REFINANCING YOUR CAR LOAN?
Refinancing your car loan will allow you to replace your old car loan with a new loan from a new lender. You can save a lot of money by switching to a better loan with a better rate or a lower payment. And the longer you wait, the more money you’ll waste on interest. In this article, we explain when refinancing should be done and the steps to take to get there.
Three quick things to know about refinancing:
- IT IS NOT TOO LATE.
Many people get lousy loans from car dealerships: the interest rates are too high, or they charge insane prices for protection products. You can save money by refinancing to a loan with a lower interest rate or lowering your monthly payments. Refinancing can also give you the opportunity to cancel, replace, or add better products at lower prices.
- PAY INTEREST FOR AS FEW MONTHS AS YOU CAN AFFORD.
As with any loan, low monthly payments are nice as long as they don’t last forever. The best from both worlds? A low interest rate and a shorter loan term. It can be tempting to extend the term of your loan when refinancing your monthly payment, but remember that longer terms usually mean higher interest rates, which means you owe more money over the life of the loan.
- CONSIDER PROTECTIVE PRODUCTS – THEY ARE VALUABLE – IF THEY ARE PRICED RIGHT.
Your new lender may allow you to add protection products such as Vehicle Service Contracts (VSCs, aka Extended Guarantees) and GAP Waivers to your new loan. These can protect your car and your wallet from expensive surprises. Learn how protection products can help you work smarter.
CONSIDER REFINANCING YOUR CAR LOAN IF:
The dealer took you for a ride and you got the wrong loan from the dealership and you want to do better
Your credit rating has improved (congratulations!) and you qualify for better terms
You need to lower your monthly bills with a longer loan term
You want to borrow more money for your car to lower your overall borrowing costs — for example, car loan rates are typically lower than credit card rates
You want to skip a payment – Some lenders give you the option to skip a payment between your existing loan and your new loan, which can be a nice boost to your budget
You want to pay off your loan faster so you can own your car freely and without prejudice (goodbye car payments!)
You don’t like your lender – maybe you’re annoyed by hidden fees or poor customer service. Whatever the reason, you can refinance to find a new lender that you like better
They restore your credit if, for example, you already had bankruptcy. By paying off your old loan and starting a new one, your credit score can improve because you get two high-quality installment loans instead of one
AUTO REFINANCING HURDLES:
Your vehicle is more than 10 years old – most refinance companies can’t fund a car refinance for older cars
You owe less than $7,500 or more than $100,000 on your loan – typically the range needs to be between these so the company can fund a new car loan
You drive for Lyft or Uber as your main source of income or otherwise use your car for commercial purposes – most companies don’t refinance cars that are used for business
Your car has driven over 120,000 miles – higher mileage cars are harder to get an auto refinance loan
In all of these cases, it may be difficult to find a lender willing to refinance your loan, or you may not be able to get a better loan than what you currently have. Ultimately, you can only determine whether refinancing makes sense for you by comparing new loan offers with your existing loan and making sure that you are saving money. If you are interested in finding out how much you may save, it’s free and fast.