How And Where To Refinance An Auto Loan
When you are looking to refinance, youll want to shop around for the best rates, flexible terms, and lowest fees. Your local credit union is a great place to start. Check out Spirit Financials auto loan rates. The more you research out your loan options, the better the chances of you getting the best deal. You can run the numbers to see how the deal stacks up and what your overall savings will be. When you find the lender you feel will offer you the best deal on an auto refi loan, youll find the process similar to when you got your previous auto loan.
Once you complete a car loan application, the lender will run a credit check and request information about your income and the vehicle you are refinancing. Theyll evaluate how much you owe on your existing loan and how much the car is worth to be sure youre not upside down on your vehicle. Once the car refi loan is approved, they will pay off your original loan, transfer the title and you will begin making your new loan payments.
Your decision to refinance an auto loan may depend on your individual financial situation. We hope that our blog helped you to better understand if refinancing is right for you. Interested in learning more about shopping for a new vehicle? Read our Ten Steps to Getting the Best Deal when Purchasing a Vehicle and Buying a Car vs. Leasing. We also invite you to learn more about CarShop365, our online car shopping tool!
When Can You Refinance
You do not need to wait any minimum amount of time before refinancing your car loan. You just have to meet all the requirements for the new loan to refinance. Refinancing is possible immediately after buyingeven before you make your first monthly payment. Just be sure that you actually end up with a better deal, and that refinancing doesnt cause you to pay more for your vehicle.
In some cases, you may be unable to refinance until you have documentation from your states Division of Motor Vehicles . Gathering registration details may slow you down somewhat.
How To Refinance Your Car Loan
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Refinancing a car loan can help you save money by lowering your interest rate. The process involves replacing your current car loan with a new one, typically with a different lender. Your car will act as collateral on your new loan, just as it did on the original loan. Here’s how the auto loan refinance process works and what to think about before you apply.
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Your Credit Score Has Improved Dramatically Since You Bought The Car
If you had poor credit when you originally bought your car, refinancing right now could help you save on interest or pay your car off faster. That’s because, for the most part, the interest rate you can qualify for is tied closely to your credit score.
According to Bankrate, individuals with credit scores in the 300 to 500 range paid an average APR of 12.99% on their auto loans at last count, whereas those with scores from 501 to 600 were charged an average APR of 9.92%. On the flipside, people with fair to excellent credit, or scores from 601 to 850, paid APRs that range from 6.32% all the way down to 2.58%.
If your credit was poor when you bought your car but your score is well over 600 now, refinancing your car loan could be a financially savvy move.
Why Refinancing A Car Could Be A Bad Idea
- You may not save that much:
As mentioned above, car loan rates have remained low over the last five years with minimal movement. So, you may not end up shaving off that much by refinancing, like you would with a mortgage, as terms are shorter, between one to 10 years. This means that the period of time to save is a lot less. So overall it may end up only being a few hundred dollars – which could be the cost of applying for a new loan anyway. Take this for example: say you have three years left on your six-year car loan with $30,000 remaining. Your original car loan rate was 7.82%, if you kept this rate, you would pay $938 per month and $3,754 in interest overall. If you refinanced from a loan with a 6.68% rate, youâd pay $922 and $3,189 in interest. Thatâs a savings of $16 per month and $565 in interest. Currently on the Mozo database, application or establishment costs for car loans range between $0 and $995. So the saving may be even less if you need to front up a fee.
- Refinancing new to used:
If you are planning on refinancing a new car loan, itâs likely that youâd have to refinance to a used car loan – as your car is no longer new. Generally, used car loans come with higher interest rates than new car loans, so you may not be able to find a lower rate. For example, the average variable new car loan rate sits at 6.33% on the Mozo database. On the other hand, the average for used vehicles is 6.83%.
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Youve Taken Other Loans Out Recently
For the same reason you want to avoid refinancing for at least six months after getting your car loan, youll want to wait to refinance if youve recently taken out any other loans. Whether its a home mortgage, personal loan, or new credit card, any new loan will cause a dip in your credit score.
Even shopping for loans can hurt your credit if a hard inquiry is required. That dip, however, is temporary. If youve recently taken out a new loan, waiting for your score to recover can help you get the best auto loan rate to refinance your car.
Is Refinancing A Car Loan Worth It
I was thinking about refinancing my loan, but I don’t know if it’s worth the hassle since I only have a year left on the loan. Should I do it?
- You have less than a year left on your car loan
- Your lender has a prepayment penalty
- Your credit hasnât improved
- You plan on extending the loan for far longer than is financially feasible
What Is Auto Loan Refinancing
Put simply, auto loan refinancing is when you take out a new auto loan to pay off your existing loan. The reason you might do this is to consolidate your debt with one lender or to secure better loan terms. By using a new loan to refinance your old one, you might be able to lower your monthly payment or overall interest. Even if you arent able to get a lower interest rate, you may be able to lower your monthly payments if you refinance your auto loan for a longer term.
How To Refinance A Car Lease
Refinancing a car lease can reduce the high rates on a leasing agreement. Before deciding, however, consider the pros and the cons:
- Lose out on the money that you already paid into the lease
- Pay more in prepayment penalties
If refinancing isnt the best option for you, speak with your lender about a lease replacement swapping out your current lease for one with more favorable terms and rates.
Options for breaking your car lease include:
- Transferring the lease
- Selling your car back to the dealership
- Selling the vehicle to another person
Each of these has associated costs, so evaluate each alternative thoroughly before deciding how to proceed.
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Refinancing A Car: What Are The Pros And Cons
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The benefits of refinancing your car loan can include lowering your monthly car payment, reducing the interest you pay or shortening your loan term.
