Ways To Get Out Of Car Loan
Car loans are becoming more and more popular, with many people having to pay for their cars for years in order to keep them driving. But unlike other loans, you cannot just stop paying your car loan if you start a new job or something! Read this article for five ideas on how to get out of your car loan.
Be Wary Of Extending The Loan Term
While opting for a longer term loan can certainly reduce your monthly payment, it can also significantly increase the total cost over the life of the loan. A shorter term loan is usually a better deal, though there are situations in which extending the term may be warranted.
Even if you do take out a longer term loan, its worth noting that you can eventually start making extra payments to the principal, which could significantly reduce the overall cost.
When To Refinance A Car Loan
Many consumers think about when to refinance a car loan, but those who have never refinanced anything before come to the process at a serious disadvantageat first.
Once you learn a couple of things to do before fully committing on paper to refinancing your car loan, youll never worry again about whether youre making the right decision.
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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 you’ll 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.
How To Refinance A Car Loan In 5 Steps
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Whether your goal is to get a lower interest rate or a lower monthly payment or both an auto refinance loan could help. Refinancing a car loan could make it easier to work toward your other financial goals. However, its not the right move for every situation. Before you refinance your car loan, heres how to tell if its the right move for you and, if so, steps to get the best deal.
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When Is It A Good Time To Refinance Your Car Loan
In collaboration with Loans Canada
Do you already have an auto loan to help finance your car? Are you looking to take advantage of lower interest rates to save money on your existing loan? If so, refinancing your loan could help you save money over the long haul and ease your financial burden.
If keeping more money in your pocket is on your agenda for the new year, you may want to consider refinancing your current car loan for one that comes with a lower interest rate. Let’s take a look at auto loan refinancing to see if it’s the right fit for you.
How Refinancing a Car Loan Works
Refinancing an auto loan involves taking out a new loan to pay off the remainder of your existing car loan principal. Like your original car loan, refinancing is secured by your vehicle and paid off in regular installments over a certain amount of time until the amount is paid off. Your replacement loan will come with new terms and a new interest rate, hopefully lower than what you’re paying right now.
Can Anyone Refinance Their Car Loan?
Before you apply to have your auto loan refinanced, it’s important that you understand the requirements for such an arrangement, which typically include the following:
Type of vehicle – Certain vehicle types might not qualify for auto loan refinancing, such as commercial vehicles or RVs.
In order to refinance an auto loan, you will need to gather the following documentation:
Choosing a Lender to Refinance With
Your Credit Score Has Improved
Your credit score is very important in car finance, as auto lenders sort applications by credit tiers. The APR you get, as well as whether you even receive an offer, are both largely determined by the credit tier youre in. If your credit score has improved since you initially purchased the vehicle and youve moved up a tier, then its likely youll qualify for a better financing deal. Heres how you could improve your credit score.
Getting a better APR could save you quite a bit in interest over the life of your loan. For example, refinancing $15,000 from a 7% rate to 5% when making a monthly payment of a couple of hundred dollars would save you around $800 in interest.
Heres how much you would pay in interest over the life of a 5-year loan if you borrowed $25,000, based on the APRs for closed auto loans by credit score on the LendingTree platform in the first half of 2021.
|Lifetime Interest Charges on a $25,000 Loan|
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Pros And Cons Of A Car Loan
Purchasing a new car is a great expense, so it can be hard to know what the best loan option would be. It all depends on your personal financial situation and which of these benefits seem most valuable to you: paying off the vehicle in one month or having the flexibility to change cars with greater ease in the future.
There are many different types of car loans, but the most common type is a loan with a fixed monthly payment. This allows the borrower to make payments month after month without needing to worry about whether or not they will continue to have the ability to pay for the loan. The best part about this type of loan is that it can be paid off in as little as three years, saving people from years of credit card debt and interest payments. The downside is that borrowers usually cannot trade their vehicle in for another type of vehicle if they no longer have the means to make the monthly payments- which could mean that people end up stuck with a depreciating asset.
Has Your Credit Improved
If your credit has improved, refinancing could result in a lower interest rate, which could save you money in interest over the life of the loan. But if your credit hasnt improved, getting a lower rate may be difficult unless interest rates have dropped since you got your current loan.
If youre not sure, check your credit to get an idea of where your credits at. Checking your credit reports can also help you identify any potential errors that may be impacting your credit scores and work on disputing them.
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Improve Your Cash Flow
If you currently owe less than what your vehicle is worth, you may be able to access more cash by refinancing. For instance, lets say you have owned your vehicle for three years. Your vehicle is currently worth $8,000, and you still owe $5,000 on your auto loan. You need money for a small home improvement project. One option would be to refinance your vehicle for $6,500. You will still owe less than what the vehicle is worth and have $1,500 of new money available to spend after the new loan pays off your previous $5,000 balance. The $1,500 can now be used for your home improvement project.
Be careful, though. A car, unlike a home, is always a depreciating asset that can lose more than 10 percent of its value within the first month of ownership and more than 20 percent within the first year.
