What is refinancing a auto loan?

Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly.

If you have good credit — especially if your credit has improved since you first took out the loan — refinancing is a good option. And, if you currently have a poor interest rate due to financing with a dealership, you can also benefit from improved rates even without excellent credit.

Auto loan refinancing is taking out a new auto loan to pay off an existing auto loan. It can help you reduce interest rates, lower your monthly payments and pay off the debt quicker — depending on what you qualify for.

Refinancing your auto loan is a good idea if you can get approved for more competitive rates through a new loan. If your credit score has improved since you took out your current loan, you likely can save money each month.

But it is important to consider where you are in the loan’s lifetime. If you only have a few months left or your credit score is the same as when you first applied for your current car loan, it may not help much.

Also, if you’ve already refinanced your car loan once or a few times in the past, you may not qualify for more competitive terms.

You can prequalify with lenders to see if you qualify for a lower rate or shorter term. An auto loan refinance calculator can also help you tell whether refinancing will save you money.

Some circumstances can prevent you from refinancing an auto loan, or mean doing so may not be the best option. You may want to hold off if:

There are a few ways to get more money back in your pocket when you refinance your auto loan.

You could see a lower interest rate with a new lender depending on your credit score and loan details. A lower APR will likely save you money over the life of the loan.

Depending on your loan’s current terms and the new loan’s details, you may owe less each month. Extending the term will do this, but just extending the term will also increase the loan’s overall cost because you will pay more in interest.

But keeping the term the same — or shortening it — and getting a better interest rate will lower both your monthly payments and overall interest paid.

Understanding the process of auto loan refinancing is just as important as knowing the benefits. Here are four steps to follow when refinancing a car loan.

Before refinancing a car loan, you’ll need to check your credit score and report to ensure that your information is accurate and up to date.

If your credit score is over 670, you may get a lower interest rate — especially if your score was lower when you took out the loan. A low score will make it difficult to get a great interest rate.

The average APR for new and used car loans is 5.82 percent and 7.83 percent, respectively, for borrowers with credit scores between 661 and 780. But if your score is between 601 and 660, these rates increase to 8.12 percent and 12.08 percent.

Once you know your credit score, compare auto loan rates from several lenders. To ensure you’re getting the best rate possible, prequalify with several lenders before submitting a full application. This will also save your credit from taking multiple hits.

After you’ve found the best rate, you can complete the application online, over the phone or in person — depending on the lender. Be sure to review all of the terms before signing.

Either you will receive a check, or your new lender will pay off your existing loan. Continue making payments on your existing loan until you have verified it is completely paid off.

Refinancing your auto loan can help you save if you are paying a higher rate than the current market or if your credit has improved. But only refinance if it will save you money. If lowering your monthly payments through refinancing would require extending your loan term, you may want to look into other options.

When buying a car, many buyers accept the loan package they are offered at the dealership. Though convenient at the time, you may later come to regret the conditions of your auto loan once you’ve started making payments. Refinancing your auto loan is one way to get better terms and potentially reduce your interest rate and monthly payments, helping you save more money. An auto loan refinance involves taking out a new loan to pay off the balance of your existing loan, and transferring the title to the new lender. While refinancing your auto loan can improve your overall finances, it may not always be the right choice for you. There are a few things to consider before applying for an auto loan refinance.

It’s important to consider all of your options and do your research before deciding you are ready to refinance. Shop around for interest rates so you can be sure you are getting a good deal that will help you save money. Also consider the length of the loan, and try keep it as short as you are able to with your budget. Try to find the shortest loan term combined with the lowest interest rate to ensure you are getting the best deal possible on your auto loan refinance.

Refinance and save with Robins Financial to drive home your savings. To find out how much you could save, give us a call or request an appointment at any of our branches. If you’re ready to refinance, apply online today.

Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly. Still, there are things to consider before taking the plunge.

Although Chase doesn't offer refinancing, we'll cover the steps below so you can see if it's the right choice for you.

Can you refinance a car loan? Do some preparation beforehand to get the answer to this question. The process may vary slightly according to the lender but knowing the basic steps can help prepare you for what comes next.

Refinancing your auto loan should reduce your monthly payment or lower the overall amount you pay in interest. However, this might not be possible if any of the following factors apply to you:

Lenders rely heavily on your credit report and credit score when approving a loan and determining an interest rate. A higher credit score typically translates into lower interest rates. Keep an eye on your credit, as it may have improved over time.

Organizing your documents ahead of time can help simplify the application process. Most of the time, you'll need the same items used for securing a loan, including:

You also need to obtain a copy of your original loan contract. If you can't locate your copy, contact the lender and ask them to email you a copy. A new lender might request details about your existing loan, such as:

Before signing on the dotted line, cover all your bases by asking the right questions and reading the fine print. Talk to lenders and ask, “how does refinancing a car work?” Also, get answers regarding the annual percentage rate (APR), loan duration, and if there are any origination fees or early payoff penalties.

