Find Out The New Lenders Requirements
If youre planning to refinance with a new lender, you might have to meet some minimum requirements first.
- When you took out your original loan, your credit score took a hit from the hard credit check. If it hasnt rebounded back, you might not qualify for a loan with a new lender or if youre approved, it might be at a higher interest rate than your current loan.
- Minimum loan amount: Lenders require a minimum amount that you can borrow. If the amount youre refinancing is below that minimum amount, you wont be eligible to take out an auto loan.
- Repayment period: Many lenders have a minimum repayment period, like three or five years. If youre set to pay off your loan in the next year or two, it might not make sense to refinance your loan, even if youre eligible. You could end up paying your loan for longer than you need to, which means youll pay more in interest overall. It also means youll be paying back a car thats losing resale value.
If Your Financial Situation Has Changed Or You Just Want Better Car Loan Terms Refinancing Your Car Loan May Be A Good Move
When you refinance your car, you take on a new loan to pay off the balance on your current car loan. Maybe your credit has improved and you might qualify for a lower interest rate, or your financial situation has gotten better and you want to remove the co-signer from your original loan. Refinancing with a new loan could mean getting better terms and rates that are more in line with your current financial needs and long-term plans.
Read on for tips to help you determine if a refinance is right for you, and to learn how to refinance a car loan.
Youre Very Upside Down
Cars depreciate quickly. Because auto loans are secured by the car itself, the cars worth is important because it helps understand how much of the loan could be paid back simply with the value of the car.
Loans that are upside down have a high loan-to-value ratio, or LTV. This means that the amount of the loan is more than the value of the car.
Loans are more likely to become upside down if it has a high interest rate, or if the car itself is older, higher mileage, or if the model tends to have a lower resale value. Given that cars do depreciate more quickly than other assets, being a little bit upside down is normal. Most lenders accept upside down refinance loans up to a certain point, typically around 125%.
However, if your LTV is risky, you may encounter loan offers that come with high rates or large down payments, ultimately costing you more. If you are quite upside down in your current loan, over 125% LTV, it might be difficult to find a lender willing to refinance altogether.
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Lower The Interest Rate
Lowering your interest rate might be able to save you money both in your monthly payments and over the life of your loan. However, sometimes lowering your interest rate might result in a shorter loan term, making the payments slightly higher each month. Luckily, that will also mean paying off your loan more quickly and saving money over the life of your loan.
Refinancing With A Better Credit Score
On the flipside, your credit score may have improved since your original plan was arranged. You may have consistently made repayments on your vehicle whilst also improving your credit rating in other areas of life, such as with being approved for a mortgage or credit card.
Therefore, you may be able to access better interest rates than you were initially given now having proved youre reliable. Why not try and get the best deal?
Do bear in mind, however, that over-checking your credit score can be detrimental as leasers see it as representative of the need to borrow money, rather than shopping around out of personal interest. Therefore, if you know its improved, dont check a further ten times – go for it.
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How Soon Should I Ask To Refinance My Car Loan With Bad Credit
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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How Cash Out Auto Refinancing Can Work For You
If done appropriately, auto refinancing can work for you in a couple of ways. Depending on your current financial position, you can use cash out auto refinancing to lower your payment or even lower your interest rate.
If you have questions about whether auto refinancing with cash out will work for you, you can always bring your questions to your credit union lending experts. They can answer your questions, review your options, and explain what they mean to you.
Here are some key points to remember:
- Refinance your existing vehicle and “cash-out” the equity in your car up to 100% of the value
- Utilize the loan proceeds beyond refinance amount for any purpose
- Applies to current model year and 10 model years back i.e. 2007 and newer for 2017, 2008 and newer for 2018, and so on
Thinking of applying?
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Pros Of A Car Refinance
There are some benefits to refinancing. The process does not take long, and you can obtain a free quote to determine if these benefits apply to your case.
Here are several advantages of refinancing your car loan.
