Refinancing your auto loan can save you money by lowering your interest rate or monthly payments. There are a number of online lenders that can quickly review your credit and give you an instant credit decision. If approved, borrowers can typically get the funds for the loan within 24 hours of approval. As an added bonus, many of these loans do not require a pre-payment penalty and charge no money upfront.
If you are thinking about refinancing your auto loan, remember that your overall credit history can directly influence the rate you are offered. Regardless of the lender’s established minimum credit score, they will still review your credit history.
Here are some examples of circumstances where refinancing your car loan may make sense:
- Your credit has gotten better. Perhaps your credit history was not at its best when you initially purchased the car. If so, chances are good that you did not receive the best possible rate. If you have made six months or more of timely payments, chances are that your credit history may have improved and you may be eligible for a lower rate. In this situation, refinancing your auto loan at a better rate may reduce your payments and help you save money on interest throughout the duration of the loan.
- Your dealer inflated your rate. When you initiated your existing loan, your dealer may not have given you the best rate. This means that had you gone somewhere else, you may have qualified for a lower rate. This frequently happens to car buyers who do not check their credit score before going to the dealership to buy a car. In this situation, odds are high that you can get a lower rate by refinancing your car loan.
- When rates have gone down. Interest rates may fluctuate for a number of different reasons. From regulatory changes to more competition in the marketplace, a change in the economic climate may mean a lower rate for you. If auto loan rates are lower now than when you initially purchased the car, refinancing your loan may allow you to you pay off the car sooner and reduce the amount if interest you will pay. It takes just seconds to check current rates and find out what you may be able to qualify for.
- If your payments have become unmanageable. Shortly after buying your car, you may come to the realization that you are having difficulty keeping up with your monthly payments. Maybe you purchased too much car or perhaps you overestimated how much you could comfortably pay on a monthly basis. No matter what the cause of your financial woes, refinancing may be a viable solution for you. When you refinance, you may be able to extend the length of the loan or lower the amount you pay in interest. Either of these options is far better than the damage caused by missing monthly payments.
Steps to Refinance
Now that you have decided that refinancing is right for you, here are the steps you will need to take to refinance your auto loan:
- Do your homework. Take a look at your current loan and ensure that there aren’t any penalties for paying it off early. While most car loans don’t have one, it is important to confirm that this is the case.
- Shop around. Reach out to a minimum of three lenders find out what rate you qualify for. Getting quotes from more than one lender increases your chances of getting the lowers possible rate.
- Consider using auto-pay. Remember that choosing the “auto-pay” option while completing the application may help you get a lower rate. Once your application is approved, the lender will give you the rate that you qualify for.
- Be careful. If you have room in your budget for a higher payment, you may be able to shorten the term of your new loan by paying it off faster. This can dramatically reduce the amount of interest you pay over the life of the loan.
- Know your options. If you have room for a bigger down payment, consider reducing the term of your new loan so you can pay it off sooner. In the long run, this can save you money by reducing the interest you will pay.
Refinancing your car loan can be a smart move under the right circumstances. This simple guide can help you decide if this option is right for you.