If you've found the right deal and are confident about qualifying, you might be ready to jump right in and start the application process. But it can put a hard inquiry on your credit report. If you're unsure where you stand, getting prequalified can give you a better idea without adding an inquiry to your credit report.

Refinancing a car isn't for everyone and deciding when to refinance can be challenging. The benefits of refinancing might be limited or non-existent in certain instances. For example, if you have a poor payment history on your current loan or are close to paying it off, it may not be to your advantage to refinance.

However, there are times when refinancing your car can benefit you. Consider refinancing your car if any of the following situations apply to you.

Your credit score is one of the main factors a lender considers when determining loan approval and credit terms. If you financed your car with a low credit score, refinancing your car could get you a better interest rate or even reduce your monthly payment.

If you bought your car when interest rates were high, refinancing your vehicle can save you money, possibly more than you realize. An interest rate decrease of only 2% to 3% could save you hundreds if you do not extend the term of your loan.  An auto loan calculator can show you how interest rates affect your monthly payment and the total amount you could pay in interest.

If you got your original loan from the car dealer, you might have spent too much. Buyers don't always check their credit score or research interest rates before heading to the dealership, and their loan terms may have suffered because of it. If you took the loan offer from the dealership without knowing what options were available, you might not have received the best deal.

If your monthly payment is too high, refinancing your auto can help. A lower interest rate can decrease your monthly payment, but it may not be enough to make the difference you need. Extending the length of your loan can have a greater impact on reducing your monthly installment. However, a longer term increases the amount of interest you'll pay over the life of the loan.

Refinancing a car loan involves taking on a new loan to pay off the balance of your existing car loan. Most of these loans are secured by a car and paid off in fixed monthly payments over a predetermined period of time — usually a few years.

People generally refinance their auto loans to save money, as refinancing could score you a lower interest rate. As a result, it could decrease your monthly payments and free up cash for other financial obligations.

Even if you can’t find a more favorable rate, you may be able to find another loan with a longer repayment period, which might also result in a lower monthly payment (although it might increase your total interest cost over the life of the loan).

If you’re still unsure whether refinancing a car loan is right for you, read on to learn about when it typically makes the most sense.

A decision as big as auto refinancing will depend on a number of individual factors. With that said, you may want to give it some extra-serious thought in the following instances:

Interest rates change regularly, so there’s a possibility that rates have fallen since you took out your original auto loan. Even a drop of 2 or 3 percentage points may result in significant savings over the life of your loan.

Let’s say your original auto loan was for $25,000, with a 7% interest rate and loan term of 60 months. If you keep this loan, you’ll end up paying a total of $29,702 on the loan. After a year of payments on this loan, your balance is now $20,673. If you were to refinance and get a loan for $20,673 for the remaining 48 months with a lower interest rate of 5%, you’d end up paying a total of $22,852 on your refinance loan. Combined with the $4,327 you paid on the previous loan, you’d have paid $2,522 less than if you had kept your original loan.

Lenders can use a number of factors to decide your auto loan rate, including your credit scores and debt-to-income (DTI) ratio, which is calculated by dividing your monthly income by your monthly debt payments.

As such, improving your credit health and decreasing your DTI ratio can lead to more-favorable terms on your refinanced loan.

Even if interest rates haven’t dropped or your financial situation hasn’t improved significantly, it may be worth shopping around for better loan terms anyway. For example, you may have received a loan with an interest rate of 7% when other lenders were offering lower rates.

This may be especially wise if you got your original loan from a car dealer, as dealers sometimes offer higher interest rates to make extra money.

Even if you’re not able to secure a lower interest rate, it may still be worth trying to find a loan with a longer repayment period in order to reduce your monthly car payments.

If you can’t find a suitable loan, you may also be able to renegotiate the repayment period on your current loan. But keep in mind that more time spent paying back your loan is also more time spent paying interest. In general, you’ll pay more interest overall if you have a loan with a longer term.

Refinancing a car can save you money, but it’s not always the best option. You may want to hold off on refinancing if any of these scenarios apply to you.

Interest is often front-loaded, meaning you pay more of it off in the beginning. The longer you wait to refinance, the less you may be able to save on interest.

Cars depreciate quickly, so you’ll likely only be able to refinance within the first few years of owning your car. Some lenders won’t refinance cars that are over a certain age or mileage. For example, some banks won’t refinance cars that are older than seven years or have more than 90,000 to 125,000 miles on them.

