Refinancing your Auto Loan
Smart Reasons for Refinancing your Wheels.
Refinancing your auto loan is a very similar process to refinancing your home. The process is similar:
- You secure a new auto loan with a lower annual percentage rate (APR).
- You pay off your existing auto loan with the new loan with the lower APR.
As you can see paying off your existing car loan with the new loan with a lower APR is bound to save you thousands of dollars. It will also lower your monthly payments quite a bit because of the lower interest rates of the new loan.
The trick is to swap for the better loan so that you can pay off the balance on your car faster. Refinancing a car loan isn’t a new concept by any means. However those that need it most are the ones who have bad credit If your credit score is low (below 620) you tend to get stuck with higher interest rates (these can typically run from 20% to 25%) on your car loans. High monthly car payments can put you in financial trouble if you already have trouble being responsible with credit payments. However if you refinance your car loan with another loan with a lower APR, you will reduce your monthly payments so that they are more financially manageable.
If you are paying back an auto loan with a high APR, there is no harm in exploring your options right? Life would be a lot easier if you could get a better annual interest rate on your car loan and get those monthly payments reduced. It’s amazing how much just a 1 to 2 point lower interest rate can save you over a year. Even if you have a low credit score, don’t settle for high APR on your car loan. Keep an eye out on the refinancing auto loan rates on websites like Bankrate.com. You can easily snag a better loan with a refinancing rate that’s at least 1% to 3% lower than the APR on your current auto loan. Once you secure a refinancing loan with a lower APR, your monthly payments will drop and you can put the extra cash towards paying off your car faster.
When should you think about refinancing a car loan?
There are many reasons why one would consider refinancing an auto loan. The most popular and wise reasons include:p
- A drop in the average APR or monthly interest rates – compared to those on your current car loan.
- If your credit history has recently improved – this could drastically improve your interest rates, loan term and the flexibility of repayment on your car loan.
- If your employment situation has improved.
- You want to adjust the length of your loan to pay off your car faster. A shorter loan term will reduce the overall APR that you will owe on the balance.
- If you add a co-signer to your loan application.
When is refinancing a car loan a bad idea?
If you are irresponsible with credit – come on you know darn well if you are – you should reconsider refinancing a car loan. Many times the temptation of the extra “at hand” cash is not wise for someone with bad credit. Only consider refinancing a car loan if you have every intention of using the money to pay off your existing car loan, to make your monthly payments more manageable. On the flip side to the positives we’ve given above, it’s unwise to refinance if:
- There has been no change in the average APR or monthly interest rates on auto loans.
- If your credit history has recently dropped – this could add further negative impact to your credit rating and increase your interest rates and the flexibility of repayment on your car loan. It could also prevent you for getting any future loans or credit.
- If your employment situation has worsened – due to job loss or injury.
- You are attempting to lengthen your loan term – a longer loan term will increase the overall APR that you will owe on the balance.
Refinancing a car loan only takes a few days, less if you apply for refinancing a car loan online. Online car lenders typically operate like brokers, they work with several auto creditors in order to find you the best rate. If you apply for auto refinancing online you may actually be approved in an hour, but it can take up to 1 business day if your credit is questionable. Consider this, the sooner you refinance your car loan; the sooner you will be saving money. Obviously time is of the essence, so here are our fast refinancing car loan tips:
What is the outstanding balance on your current car loan? – You will need to include the exact amount that you still owe on your current car loan on your refinancing application. Remember that your refinancing loan shouldn’t exceed what you owe on your current car loan.
Know the value of your automobile – The amount on your auto refinance loan should never be more than your car is actually worth. Do some research online and take your car to a mechanic to get your car appraised. Even though an appraisal isn’t necessary in order to refinance your car, it will give you peace of mind that your car is still worth the loan you’re about to take out on it.
Fill out the car loan refinancing application correctly to speed up the process – The last thing you want to do is hold up your application because of a technical error on your part. Many people don’t realize that the name on your refinancing application must be an exact match to the name on your existing car loan. If you use a short form, for example Ed for Edward, make sure that the names appear the same and are spelled the same on both your refinancing application and current loan, or you will delay your approval by weeks. Also, remember to include your current car loan account on your refinancing application. Lenders track loans via an account number. Make sure that yours is correct, that you haven’t missed a number or copied it incorrectly. You will also need to have your social security number, employment information, other assets (home, investments, etc.), other loans (student loans, mortgages, etc.) and information about your average monthly income on hand to include on your refinancing application.
Where to make payments? – Your refinanced loan will be used to pay off your current car loan. With this in mind it’s important to include your current loan account number and where the payments will be sent on your refinancing application.
Include all vehicle information – Your auto loan refinancing application will ask for all of your vehicle information. Don’t get lazy and leave the blank gaps on your application or it will be delayed and possibly denied. It is your responsibility to know, find and include the following bits of vehicle information on your refinancing application:
- The year of your car
- The model
- Your car’s vehicle identification number (referred to on the application as your car’s VIN). You can locate this on the dashboard of your car or on your vehicle registration.
Do everything you can to present a good credit score to the lender – Obviously if you have a strong credit score (above 720) you will be approved for auto loan refinancing faster than you would with a poor credit score (620). However that doesn’t mean you won’t secure refinancing if your credit score is low or if you have recently declared bankruptcy. Refinancing your car loan may be your first step to improving your credit rating. By lowering your monthly payments you are showing creditors that you are attempting to be a more responsible borrower. This may serve to your advantage when applying for car loan refinancing.
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