How Difficult Is It To Refinance
Each lender has a variety of requirements. It can be difficult to sort through them all, but Credit Karma can help you narrow down some of the options.
One lender requirement youll want to be aware of is mileage.
LendingClub will refinance a personal vehicle with fewer than 120,000 miles. But for some lenders, lower mileage could mean better rates. Navy Federal Credit Union, for example, offers loans with rates as low as 1.79% as of May 2020, but only for vehicles that havent logged 7,500 miles or more.
Also, be aware that some lenders may not refinance loans for your vehicles make or model. For example, if you drive an Oldsmobile, Daewoo, Saab, Suzuki or Isuzu, you cant qualify for an auto refinance loan through Capital One.
You may also need to look outside your current lender for a loan. While some lenders, like Bank of America, will refinance an existing loan theyve given you, other lenders wont.
Can You Refinance A Car Loan With Bad Credit
Yes, several lenders offer auto loan refinance options for borrowers with bad credit. Some lenders don’t even have a credit requirement to get a loan.
When applying for these loans, watch out for high interest rates. Many loans for borrowers with poor credit come with high annual percentage rates that can add significantly to the cost of the loan.
Does Refinancing A Car Hurt Your Credit
Like with any loan, it’s important to know the potential effects on credit scores. Does refinancing a car hurt your credit or will it raise your score?
Ultimately, reducing debt that you can’t afford is a good thing. So, in the long run, refinancing can help to increase your credit score. If you do refinance, be sure to make your payments on time because that contributes to 35% of your .
But as is common with taking out a loan, refinancing does require a hard credit inquiry. That means your credit score will temporarily drop up to five points when you submit an application with your lender.
If you shop around and submit multiple applications with various lenders, your credit score can drop. But, the impact to your credit score should be the same as if you only submitted one application, assuming you submit all your applications within a 14 to 45 day window.
Now that you understand the pros and cons of refinancing a car loan, let’s dig into the right time of when to refinance.
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Your Credit Score Improved
Have you been working to raise your credit score? Good for you and congratulations! This behavior could pay off with a better interest rate and lower payments on your auto loan.
One of the key drivers of loan terms is credit score.2 If you improve yours, typically you may be able to save money. After doing the hard work of paying your bills on time and getting on top of your debt, youve positioned yourself for refinancing your auto loan.
Tip: Not sure how refinancing works? Many lenders allow you to apply online. Following are some of the documents you will typically need to provide. Keep in mind, depending on the lender you choose, there may be other documents required, including:
- Proof of employment/income.
- Vehicle information.
- Current car loan details.
The time it takes to review your refinancing application depends on the provider. Some can do it almost immediately. Others may take a little time. If youre approved, the lender will typically provide the terms of the loan theyre offering including the interest rate, loan amount and fees. Once you have that information, you can compare offers and decide which loan provider you want to use.
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.
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Lower Your Monthly Payment
Sometimes, an expensive occurrence such as having a baby, unexpected medical bills, or a natural disaster can put you in a situation where you have to reduce your monthly expenses. Refinancing might allow you to extend the duration of your loan, thereby lowering your monthly payments. For instance, if you owe two more years on your current loan, it may be possible to refinance and extend the term to four years.
Adding two years onto your loan should substantially lower your monthly payment, depending on the interest rate you get. You will be paying for two years more, but you will free up some cash on a monthly basis, helping you get through a rough patch. Keep in mind, though, that this will also mean that youll pay more interest over the total life of the loan.
Changing lenders can be a pro or a con, depending on the relationship you have with your current lender. If your lender has poor customer service, changing lenders could be a benefit. If you like your lender, you can try to refinance with them, but you may need to look elsewhere to get the best rate.
Is It Time To Refinance Your Car Loan Heres What You Need To Know
Anuj Nayar is the first financial health officer at LendingClub .
A significant shortage in key auto parts and a lack of new car inventory as a result of the pandemic have forced many people to put a pin in scoring a new set of wheels. Whats more, the lack of inventory is causing a spike in the average car price for both new and used cars. Sticker prices for new cars are up 8.6% year over year, and used car prices are up 27%, according to data from Edmunds.
But even if you are not going to be driving a new set of wheels this fall, you can still use your car or truck to do something almost as exciting save you money. Auto represents the third-highest share of U.S. household debt, with Americans owing more than $1.4 trillion on their auto loans as of Q2 2021. So working to bring an auto loan down could be huge when it comes to debt management.
If you didnt shop around for an auto loan the first time around, or if your credit score prevented you from receiving a favorable interest rate, you may be able to benefit by refinancing now. If youre interested in an auto refi, heres what you need to consider.
Check your APR rates.
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Within Two Years Of The Payoff Date: Is Refinancing Still Worth It
Even if youre getting close to paying off your vehicle, you could still benefit from refinancing. Maybe something has occurred that requires you to change your term or monthly rate so that you can lower your monthly payments. Or, perhaps your current lender is difficult to work with their representatives may be hard to reach and challenging to communicate with.
The good news is that it’s rarely too late or too early to refinance. If you can save money on payments at any point in your car loan, or if you’d rather pay off your vehicle in one year instead of two years, you may want to look into refinancing options. Lenders may offer incentives for refinancing, such as the cash back and 90-day payment break offered by Desert Financial.