A Lower Interest Rate
If you had a poor credit score when you first purchased the car, your interest rate may be significantly lower than it is right now.
In addition, an individual who refinanced several years ago may also qualify for a lower rate because interest rates have fallen since they purchased the loan.
If the current interest rate you could obtain is one or more percent lower than what you are paying, consider refinancing. You will spend less overall to buy your car.
You Want to Consolidate Debt
Your vehicle is a valuable asset. As a result, it is possible to borrow against the value of it.
For example, if you own a car worth $12,000 but you only owe $8,000 on it, you may be able to borrow against that $4,000 value. You could use these funds to help you pay off debt or handle other financial needs.
In some situations, you can use this equity in your vehicle to pay off all of your credit cards . This, too, can save you money.
You Want a Lower Monthly Payment
There are several ways you could obtain a lower monthly payment on the loan.
First, if you secure a lower interest rate, the monthly payment will be lower as well. This could help make your budget a bit easier to manage. How much lower depends on the debt you owe, the interest rate, and the term.
Common Car Refinancing Mistakes
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.
Refinancing your auto loan can help you get out of a sky-high payment or interest rate, but some pitfalls in the refinancing process could have you paying more than necessary. Here are some common car refinancing mistakes and how you can avoid them:
In this article, well discuss the following mistakes:
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Check Your Credit Score
Your credit score is one of the most important numbers for your financial life. Lenders reference your credit score because it essentially summarizes your financial history, putting a numerical value on it to determine your creditworthiness.
Because scores can change easily, and because its such an important lender consideration, its essential that you understand your credit score before applying to refinance. There are resources online that allow you to see copies of your every year from all three bureaus .
How To Refinance A Loan
If you’re looking to refinance a loan, you should first examine the specifications of your current agreement to see how much you’re actually paying. You should also check if there is a prepayment penalty on your current loan, as the value of refinancing could potentially be outweighed by the early termination cost. After finding the value of your current loan, you can comparison shop between a few lenders to find the terms that best fit your financial goals.
Whether you’re looking to change term lengths or lower your interest rate, a variety of loan options are available on the markets today. With new online lenders looking to compete with traditional banks, there are services and packages tailored towards all financial goals. For the most qualified borrowers, this competition can help cut the costs of a loan by hundreds or thousands.
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How To Refinance Your Car
Here are 8 simple steps for how to refinance your car loan in Canada.
Step 1: Review your current car loan.
Check your loan statement or log in to your account to find the following information:
- Monthly repayment
- Prepayment penalty, if any
- Lenders customer service number
While youre reviewing your loan documents, weigh any fees youll be charged for paying off your loan early against potential savings from refinancing an auto loan to make sure its worth it.
Step 2: Check the value of your car.
Your cars current value will determine how much you need to borrow and if refinancing your auto loan is a viable option. To get an idea of how much your car may be worth, visit sites the Canadian Black Book or Autotrader.ca. Your vehicles make, model, mileage and condition, as well as where you live will all impact its overall value.
If your car is worth less than the amount you want to borrow, you could end up paying much more for your car than its worth. Instead, you might want to consider selling it privately or trading it in at a dealership for a less-expensive alternative.
Step 3: Check your credit and eligibility.
Factors like your credit score, debt-to-income ratio, current loan amount and vehicle will all play a role in whether your application to refinance your car loan is approved.
Step 4: Compare your car loan refinancing options.
Cons Of Refinancing Your Car
If you’re thinking, “Does refinancing your car hurt your credit?” it’s worth taking the time to consider all your options. There can be a lot of benefits if you refinance your car smartly. But that doesnt mean its the right choice for everyone all the time.
There can be some significant drawbacks to refinancing your car:
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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.
When Should I Refinance My Car Loan
There is no best time to refinance your car loan if it saves you money, it is a good time. There are a few situations where refinancing makes the most sense.
