Looking for ways to reduce your monthly expenses? Feel like your car loan's interest rate is too high? Consider refinancing your car loan! When you refinance your vehicle loan, you take out a new loan to pay off your existing loan. Before you refinance your current loan, here are a few things to consider in order to determine whether or not anauto refinance is right for your financial needs.
Questions to Ask When Looking for Auto Refinancing
1. What Are Your Goals for Refinancing?
Decide what you want to accomplish by refinancing your car. What are your primary goals? Are you looking to lower your monthly payment, or are you most interested in reducing the amount of interest you pay over the life of the loan? This will help you decide which auto refinance products are best for you.
2. How Is Your Credit?
When you apply to refinance your car loan, your credit history is one of the factors your credit union will use when deciding whether to approve your auto refinance. It will also dictate the terms of your auto refinance. If your credit score is a little low due to maxed-out credit cards or missed loan payments, you may want to take a few months to pay down the balances and get all your loans up-to-date before applying for a new loan. This will help you improve your credit score. The better your credit, the more favorable the terms of your auto refinance.
3. What Loan Terms Are Available?
When you refinance your auto loan, you're starting the loan over with a new term. If your goal is to pay your debt off as quickly as you can, make sure to look for auto refinance loans with shorter terms. Should you value a lower payment, stick with loans that have longer terms.
4. Can Refinancing Lower Your Interest Rate?
No one likes having to pay loan interest, and it's a smart decision to minimize the amount of interest you pay for your auto loan. When you explore an auto refinance, search for loans that have a lower interest rate than your existing car loan. Even a loan with an interest rate that's only a few percentage points lower can save you thousands of dollars over the life of the loan.
5. Are There Any Costs Associated with Refinancing?
Each auto refinance program has its own terms and conditions regarding loan fees and prepayment penalties. Check to ensure you understand and compare any closing costs that are associated with the loan product so you know the true cost of the loan.
6. Are You Upside Down on Your Existing Loan?
Depending on the current value of your vehicle and your loan balance, it's possible you're upside down on your car loan. This means you owe more than the car is worth. When you're upside down, it's harder to find an auto refinance program that will approve your loan.
7. Is Your Car New Enough to Refinance?
Some lenders won't refinance vehicles that are over a certain age. This varies depending on the auto refinance program, but you may have trouble procuring a loan for vehicles that are 5 to 10 years old.
If you’re considering auto refinancing, check out Clark County Credit Union’sauto loan options, andreach out to them today to start your application.
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FAQs
The best time to refinance is when interest rates have dropped or your credit score and DTI have improved. You should not refinance your car if you are close to paying off your loan, owe more than the car is worth or if interest rates are high.
What is the first step to refinancing a car? ›
How to refinance your car loan and save in 6 simple steps
- Decide if it's the right move.
- Review your current loan.
- Check your credit score.
- Estimate your car's value.
- Get your paperwork in order.
- Compare lenders.
- Where to refinance an auto loan.
- Factors to consider before refinancing.
The best time to refinance is when interest rates have dropped or your credit score and DTI have improved. You should not refinance your car if you are close to paying off your loan, owe more than the car is worth or if interest rates are high.
How to negotiate refinance auto loan? ›
How to Negotiate an Auto Refinance
- Know Your Credit Score. ...
- Know Your Budget. ...
- Shop Around for Auto Refinance Rates. ...
- Make Lenders Compete for Your Business. ...
- iLending Makes Auto Refinance Easy and Hassle Free.
Yes, refinancing your auto loan will usually hurt your credit a little. But if you make your new loan payments on time, any damage to your score will likely be both temporary and small. Your credit could bounce back to its current score in as little as a few months.
What is the general rule for refinancing? ›
When a rate reduction is your goal, a good rule of thumb for a mortgage refinance, is to lower your existing interest rate by 1% or more. While a mortgage refinance is worth considering when you see this 1%+ reduction, there are other factors that need to be considered as well.
Do you put money down when refinancing a car? ›
Key takeaways
- Refinancing does not require a down payment.
- However, you may be on the hook for fees like prepayment penalties or transaction fees.
- If you want to refinance a loan, you'll need equity in the car, a stable or better credit score and a current loan that fits lender refinancing requirements.
If you refinance and extend your loan's term, you are more likely to end up owing more than your vehicle's worth. This is called being upside-down or underwater on your loan. Your chances of going upside-down with a longer loan term increase because cars generally depreciate in value each year.
How can I lower my car payments without refinancing? ›
4 ways to lower your car payment without refinancing
- Request a loan modification. Contact the lender to explain that you are struggling to stay afloat financially and risk falling behind on your auto loan payments. ...
- Trade it in for a less expensive car. ...
- Sell privately and buy a less expensive car. ...
- Switch to leasing.
Can You Back Out of a Car Loan After Signing? If you're unhappy with the sale price of your new car, or think you got too little for your trade-in, chances are you won't be able to alter those terms after the deal has been signed. If you signed the sales contract, you own the car.
If it seems right for you, make sure you avoid these common mistakes when it comes to refinancing so you can maximize your savings.
- Drawing It Out. While it may seem tempting to switch to a longer loan term, it usually isn't worth it in the long run. ...
- Going Upside-Down. ...
- Catching Penalties. ...
- Missing Payments. ...
- Waiting Too Long.
Having an LTV over 100 percent doesn't mean it's impossible to get an auto loan refinance, but it can make it more difficult. Most lenders look for an LTV below 125 percent. However, the lower your LTV, the better interest rate you can get.
How much will my credit drop if I refinance my car? ›
Refinancing your auto loan can negatively affect your credit score, but not for the long term. Your credit score may drop a few points, but it should rebound in a short time — usually after a few months of on-time loan payments.
What is the first step in refinancing? ›
Step 1: Set a clear financial goal
There should be a good reason why you're refinancing a mortgage, whether it's to reduce your monthly payment, shorten your loan term or pull out equity for home repairs or debt repayment.
When you refinance your car do you start over? ›
The bottom line. You'll start from scratch with a new auto loan when you refinance and potentially get a lower monthly payment or interest rate. But before applying, consider the risks that come with refinancing. Look for other ways to save money if refinancing isn't the best move for your financial situation.
When you refinance a car when is the first payment due? ›
Typically, the first payment on your new loan will be due 30 days after you formally accept the loan. Make sure you know when this payment is due, and that you make it on time to avoid fees or charges. Some lenders offer an autopay service, which can help you to avoid missing a payment.
How do you get money back when you refinance a car? ›
You can take equity out of your car in the form of a cash-out auto refinance loan that's up to the current value of your vehicle. You'll get cash back as a lump sum over the amount of your original loan balance.