It’s important to look out for any fees associated with refinancing. For example, there may be prepayment penalties for paying off your current auto loan earlier than planned with your refinance loan. You may have to pay some additional interest in addition to the principal.

Even worse, some loans, such as loans with precomputed interest, make you pay all of the interest in addition to the principal.

You’re also likely to incur refinance fees. These can include lien holder and state re-registration fees. While they’re not enormously expensive, it might be a good idea to see if you can afford these fees before you refinance.

An auto refinance could negatively impact your credit. If you’re considering applying for a mortgage or that really exclusive credit card you’ve had your eye on, you may want to hold off on an auto loan refinance to keep your scores as high as possible and maintain your chances of being approved.

Refinancing can save you money in interest or stretch out your loan payments, but you should only consider it when the circumstances are right.

If interest rates are lower or your financial situation has improved, it may be worth shopping around for a loan with better terms. If your credit scores haven’t gotten better but you want to refinance, it may still be possible. Check out our article on how to refinance a car loan to learn more about the refinance process.

If your finances have taken a hit because of COVID-19, you may be worried about making payments on your auto loan. You may also be looking to refinance your car loan to lessen your financial burden or take advantage of lower interest rates.

Refinancing your auto loan can be a great way to secure a better interest rate or a different loan term. But does refinancing hurt your credit?

We’ll explain how refinancing can impact your credit score and whether refinancing is a good idea.

The short answer is yes—refinancing can negatively affect your credit score.

When you refinance an auto loan, you must submit a new loan application, which results in a hard credit check. The good news is that a single inquiry doesn't stay on your credit report for very long.

Another reason why refinancing may have a negative impact on your credit is that it reduces the age of your loans. One of the factors that contributes to your credit is the average length of your credit history. As soon as you pay off your current loan, your average age of credit can drop.

In general, the effect of refinancing on your FICO score should be minimal. However, completing a credit check after refinancing is still a good idea to make sure it doesn't affect your score too much.

Refinancing a car loan is the process of replacing your current auto loan with a new one. Most borrowers refinance to get a lower interest rate, a lower monthly payment, or a different repayment period.

To refinance, you must submit a new auto loan application, like you did with your original loan. If approved, you can compare the new loan's interest rate with the rate you're currently paying. If the interest rate is lower, refinancing will help you pay less each month to borrow the money.

Since car refinancing can temporarily affect your credit score, you should first consider whether it's the right financial move. Refinancing a car loan may be a good decision for you if you meet any of the following criteria:

Refinancing can be a great solution for some vehicle owners, but it’s not the best choice for everyone. Here are a few things you should consider before you refinance your car loan:

Even if you have an excellent credit score, refinancing will probably have a negative effect on your credit for a short period of time. While it’s not entirely unavoidable, there are a few ways that you can minimize the impact, including:

Comparing interest rates from various lenders is one of the best ways to get a good rate. The primary purpose of refinancing an auto loan is to qualify for a lower interest rate, which can lead to lower monthly payments. Credit bureaus typically bundle inquiries of the same type together, so try to compare rates within a week or two to avoid a major hit.

Checking your credit before applying for a loan is always a good idea. Before you start applying for refinancing loans, run a credit report from the three major credit bureaus: Equifax, Experian, and TransUnion. The U.S. government allows all consumers to receive one free credit report per year from all the main reporting bureaus.

Most lenders offer pre-qualifications, also called pre-approvals, which is a letter that states how much money they are willing to lend you, based on the loan terms you chose. Getting pre-approved shows you how much money you can spend, and at what interest rate, without agreeing to the loan and applying.

When you’re applying for refinancing loans, avoid applying for any other types of loans during this time. Otherwise, you might be subject to multiple hard credit checks, which will impact your credit score even more. Try to time your auto refinance for a time when you don't need any other loan types, like a mortgage.

While it’s possible to refinance a car with bad credit, it’s not always the best option. You usually need good to excellent credit to qualify for a better loan interest rate. With bad credit, finding a good interest rate will probably be much harder.

However, you can still explore refinancing, even with bad credit. Getting pre-approved from a few different lenders will show you what interest rates you can qualify for. If you find a lower interest rate than you’re currently paying, refinancing could be a good choice.

Another thing to consider is using a co-signer for your refinancing loan. If you have poor credit, co-signing a new loan with someone who has good credit can help you qualify for a better interest rate. However, refinancing with a co-signer who also had bad credit probably won’t help.

Even though refinancing your existing car loan can temporarily affect your credit score, the long-term cost savings is usually worth it. Refinancing could save you a lot of money, especially if your credit score has improved since you took out the current loan.

A lower monthly payment can also make it easier to pay down other loans you may have, which also improves your credit.