How Does An Auto Loan Refinance Work
An auto loan refinance is when you replace your current auto loan with a new one, intending to receive a lower interest rate. Your new loan will pay off the old loan, and you will sign new paperwork, have new terms and conditions, and a new interest rate.
You typically choose to refinance your auto loan if youâre unhappy with the rate or terms, or your credit score has gone up significantly since your original loan. Usually, refinancing is to save money, but keep an eye out for refinancing fees.
When To Refinance Your Auto Loan
You may be wondering when it makes sense to refinance your auto loan, or if you may be better off sticking with the loan you have. While individual circumstances will dictate the benefits of refinancing your car loan, it could make sense to refinance in any of the following situations.
- Your credit score has improved dramatically. If your credit score has improved since you bought your car, its possible you could refinance at a much lower rate than you originally qualified for. This could mean refinancing to secure a lower monthly payment, substantial interest savings, or both.
- You need a lower car payment. If youre struggling to keep up with the payments on your car loan, refinancing could help you lower your monthly payment. Just keep in mind that extending the length of your auto loan could mean paying more interest over time.
- Interest rates have dropped since you bought your vehicle. If interest rates have dropped since you took out a car loan, refinancing at todays low rates could help you save.
- Your auto dealer loan rate is higher than it should be. Maybe you just purchased a new car from a dealer only to find you were charged a higher rate than advertised elsewhere. In that case, refinancing into a new loan could help you save money over the life of your loan.
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 in order 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.
Recommended Reading: What Is Chfa Loan Colorado
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.
How We Chose The Best Auto Refinance Companies
When evaluating the different auto refinance companies in the industry, we considered several criteria. First, we looked for competitive interest rates, zero to no upfront fees, and transparency regarding partners, underwriters and fees.
We also considered each companys financial stability, their customer complaints with the Consumer Financial Protection Bureau or the Federal Trade Commission , and their privacy policies.
Also Check: Oneaz Auto Loan
Have You Taken Out An Auto Loan To Pay For Your Car You May Be Able To Refinance That Loan To Lessen Your Financial Burden
Refinancing acar loan involves taking on a new loan to pay off the balance of your existingcar loan. Most of these loans are secured by a car and paid off in fixedmonthly payments over a predetermined period of time usually a few years.
Peoplegenerally refinance their auto loans to save money, as refinancing could scoreyou a lower interest rate. As a result, it could decrease your monthly paymentsand free up cash for other financial obligations.
Even if youcant find a more favorable rate, you may be able to find another loan with alonger repayment period, which might also result in a lower monthly payment .
Coronavirus Auto Finance Relief
COVID-19 has hurt lots of peoples finances. If youre worried about being able to keep your car, you may be able to get some help. Credit Karma has gathered a list of automakers and lenders that are offering relief options. We also have some other resources if youre looking for financial assistance.
But you may be looking to refinance to take advantage of lower interest rates which resulted from the Fed dropping its rates because of the pandemic. If thats the case, youll want to consider the advice in the article above.
In addition, some dealers are offering extreme financing deals for new vehicles, which may make sense for you if you were already considering trading in your car.
About the author:
Don’t Miss: What Credit Score Is Needed For Usaa Auto Loan
How Can I Refinance My Car Title Loan
Is it possible to refinance my car title loan? Iâm having trouble making payments because the interest rate is high and Iâm really scared that my car will get repossessed.
- A copy of the original loan certificate
- The title of the car
- A certificate of inspection with any adjustments or repairs that have been made since you took out the first loan
Refinancing With Your Lender
Refinancing is simply the process of replacing an existing loan with a new one that has a different rate and/or term. Your current lender is a great place to start when you need to refinance your car loan. If youve kept up with your payments and are in good standing, they may consider refinancing your current loan.
However, your lender isnt always in the position to do so. In these cases, you likely have other options you can turn to especially if your credit has improved since you originally took out your auto loan, or interest rates have dropped.
If you cant stick with your original lender, a good place to start looking for refinancing is with a credit union. If youre worried about low credit standing in the way, you can sometimes get around that, especially if youre a member in good standing. Credit unions are typically easier to get approved with than a bank.
You can also apply with online lenders. Our trusted partner can help you find and compare refinancing quotes from the comfort of your own home. Just fill out secure refinance request form to get started right now.
Another thing to consider is why you want to refinance. It can be a good option to consider if you want to keep the vehicle you have, and:
- The prime interest rate has dropped
- You want to reduce your monthly payment by extending the loan term
- You didnt get the lowest interest rate you now qualify for
What You Need To Refinance
To refinance an existing loan, you need the following :
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.
You May Like: What Car Loan Can I Afford Calculator
When Should I Refinance My Car Loan
The best time to refinance your car loan is when it can save you money in the long term, but it may also help if youre hoping to catch a break on your monthly payments. Here are a few situations where it may make sense to refinance:
- Refinance car loan rates have gone down: Most car loan interest rates fluctuate based on the prime rate and other considerations. If you purchased your car a while ago, its possible that car loan rates have decreased since then.
- Youve improved your credit score: Even if market rates havent changed, improving your credit score may be enough to get a lower rate. The better your credit, the more favorable loan terms youll receive. If youve improved your credit score since signing 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. If you took out your initial loan through dealer-arranged financing, refinancing directly with a 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 . Keep in mind, though, that while you will pay less per month with this strategy, you can expect to pay more over the life of the longer loan.
Best For The Most Options: Autopay
- Starting interest rate: 1.99%
AutoPay offers flexible auto loan refinancing with plenty of options for all borrowers and an average savings of $95 per month.
