Refinancing your car loan means taking on a new auto loan with different terms than your current one – something which may prove advantageous for a variety of reasons.
Your car loan interest rate will depend on factors like your credit score and debt-to-income ratio; if either have improved since taking out the initial car loan, this could qualify you for a lower interest rate.
Lower Interest Rates
Car loan refinancing can reduce monthly payments by lowering your interest rate, but be mindful to take into account any fees associated with refinancing such as application, origination and title transfer charges before proceeding with refinancing. Otherwise you could end up spending more overall.
Refinancing auto loans often feature longer loan terms than their original loans, enabling you to spread out your monthly payments over a longer period. Be mindful, however, as extending the duration may cost more over time as more interest accumulates over the life of the loan.
Becoming eligible for a low car loan refinancing rate ultimately rests with you, depending on factors like your credit history and scores, debt-to-income ratio and how much the vehicle is worth. Working to improve your credit beforehand could increase your odds of qualifying for lower interest rates when refinancing.
Shorter Loan Term
Refinancing your car loan allows you to select a new repayment term, giving you the chance to save money each month by shortening it and potentially cutting your total interest costs in half.
Longer loan terms often lead to higher monthly payments. Unfortunately, opting for too short a term could leave you with negative equity in your vehicle and could force early selling or trading-in plans. Be mindful of this risk if selling or trading in early.
Remind yourself that when seeking preapproval or applying for loans, lenders will pull your credit report and temporarily drop it; however, making on-time payments over time can help restore it and qualify you for better lending terms – thus being sure to make the best decision for yourself and your goals when selecting an auto loan term.
Access to Equity in Your Car
If you have fallen behind on payments for your car loan or have made it a priority to pay off in full and now own an equity position in it, refinancing could provide access to lower rates and shorter loan terms – saving money while making monthly payments easier than before. When considering offers from various lenders and their terms before making a decision.
To qualify for an auto equity loan, you typically need to present pay stubs and other evidence of income, permit the lender to check your credit, and have details about your existing auto loan (balance, interest rate etc). Some lenders also stipulate minimum values or eligibility requirements that must be fulfilled in order to apply.
Even if your credit has improved since taking out an original auto loan, finding an offer based on strong financials may still be challenging; you are risking your car! Therefore it would be prudent to spend a few months rebuilding your score before trying again.
More Options
If your credit score and financial situation have improved since taking out your original loan, refinancing may bring better terms. Lenders will consider your debt-to-income ratio among other factors to decide whether or not you qualify.
Keep in mind, however, that extending your repayment term could result in paying more interest overall and could put you upside-down with your loan (known as being upside-down on it).
Refinancing your car should ultimately be a personal decision, so before taking the plunge it’s wise to carefully evaluate all available loans to ensure they will provide you with the benefits desired. Compare rates, terms, and other features until you find one suitable to your needs – using an online loan calculator can provide valuable insight into potential monthly payment amounts for each option.