- Refinance when auto rates have gone down. Most car loan interest rates fluctuate based on the prime rate and other factors. If you purchased your car a while ago, it is possible that car loan rates have decreased since then.
- You have improved your credit score. Even if market rates havent changed drastically, improving your credit score may be enough to get a lower rate. If you have improved your credit score since signing up for your initial loan, you may qualify for better loan terms.
- You got your initial loan from the dealer. Dealers tend to charge higher rates than banks and credit unions to make a bigger profit. If you took out your initial loan through dealer-arranged financing, refinancing with a different lender could get you a lower rate.
- You need lower monthly payments. In some cases, refinancing a car loan may be your ticket to a more affordable payment, with or without a lower interest rate. If your budget is tight and you need to reduce your car payment, you could refinance your loan to a longer term. But while your monthly payment will be lower, expect to pay more in interest.
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Is Refinancing Worth It
If youre simply refinancing, and you know youll get a better rate and save yourself some money, its really a no-brainer. If, however, youre not sure youll save any money, use this auto refinance calculator to estimate your savings and decide if it makes good financial sense to refinance.
In many cases, people refinance because they need to lower their monthly payment, usually due to some unforeseen financial crisis. Finding balance between your immediate financial needs and long-term financial health is never easy but if you do the math and plan accordingly, you can make the right financial decision for you and your family.
If refinancing your vehicle is necessary to improve your cash flow, you may refinance now to get back into a positive financial situation. Once your personal finances have stabilized, start making extra payments on your auto loan to pay it down faster, provided that there arent prepayment penalties on your new loan. Youll pay off your auto loan sooner and save yourself some interest expense.
You Didnt Get The Best Offer The First Time Around
Even if interest rates havent dropped or your financial situation hasnt improved significantly, it may be worth shopping around for better loan terms anyway. For example, you may have received a loan with an interest rate of 7% when other lenders were offering lower rates.
This may be especially wise if you got your original loan from a car dealer, as dealers sometimes offer higher interest rates to make extra money.
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Calculate Your Savings Before You Apply
Most people want to refinance because they either want to save on their monthly payments, over the life of their loan, or ideally both. If one or both of these is your main goal, its important to understand the math behind the offers youre presented.
Check out our auto refinance calculator to help you double check.
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.
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How Can An Auto Refinance Loan Help
Many people dont know, but you can go to a different lender and attempt to obtain an auto refinance loan with a better rate. Car Deal Expert is a great place to pre-qualify for the auto refinance loan you need, for instance.
An auto refinance loan works the way home refinancing does. The replacement loan pays off the remainder of the old loan and leaves you in a position where youre paying on a new auto refinance loan with a lower interest rate. This enables you to save thousands of dollars over the life of your auto loan and pay it off more quickly. With the money you save, you can pay off other debts, invest, or whatever you like!
Auto Refinance Mistakes: Faq
When is the right time to refinance my auto loan?
The right time to refinance a car is when doing so would help you. Refinancing may be a good idea when your credit score has gone up, when you want a different term, when you want a smaller payment or when interest rates have fallen. You can read more about when to refinance your car and when to wait.
WHAT can I do if my auto refinance application is denied because my credit card balances are too high?
Credit scoring models place emphasis on your , which is the amount of money you owe on revolving accounts compared with your total amount of available credit. If you can afford to reduce the balances on your credit cards, do so and reapply after you reach a credit utilization of 30% or less, which is ideal according to VantageScore and Experian. This can help to boost your score and improve your credit utilization score.
How do I refinance my car loan?
First, determine whether car refinancing will help you, then collect your documents and apply to a few lenders. Compare the offers you receive and accept the best one. Heres a full guide on how to refinance your auto loan.
Can I get a cash-out auto refinance loan?
You may be able to get a cash-out refinance on your car, but there are pros and cons to consider before doing so. Often, taking a cash-out auto refinance loan will mean a longer loan term, which will increase your total cost of borrowing.
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