The downsides to auto loan refinancing can include fees, additional interest if you extend the term or cash out equity, and the risk of owing more than the car is worth.
Here are the pros and cons to consider.
When You Refinance A Car Loan What Happens
Auto refinance is when you pay off your existing car loan with a new car loan, ideally one that has better terms and a better car loan APR. And while it may sound complicated or time consuming, its actually super simple. Its much easier and faster than refinancing a mortgage, and if you use a dedicated auto refinance company, they can handle a lot of the paperwork for you.
To refinance a car loan, there are just a few simple steps you need to take.
Gather your documents
Make sure you have all of the paperwork you will need for your car loan refinance. You will typically need the following:
- Your personal information. This will include your photo identification, social security number, and proof of residence .
- Your cars information. You will need to know the make, model, year, VIN , and mileage of your car.
- Proof of income. You will need proof of employment. Recent pay stubs are perfect for this.
- Proof of insurance. You will need to prove that your car is insured.
- Current loan information. You will need all of your current loan information, including the balance and the lenders contact information.
After you have all of your documents together, you may want to scan and upload them on your computer if you are planning to apply online. The more prepared you are, the faster the refinancing process will be.
Make sure your credit is in good shape
Apply and compare
- The interest rate
- Your cash flow and the repayment terms
- Customer satisfaction
- Hidden 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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Refinancing Your Car Loan: What To Watch Our For
While any of the reasons above could make refinancing your car loan a good deal, there are some serious pitfalls to watch out for. For example, you have to watch out for fees involved in refinancing, including prepayment penalties on your existing car loan and fees related to the new auto loan you’re considering.
While most car loans don’t have any prepayment fees, you’ll still want to read over your loan contract to check. In the meantime, you’ll also want to compare new auto loans to look for options that don’t charge origination fees or application fees.
Also remember that refinancing your car loan to extend the term can come with its share of pros and cons. You may be able to secure a lower monthly payment, for example, but you can wind up paying off your car loan a lot longer than you wanted.
You should also consider whether refinancing your car loan is worth the time and effort. If you don’t owe a lot and you can afford to pay more than the minimum, you can ditch your car loan faster by making larger monthly payments instead.
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You Want A Lower Interest Rate
Interest rates have dropped since you got your car loan or perhaps you just found a much better loan rate. You may have financed through your dealer when purchasing your car for the sake of convenience. At the time you didnt realize the interest rate was high. Dealers do want to make a profit after all. Since then, youve seen a rate advertised by your local credit union or another financial institution that was much lower. Refinancing if the rate difference is significant can potentially save you a nice sum over the remaining life of the loan. There may even be further rate discounts for signing up for services such as direct deposit and automatic loan payments. Never hurts to ask so you know youre getting the best rate.
How To Refinance A Car Loan
Once youve weighed your options and decided a refi is the way to go, follow these simple steps.
7 steps to apply for an auto refinance
Documents Needed To Refinance Your Auto Loan
To refinance any kind of loan, some documentation is required. These pertain to personally identifiable information, income, residence and your cars specifications, among others.
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Best Refinance Rates: Openroad Lending
- Minimum credit score: Not stated
- Loan terms : Up to 72 months
OpenRoad Lending offers auto refinance loans with extremely low rates. While they dont disclose their full range of interest rates online, qualified borrowers can expect to receive quotes for competitive rates.
Minimum refinance amount of $7,500 in most states
Refinance restrictions on vehicle mileage, age, and brand
OpenRoad Lending specializes in auto refinancing, offering traditional and cash-back refinancing options and a wide range of loan terms. Borrowers with excellent credit can refinance into some of the lowest rates available. In addition, it provides financing options for individuals across the credit spectrum.
- : Said to be very low, apply to see them
- Minimum loan amount: $7,500 in most states
- Repayment terms: Up to 72 months
- Recommended credit score: Not disclosed
- Availability: Nationwide
Founded in 2009, OpenRoad Lending specializes in auto refinance loans and offers a range of car-related financial products. Rates for refinancing are said to be very low, but you must apply to see them. OpenRoad Lending says that its customers tend to save $100 per month or more with their new lower payments.
Its traditional refinance product is open to borrowers of a range of credit ratings. There’s also a cash-back refinancing option, which allows borrowers to get cash out by refinancing their vehicle.
When You Should Refinance Your Auto Loan
Should you keep your car loan the way it is, or refinance your vehicle? There are several scenarios that make it worthwhile to consider refinancing a car loan. If you are wondering if or when you should refinance your auto loan, here are a few situations where it might be warranted.
Divorce. If you are divorcing and separating assets, you will want to make sure there is one name on your auto loan. That should be the name of the person who is in possession of the car. If your name is on as the co-owner of a vehicle you no longer have access to this is an issue. You are still liable for payments on that loan if the other person defaults. Also, should the car become damaged or even totaled in an accident, anyone whose name is still on the title is responsible to pay any deductibles that apply.
Change in financial situation.Did you recently experience a traumatic life event such as a job loss or unexpected medical expenses? You can significantly lower your monthly car loan payments by refinancing your auto loan. By extending the term of the loan, your monthly payments will be smaller and more affordable. You may also be able to secure a lower interest rate, thereby saving even more every month. If your financial situation improves, you can always make more than the minimum monthly loan payment. This way you can pay the balance off sooner, saving even more interest.
Contact us today and lets see how much money we can save you when you refinance your auto loan with us.
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Ready To Make A Decision
Remember that you have options. While the prospect of saving money can be exciting, a refinance is nothing to rush into. Taking time to do research and considering both sides of the coin is the best way to make a confident decision.
The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal, tax or any other advice specific to you the user or anyone else. The companies and individuals referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.