If you can lower your interest rate by at least one percent or if you’re willing to extend your loan so that you can lower your monthly payments refinancing within two-to-three years of your payoff date may be a good option.
Speak To A Credit Counselor
If youre not sure refinancing your auto loan is the right move, you may want to seek professional help, like talking to a certified counselor with the National Foundation for Credit Counseling . The NFCC is the largest nonprofit financial counseling service in the U.S. and helps people get financial control over their lives. It offers debt and credit counseling for free or at a minimal charge, and can help you figure out if refinancing is right for you.
Even though an auto loan cant be included in a debt settlement plan, theres still a benefit to talking with a credit counselor if youre having trouble making payments. A nonprofit credit counselor could provide solutions that you may not be able to find on your own. You can use the NFCC locator to find a credit counselor in your area.
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You May Already Have The Best Rate
If you purchased your car new, you likely got an attractive new car rate, especially if you took advantage of a special interest offer that can feature rates as low as 0% APR. The refinancing rates for some lenders, among them Bank of America, are higher than even their used-car rates. Also, interest rates have been at record lows due to COVID-19 experts predict rates will begin to rise in late 2022 to 2023.
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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Apply For Your Auto Refinance Loan
There are a few steps youll need to take to apply for an auto refinance loan. Once youve decided on a lender, youll need to gather all required documents before applying. This can include information about yourself, like your name, address, and social security number, as well as information about your vehicle and your previous loan.
If youre interested in applying for an auto refinance loan, its a good idea to wait to apply until your finances are in order. For example, if your credit score is near a threshold, you might want to take steps to raise your score before applying to qualify for lower rates. Once your application is accepted, youll need to begin repaying your new loan. Its a good idea to set up automatic payments each month to make sure you never miss a payment.
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.
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Your Financial Situation Has Improved
Lenders canuse a number of factors to decide your auto loan rate, including your credit scores and debt-to-income ratio, which is calculated by dividing your monthly income by yourmonthly debt payments.
As such, improving your credit health and decreasing your DTI ratio can lead to more-favorable terms on your refinanced loan.
Your Current Credit Score
Check your credit score using one of the three major bureaus: Equifax, Experian, and TransUnion. Is your credit score better than it was when you initially applied for a car loan? If so, now might be a good time to refinance.
On word to the wise: Refinancing will result in another hard inquiry on your credit report, which will negatively affect your score for about a year. It may also lower the average age of your accounts, which can negatively affect your credit score. So, if you need a high credit score for another reason, like applying for a new mortgage or taking out a new lease on an apartment, consider this in your decision to refinance your car.
However, there’s no hard inquiry involved in getting a quote, so if you’re not sure whether the savings will be enough to make a difference, you can always get a quick and easy quote to help make your decision.
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Your Current Loan Has Prepayment Penalties
Paying your loan off early is one of the best ways to reduce how much you pay in interest unless your loan comes with prepayment penalties. Financial institutions sometimes attach these penalties to loans to make up for the interest they lose when borrowers repay their debts in full before their loan terms end. Prepayment penalties can easily cost as much as or more than youd save when you refinance your auto loan.
Is It Best To Refinance In A Falling Rate Environment One Industry Expert Explains How Auto Loans Are Different From Mortgages
Homebuyers have been taught that when interest rates go down, it’s time to consider refinancing the mortgage. Is the same true of your auto loan?
In this video recorded on Feb. 4, Kevin Bennett, CEO of consumer finance start-up MotoRefi, joins Brendan Mathews from Motley Fool Ventures to talk about the best times to refinance your auto loan. Auto lending and mortgage lending are two very different industries, and what’s true for one isn’t always true for the other.
Brendan Mathews: Kevin, how does changing interest rates affect your business and potentially falling interest rates?
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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.
Which Is The Best Lender To Refinance With
The higher your credit scores and the stronger your finances, the more choices youll have. Apply to multiple lenders to see what new interest rate you can qualify for. Comparing several offers gives you the best chance of finding the lowest rate.
Keep in mind that rate shopping can also lead to being contacted by multiple lenders, especially if you use a service that compares offers for you. Consider opening a new email account and getting a free Google Voice phone number that you can check separately.
Most lenders use what is known as a soft credit check that gives you a rate estimate but does not hurt your credit score. If you apply to more than one lender that requires a full application and hard credit check, credit scoring formulas tend to treat multiple inquiries in a short time period as a single event. For most FICO formulas, for example, that period is 45 days.
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Refinance Sounds Great But What Is The Best Way To Refinance A Car Loan
The best way to refinance your car loan is to use a company that specializes in car loan refinance, like Auto Approve. Since car refinancing is our main focus, you can rest assured that we know everything there is to know about the refinance process.
Car refinance sounds like a complicated, mysterious process with a lot of options to weigh. But with Auto Approve, it is actually much easier than you may think. In fact, refinancing a car is much simpler than refinancing a mortgage, and can typically be done in a few hours. All you need to do is fill out some basic information and we will shop around and get the best quotes for you to compare. We can then help you to weigh all of your offers and decide which car loan is right for you. And after you decide, we can help you with all of the paperwork
With a 4.7 out of 5 rating on Trustpilot, our clients can testify to the ease and effectiveness of refinancing. Some of our customers report slashing their interest rates by as much as 6 percentage points! That literally translates to thousands of dollars in savings. So if you are wondering is refinancing a car worth it?, reach out to Auto Approve to get your free quote today!