Average savings of $95 per month
Compare loans from over 20 different lenders
Minimum monthly income requirements
AutoPay specializes in auto loan refinancing, so itâs no wonder they offer great deals for many individuals. They often cater to clients who have improved their credit score in the time since they took out their original auto loan, and because of this, they are usually able to offer steeply discounted loans. On their site, you can compare offers for loans from many different lenders without having to fill out more than one application. They also pull your credit with a soft check, which is easy on your credit score and a great option if you are not seriously considering refinancing your loan right this second . AutoPay makes it easy to shop around and often partners with credit unions. The lowest rate offered by AutoPay is 1.99% but this is only available if you have a top-tier credit score. The average rate at Autopay is 5.49%. Knowing your credit score ahead of time makes a big difference in estimating what your APR will be on refinancing a car loan.
Read Also: Usaa Auto Loan Eligibility Requirements
Best Bank For Auto Refinance: Bank Of America
Bank of America
- Minimum credit score: Not stated
- Loan terms : 48 to 72 months
If youre looking to refinance your auto loan at a big bank, Bank of America is a good option. The lender features multiple refinance options and an easy online application process.
Transparent rates and terms online
Established financial institution
Minimum finance amount of $7,500
Must have fewer than 125,000 miles
Car can’t be valued at less than $6,000
Among big banks, Bank of America offers competitive refinance rates and an easy overall process. It’s open to borrowers throughout the nation and scored exactly the average in J.D. Power’s 2020 U.S. Consumer Financing Satisfaction Survey.
You Have Choices And Were Also Here To Help
When you are experiencing financial problems, it is easy to feel helpless. You may not be able to control everything that happens in your life, but if you are struggling with your car payments, you have options you do not need to wait until your car is repossessed. Call your lender. Put a For Sale ad in the paper. See if you can refinance your loan.
Were here to help too talk to one of our Certified Financial Specialists theyre here to listen and help you come up with the best plan for your vehicle loan. Its complimentary and confidential just for Patelco members.
Also Check: What Credit Score Is Needed For Usaa Auto Loan
Shop For A Refi Lender
You should apply for an auto loan refinance with several different banks and lenders, including your current bank, online lenders and other local and national banks and credit unions. You can often leverage one banks offer with another bank to get a better rate.
When you apply for an auto loan refinance, it will show up immediately on your credit report and count as a hard inquiry. A hard inquiry can cause a five-point drop in your credit score, so every auto loan refinance request has consequences to your credit.
However, if you submit all the applications within 14 to 45 days of each other, those multiple applications will only count as one inquiry. If you wait too long, you may miss the shopping window. In that case, each application will be treated as separate hard inquiries, and will have a greater negative impact on your credit score.
What Are The Pros And Cons Of Refinancing A Car Loan
Refinancing has pros and cons, and the best choice will depend on your situation. One of the best reasons to refinance a car loan is if you have an opportunity to reduce your interest rate. If you previously had no credit or bad credit, it is worth checking into refinancing your car loan after a couple of years to see if you receive better offers.
You May Like: Becu Auto Loan Payoff
To Lower Your Interest Rate
The first reason that you should highly consider refinancing your auto loan is that you can get a lower interest rate.According to Lantern by SoFi, You might consider refinancing your auto loan in several circumstances, including when you present less risk as a borrower compared to when you first took out the auto loan. There are many reasons that your initial loan may have a higher interest rate than the current market rates. These include not shopping around for rates and having a low credit score.
Fortunately, you can easily refinance your auto loan for a lower rate that can save you cash on interest in various scenarios. If your credit score has risen, youre likely eligible for lower rates. In addition, if you didnt shop around, you may be able to find cheaper interest rates at other lenders.
How Can Refinancing Save Money
Does saving hundreds of dollars pique your interest? Refinancing to a lower interest rate can save you cash over time however, thats only if you dont extend the term of your loan. If you receive a better interest rate but you decide to go with a longer term, it may reduce the amount of your monthly payment but it can end up costing you more in total.
Heres an example. Lets say you have a five-year, $20,000 auto financing package that charges an 8% interest rate. Each month, your car payment is around $406. Refinance to a 4% interest rate and your monthly payment will drop to $368 saving you almost $2,300 over the course of the term.
You might also be able to reduce your monthly bill by refinancing to extend the length of your term . If cash flow is running a little tight and your current car payment has become a stressor on your budget, this could be a good option to explore.
Take that same $20,000 financing with an 8% interest rate above. If your term is 36 months, you owe about $627 each month. Refinance and increase your term to 48 months and your monthly payment will drop by more than $100, to around $488.
Just keep in mind: a longer term may end up costing you more in total. So, if you take this route, you might want to increase your monthly payments later on if youre financially able, to pay off your principle balance sooner and reduce the amount of interest youll have to pay over the life of your loan.
Don’t Miss: What Credit Score Is Needed For Usaa Auto Loan
Consider The Time Remaining On Your Loan
How far along are you in your car loan repayment schedule? If you only have a year or two left, you may be better off just sticking with your original loan.
Extending your loan repayment period can lower your monthly payments. But when you add in the extra money you’ll pay in interest charges, you may end up paying a lot more overall.
On the other hand, refinancing into a shorter repayment term could be a really good idea. Shorter terms tend to unlock lower interest rates. Your monthly payment will probably go up with a shorter term, but if you qualify for a much better interest rate than what you have now, it may not rise as much as you’d think. And you could save a ton of money overall.
Dont Let Your Credit Score Deter You
Its also not a static number even small changes or actions can improve your credit score. So, if youre a deep subprime borrower with poor credit, dont let that stop you from trying to qualify for a refinance loan. Especially if your other factors are above average.
Ready to refinance your car loan?
Read Also: How Much Do Loan Officers Make In Commission