You dont want to risk going underwater on your loanthat is, owing more on your car than the car is worth.
The Rules Of Car Loan Refinancing
Access to a car is pretty much a necessity and a freedom that most Americans wouldnt want to do withouteven if car loan payments take a big bite out of their budget. In a 2018 survey conducted by the National Endowment for Financial Education, 15 percent of U.S. adults said they worried about their car loan debt. Whether or not you agree that owning your car is a financial burden, bringing monthly costs down is a good goal to have.
So the big question: When is it a good time to refinance your car loan? How about when you need monthly payments to be more manageable. Thats a good answer. But there are a few other things to consider. But first you should get a good understanding of how refinancing a car works so the route you choose meets your specific goals.
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What Is A Car Loan
The average car loan lasts between 60 to 72 months. There are some companies that offer loans with lower interest rates than the industry standard, but youll usually have to pay a premium for these loans. Depending on your credit standing, your loan may be approved in just one day.
When purchasing a new or used car, there are a variety of loan options that you can consider. The most popular is to finance your purchase from a dealer or bank via the cars dealership, but there are also personal loans available for those times when you need money for a big-ticket item like your next home. It can also be helpful to seek out different loan options if youre interested in leasing vs buying both have their benefits and drawbacks.
How Soon After Purchase Can You Refinance A Car Online
Refinancing is possible immediately after purchase, even before the first monthly payment has been made. Make sure you get a better deal and no longer have to pay for your car when refinancing.
Auto loan credit scoreWhat’s a good credit score for an auto loan?Pity: 300579 Scholarship: 580669Good or first: 670739Very good: 740,700Exceptional: 800850Is 680 a good credit score for a car loan?With a credit score of 650680, you can get a car loan at the best interest rate, meaning your credit score will exceed the minimum premiums. With a credit rating of 680 preferably you get easy financing at a gâ¦
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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.
Determine If Car Refinancing Makes Sense For You
It makes sense to refinance your car loan if youll save money either on your monthly payment and/or interest over the life of the loan. Beware that if you choose to extend your auto financing term, you may pay more overall in interest. Use an auto loan refinance calculator to see how much you could save.
The rules of when to refinance are as follows:
- 60 to 90 days into the car loan: It typically takes this long for the title and loan paperwork to be completed, which needs to happen before an auto refinance lender will consider your application. Auto refinancing this early works best for those with great credit .
- Six months into the car loan: By this time, your credit score should have recovered from any hard credit inquiries that happened when you took out the original loan. It may have even improved if youve made on-time payments. Refinancing your car at this point may be best for people with good credit .
- With at least two years left on the car loan: A history of good car payments can greatly help people who are working on improving or building their credit, like first-time car buyers. It doesnt make much sense, however, to do an auto refinance with less than two years left on the loan. You likely wont have enough time left on the note to greatly reduce the amount you pay in interest, even if you reduce your APR.
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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.
Next Steps: How To Refinance A Car Loan
When it comes time to actually refinance your loan, there are some steps youll need to take. These include gathering your documentation, doing some comparison loan shopping, choosing a lender, applying, then paying off your old loan and making payments to your new lender. Here are six steps you can take to refinance your car.
When youre shopping around, make sure you dont go with the first offer youre presented with, either. Take your time and request quotes from multiple lenders. Compare the APR, term, payment amount, fees and penalties from each lender to find the best offer. Once you make a choice, the lender will guide you through the exact process and what comes next.
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Auto Loans Are More Expensive At The Dealership
As a general rule of thumb, you should shop aggressively for an auto loan and that is also true of the refinancing. Some dont shop around and find out later they were badly taken for a higher rate or bigger closing costs, etc.
If you do choose to refinance an auto loan, your best bet is to call some other lenders and tell them what your current rates and conditions are and let them try to give you a better deal. When you are done doing that, call your current lender and tell them what you got offered and try to get them to match or better the deal.
Can I Refinance My Car Loan With Bad Credit
It can be difficult to refinance your auto loan if you have bad credit, but it might still be possible. If youve made six to 12 months of consistent, on-time car payments even if your score hasnt yet improved a lender might work with you. Apply to multiple lenders, because each one has different credit score requirements. Your bank or credit union might also be more open to working with you because you already have a relationship with them.
If youre having trouble making payments, contact your current lender right away. A representative might be able to help you. For instance, lengthening the term of the loan increases the interest youll pay, but it can lower your monthly payments and help prevent a hit to your credit from missing them.
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Apply For Anauto Refinance Loan
Once youve shopped around, collected all of your information and made a decision, youre ready to apply.
Youll need to complete a loan application for the lender you choose. This is where the documentation you gathered can come in handy, as you may have to provide it in the application. This application will count as a hard inquiry, which can lower your credit scores by a few points.
If your loan is approved and you sign the loan paperwork provided by the lender, you should get a document from your lender with all the terms of your new loan. Keep a copy for your records, as it will include details on when your payment is due, the minimum amount youll need to pay each month and your options for making loan payments.