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.
Save Money On Your Monthly Car Payments And Get Rates As Low As 179% Apr* When You Choose To Auto Refinance Your Loan With Us
If you struggle to keep up with your current monthly repayment option or youd like to change the length of your loan, auto refinancing could be your best option. Our affordable auto refinance program enables you to keep your current vehicle with better loan terms more suitable to your current budget.
When choosing to refinance your auto loan, youll enjoy many benefits including:
- A decrease in interest charges
- Lower monthly payment
- Ability to extend the length of the loan
- Ability to remove or add as a co-signer to the loan
The Pros Of Auto Refinancing
Lower Your Monthly Loan Payments. Spending less in your monthly payment is probably the #1 reason most people look into auto loan refinancing. Depending on the interest rate of your current auto loan, refinancing can save you up to hundreds of dollars a month, freeing up much needed cash flow. As a general rule of thumb, though, a lower monthly payment translates to more money paid in the long run. Make sure you read to the end of this blog!
Pay less interest on your auto loan. Youve been around the block enough times by now to know that when shopping for a new set of wheels, the sticker price you see is not the same thing as the price you end up paying, unless youre paying in full up front. If you finance your car, interest will be added to your total cost, meaning youll repay the original loan amount plus an extra amount on top determined by the interest rate and the repayment schedule, or loan term.
For example, a $15,000 car financed at 3.5% for 60 months will cost you $16,380 in the end: the original amount, plus a total of $1,380 in interest. If you had the same deal financed at 3.0%, it would save you $180. Shopping around for a better interest rate is another super common reason people consider refinancing.
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Will Refinancing Hurt My Credit
When you apply to refinance your car, a hard inquiry will be noted on your credit, causing a temporary dip in your score. A car loan refinance also might hurt your credit by reducing the average age of your accounts. That’s because your original car loan will be paid off early and replaced by a new auto loan.
Likewise, will refinancing affect my credit?
Refinancing can lower your credit score in a couple different ways: check: When you apply to refinance a loan, lenders will check your credit score and history. However, the money you save through refinancing, especially on a mortgage, usually outweighs the negative effects of a small score dip.
Additionally, how do you know if you should refinance your mortgage?
Herein, is it bad to refinance?
Refinancing your mortgage can be a good or bad idea, depending on your motivation and goals. Homeowners who refinance can wind up paying more over time because of fees and closing costs, a longer loan term, or a higher interest rate that is tied to a “no-cost” mortgage.
What credit score do you need to refinance?
What Happens When You Refinance
When you refinance your auto loan, you find a new loan with a better interest rate or term that will pay off your old loan. Once youve signed for the new loan, you pay off that loan instead of your original one. This can be advantageous to you if you can find a new loan with a lower interest rate, or if you need to dramatically reduce your monthly payment. Its best to refinance your auto loan if your credit score has recently improved or if interest rates have dropped considerably.
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Possible Problems With Refinancing
One way that you may not realize that could adversely affect your credit is if the new company fails to pay off the entire amount of the old loan. If you are not aware of this and the old loan is neglected, it will go into default and your credit will suffer accordingly. The chances of this are rare, though.
The biggest thing that will affect your credit is if you fail to pay the new loan and default on it. This will always have an adverse affect on your credit and immediately lower your credit score with rating agencies.
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.
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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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Understand Your Credit Score
Before you begin the process of refinancing your car loan, you should know where you stand credit wise. Since checking your credit reports wont take a toll on your credit, its wise to do so. You can get a copy from them for free once a year on AnnualCreditReport.com.
Once you know what your credit is like, youll have a better idea of the types of lenders that may approve you. With access to your credit reports, youll also be able to check for any errors that may hinder your ability to get approved for a loan. If you notice any inaccuracies, make sure to dispute them before you apply for refinancing.
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Figure Out Your Current Loan
Start by determining the rate on your existing loan and finding out how much you still owe. Its also wise to get your current credit score so youll have some idea about whether youd qualify for lenders advertised top rates. Dont forget to check for special deals. And remember that if you have a late-model vehicle, you may be eligible to refinance at a lenders new car rate, instead of higher used car or general refinancing rates. So check that, too.
Why You Can Trust Bankrate
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. Weve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that were putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our loans reporters and editors focus on the points consumers care about most the different types of lending options, the best rates, the best lenders, how to pay off debt and more so you can feel confident when investing your money.
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Why And When To Refinance Your Auto Loan
Lots of us get into bad auto loans, due to lack of experience, unfortunate circumstances, or a combination of both. People at the beginning of their financial journey in particular pay higher interest rates on car loans, because from a lenders point of view, they havent proven they can pay back money on time. They have a thin credit file, meaning theres not enough information in their credit history to be confident about their ability to repay. One of the costs of being young!
Others may need to get a new car when their credit score is way lower than theyd like it to be. Any number of factors can positively influence credit score, and maybe a year or 18 months into your loan, your credit has improved and youre thinking its time to renegotiate the terms of your auto loan.
No matter where you sit, there are some crucial pros and cons to consider before refinancing your auto loan. We’ll walk you through the reasons to refinance, some of the potential downsides, when and why it may be right for you, and what you should know before you research new deals.
