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How To Refinance A Car Loan

Can you refinance a car loan? You can do it in most cases. The procedure is as follows:

In addition, it is advisable to know the customer service number of the lender in case you have questions.

For a loan application, you need also the below details:* Your drivers license * The vehicle identification number of your car * Pay stubs from your current employer or proof of employment and* Your Social Security number.

How Much Does It Cost To Refinance A Car Loan

The exact costs of refinancing will vary. Most auto lenders don’t charge application or origination fees, and auto loans don’t typically have a prepayment penalty. The most likely cost will be in terms of total interest if you extend the loan term, so be sure to review all terms on your current and potential new loan.

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Youre Having Trouble Keeping Up With Bills Each Month

Even if youre not able to secure a lower interest rate, it may still be worth trying to find a loan with a longer repayment period in order to reduce your monthly car payments.

If you cant find a suitable loan, you may also be able to renegotiate the repayment period on your current loan. But keep in mind that more time spent paying back your loan is also more time spent paying interest. In general, youll pay more interest overall if you have a loan with a longer term.

The Best Reason To Refinance: Pay Less Interest

The ability to borrow at a lower interest rate is a primary reason to refinance a loan. That lower rate means you pay less for your car after taking all of your borrowing costs into account. Because the interest rate is also part of your monthly payment calculation, your required payment should also decrease. As a result, managing your monthly cash flow becomes an easier task.

When you can replace your existing loan at a lower rate, its best to refinance as early as possible. Most auto loans are amortizing loans, which means you pay a fixed monthly payment with interest costs built into the payment.

Over time, you pay down your debt, but you pay most of your interest costs at the beginning of the loanso get that rate down sooner than later to start cutting costs. An amortization table can show you exactly how much you can save by refinancing.

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How Trading In A Car Works

Ideally, the trade-in process starts with you doing a bit of research to find out your cars trade-in valuebefore heading to the dealership.

The dealer you are trading in to is going to try and get for the lowest price available, said Katie OToole Smith of Katie the Car Lady, a consumer advocate who helps customers navigate the car buying process. To get the highest price for your trade-in, Smith recommends getting the car evaluated by more than one dealership. Kelley Blue Book and Carmax are resources you can use to research before negotiating.

Once you and the dealer come to an agreement on the value of the trade-in, the price of your car is subtracted from the price of the car youre buying, like a down payment.

For example:Say you own a car with a trade-in value of $10,000, and you want to trade it in for a $15,000 vehicle. The dealer subtracts the price of your trade-in from the cost of the new car , and then you pay the remaining $5,000, plus fees, in cash or with a car loan.

New car: $15,000Your cars trade-in value: $10,000

Remaining balance:$5,000

If you still owe money on the car youre trading in, the dealer will pay off the loan to obtain the title.

Trade-in value:Retail value:

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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Should I Refinance My Home Loan

Find out how much you could potentially save by refinancing your loan.

This calculator gives you a breakdown of your repayments, potential savings and interest mapped out across a chosen set amount of years.

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When Refinancing Might Be A Bad Idea

While refinancing your car loan can have a positive impact on your finances, there are some pitfalls to watch out for.

• Your loan has a prepayment penalty. A prepayment penalty can kick in if you pay off your loan in full before it’s due. While this fee isn’t too common among major car lenders, it does exist. If your loan documents show a prepayment penalty, refinancing likely won’t make sense if the savings you get from the loan switch don’t exceed the cost of the penalty.
• You want to extend the loan term. While this strategy can be helpful if the alternative is defaulting on the loan and losing your car, it’s generally not a good idea if you can afford the payments you currently have. That’s because if you replace your current loan with one that has a longer repayment term, you will pay more in interest over the life of the new loanunless you can manage to pay it off early.
• You owe more than it’s worth. If you’re underwater on your car loanmeaning you owe more than the value of the vehiclerefinancing is still possible but not always a great idea. This is primarily because your original lender will require you to pay the difference as a lump sum before considering the matter closed. If you don’t have enough cash lying around, you’ll have a difficult time making it work.

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Homeowners May Want To Refinance While Rates Are Low

US 10-year Treasury rates have recently fallen to all-time record lows due to the spread of coronavirus driving a risk off sentiment, with other financial rates falling in tandem. Homeowners who buy or refinance at today’s low rates may benefit from recent rate volatility.

Are you paying too much for your mortgage?

How To Use The Refinance Calculator

Our mortgage refinance calculator assumes that you would be investing the money youve saved . Refinance calculator for illustrative purposes only.

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Where To Apply For Refinancing

Banks and credit unions are usually the best options when it comes to refinancing your vehicle. Online lending companies are also a viable alternative, and some even specialize in auto refinancing. However, online lenders rarely offer the competitive interest rates that are available from traditional banking institutions. Moreover, dealing one on one with a bank or credit union in your community typically makes the entire loan process easier. You can speak with a loan officer directly, and go over all aspects of your refi agreement before you sign the contract. You will also have direct access to customer support throughout the life of your loan.

