significantly. The car loan market is massive, with over one trillion dollars in loans outstanding. That means every kind of lender and investor is involved in the auto loan market. As a result, the variety of car loan terms available may surprise you. Loan terms extend all the way out to 84 months and beyond at the extreme.
Lets take a typical example. Assume you have a $25,000 principal loan balance and 50 months remaining on your car loan at a 5% interest rate. If you could refinance to a 60 month term at the same 5% interest rate, your monthly payment would drop from about $550 to $470. Thats $80 per month freed up in your budget. It is true that you will spend more in interest expense over the life of your new 60 month term, but there are times when that can make sense based on your other budgetary priorities.