Disadvantages Of Refinancing A Car
You might pay refinancing feesAuto refinancing can include a variety of costs, including application, origination and title transfer fees. However, not all lenders charge the same fees and some may not charge any at all. When comparing refinancing options, read the fine print and factor in all associated fees. Paying too much to refinance your car loan could cost more in the end than staying put in your current loan.
You could pay more overall interest over the life of the loanIts true that getting a lower interest rate can save you money. But if you extend the term of the loan, you might pay more interest over the life of the loan. For example: If you currently have a $10,000 loan with a 20% interest rate over a 36-month term, youll pay $3,378.89 in total interest. If you refinance that same $10,000 at a 15% interest rate for 60 months, youll pay $4,273.96. Thats almost $900 more.
However, paying extra interest over time may be worth the convenience of lower monthly payments. It all depends on what makes sense for your financial situation.
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Youre Underwater On Your Loan
Finding a lender to refinance a vehicle when youre upside down on your loan isnt easy. Even if you can find a lender, it may not be the best move. The interest rate is likely to be much higher than average, and it will cost you more in the long run.
When you refinance your upside-down vehicle, you add to the overall cost of the vehicle. One way around this is to pay the difference in cash so youre no longer upside down, then you can refinance at a lower rate. Even if it takes you a few months of making a few extra payments, it may be worth it in the long run. Alternatively, you could also take out other financing, like a personal loan or home equity loan, to help you cover the full cost of refinancing.
Why Refinancing Can Lower Your Credit Score
When you apply for credit, the lender typically checks your credit. That causes a hard inquiry to be noted on your credit, which can cause a temporary dip in your score. The effect of a hard inquiry typically disappears in six months.
Car loan inquiries typically are bundled as a single inquiry if they’re done in a compact time frame. For that reason, it’s smart to do your loan rate-shopping relatively quickly. VantageScore gives you a rolling 14-day period FICO gives you 45 days.
A car loan refinance also might hurt your credit by reducing the average age of your accounts. Thats because your original car loan will be paid off early and replaced by a new auto loan. But thats a relatively small element among the factors that affect your credit score.
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You Want A Lower Interest Rate
Interest rates have dropped since you got your car loan or perhaps you just found a much better loan rate. You may have financed through your dealer when purchasing your car for the sake of convenience. At the time you didnt realize the interest rate was high. Dealers do want to make a profit after all. Since then, youve seen a rate advertised by your local credit union or another financial institution that was much lower. Refinancing if the rate difference is significant can potentially save you a nice sum over the remaining life of the loan. There may even be further rate discounts for signing up for services such as direct deposit and automatic loan payments. Never hurts to ask so you know youre getting the best rate.
How Soon Can You Refinance Your Car Loan After Purchase
There aren’t specific rules about how soon you can refinance after taking out an initial loan to purchase your vehicle. However, you may at least need to wait until you receive your title showing the original lender as the lienholder. Your credit may have taken a dip after the original loan, too, so it might be helpful to wait a few months for it to rebound.
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How Your Credit Score Affects Your Refinance
Your credit score affects your refinance a lot more than your refinance affects your credit score.
Thats because a higher credit score can lower your mortgage interest rate substantially, whereas a low score typically means paying a higher rate.
As CNBC puts it, As long as your interest rates are high, youre putting less money into equity and assets and more money into servicing debt. And debt has no return on investment.
In short, making smart credit moves and keeping your score up before you refinance can save you a lot of money in the long run.
Just how much can you save when you refinance with a high credit score?
FICO has a page on its website that lets you compare the costs of a mortgage depending on your credit score. We ran a sample scenario using a 30year, fixedrate mortgage of $200,000 and average mortgage rates on the day this was written.
Your own results will vary depending on your exact interest rate, loan amount, and location. But the overall trend is clear: your credit score makes a big difference in your refinance costs.
|FICO Score Range|
Of course, its not just your mortgage for which youll be paying more.
Your credit score affects interest rates on auto loans, personal loans, credit cards, and other financial products as well.
Why Would You Want To Refinance Your Car Loan
The top reason most people decide to refinance a car loan is to save money, but there are also many other benefits! Due to fluctuating interest rates, it might be possible to qualify for a lower rate! Also, if your credit score has improved since you were approved for financing, you could qualify for a lower loan rate. If you would like more information regarding why you should refinance your car loan, you can read our in-depth article on the topic.
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Interest Rates Have Dropped Since You Took Out Your Original Auto Loan
Interest rates change regularly, so theres a possibility that rates have fallen since you took out your original auto loan. Even a drop of 2 or 3 percentage points may result in significant savings over the life of your loan.
Lets say your original auto loan was for $25,000,with a 7% interest rate and loan term of 60 months. If you keep this loan,youll end up paying a total of $29,702 on the loan. After a year of paymentson this loan, your balance is now $21,000. If you were to refinance and get aloan for $21,000 for the remaining 48 months with a lower interest rate of 5%,youd end up paying a total of $23,214 on your refinance loan. Combined withthe $4,000 you paid on the previous loan, youd have paid a total of $27,214 tofinance your car $2,488 less than if you had kept your original loan.
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.
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