As with any car loan, you will want to investigate a few different lenders in order to find the best deal that is available. Compare and contrast three to four different refinancing offers, and pick the one the best suits your financial needs at the time. Remember, refinancing a vehicle is simply paying off one loan with another, and you do not want to rush into any agreement that you don’t fully understand, or that you are not completely comfortable signing.

Using The Auto Loan Calculator

• This calculator uses your original loan amount, length of the loan and interest rate to calculate your current monthly payments. From there, enter the number of months left on the loan, then enter how much extra you’d like to pay each month to see how much sooner you’d pay it off.

You can adjust that figure using the slide bar to experiment with how varying the additional payment would affect how early you can pay off the loan and how much interest you’d save. Your results appear instantly at in the blue field at the top of the calculator and just below it at right as you adjust the extra payment figure.

• FAQ: Arm yourself with various scenarios that fit your budget goals

Start by entering the number of months remaining on your car loan, than enter the full length of the loan, in months. If you want to see the effect of making extra payments over the entire length of the loan, just enter the full length of the loan in both places. Next, enter the amount of the loan and the interest rate. The calculator will immediately display your regular monthly payment for the loan in the place indicated. Next, enter any additional amount you’d like to pay each month. The number of months you’ll shorten your loan by and your interest savings will appear at the top of the page.

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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.

Is Refinancing Worth It

Typically, it is worthwhile to refinance if the reduction in total interest expected to be paid over the life of the loan is greater than the cost of acquiring the loan.

Monitor refinance rates regularly and use Zillows free refinance calculator to make sure a refinance is worth it for your financial circumstances.

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Reasons You Might Not Want To Refinance

Refinancing usually requires you to have a certain amount of equity in your home. If you dont have that, refinancing can be tough. The general refinancing rule of thumb is that lenders like you to have at least 20% equity in your home but there are exceptions.

Gone through some difficult financial times since you got your first mortgage? Say your credit has gotten worse since you first got your mortgage. You may not qualify for a refinance mortgage even if interest rates are available that are lower than what you have now.

Just like when you get a mortgage to first buy a home, there are some fees to refinancing your mortgage. The closing costs for a refinance cover things like application, loan origination and appraisal fees. If you dont have the money to pay for closing costs up front, there is an option to roll them into the new mortgage. But this isnt always the best decision. Sometimes adding those extra costs to your new monthly mortgage payments can negate any savings the refinance would otherwise get you.

Planning to move soon or have a job that uproots you regularly? Refinancing may not make sense because it generally takes some time to recoup those up-front closing costs.

And one more reason you might want to hold off on refinancing your mortgage: if you have to pay a penalty on your original mortgage. Some lenders will charge you a fee for paying off your mortgage early, even if youre refinancing. Again, this could totally negate the savings of the refinance.

Is A Refi The Right Choice For Me

If you have a high interest rate on your car loan, and current market rates have dropped, you may want to consider refinancing. Interest rates are at near-historic lows right now, and you may qualify for a better rate.

Borrowers whose credit has improved significantly since they first took out the loan may also be eligible for a better rate. For example, if you had a bankruptcy or default fall off your credit report, your credit score may be much higher now.

If you can refinance with a co-signer or co-borrower, then you may receive better rates if you were the only borrower on the original loan.

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What Do You Need To Refinance Your Car

Since it isnt much different than making a car purchase, chances are you already have most of the information you need. However, before you take the leap, be certain that you are eligible to refinance. Consider whether you have defaulted on the lease or are in good standing. Be sure that your and working situation are stable and viable for refinancing. Provided you are eligible for the new loan, the next step is getting your documents together.

Tax information is a common request, so bring your most recent filing records. Additionally, three months of pay stubs from your employer are necessary as well. Plan ahead and bring your banking details. Often, people go with a void cheque to speed up the process and eliminate the chance of errors. You will also need relevant identification. Both a government issued photo ID and a second identification are required. A drivers licence and a passport are both suitable options. Additionally, be sure to have all the necessary details for your vehicle. Registration documents work well for this purpose.

Ensuring that you have all the essential documentation is not only important, but it is also a great way to speed up the process and develop a better rapport with the lender. Preparing ahead of time gives you a good opportunity to highlight all reasons for refinancing in an organized manner.

When Should I Refinance My Auto Loan

A good rule of thumb is to consider refinancing your auto loan when interest rates have dropped or when your financial situation has improved.

As mentioned above, a lower interest rate can help in a lot of ways. You can free up cash each month with a lower monthly payment, pay off the loan sooner and save on the total amount paid over the life of the loan.

However, many car owners will refinance once their financial situation has improved since their original loan. Maybe your credit score has increased, or you simply did not shop around for the best rate with the first loan.

Whichever circumstance you are in, an auto refinance can have a considerable improvement on your current loan and financial situation.

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