Common car refinancing mistakes to avoid Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering interactive financial calculators and tools as well as publishing reliable and original content. This allows users to conduct research and compare information for free – so that you can make informed financial decisions. Bankrate has partnerships with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that appear on this site are from companies that pay us. This compensation could affect how and when products are featured on this website, for example for instance, the order in which they may be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage, home equity and other home loan products. However, this compensation will affect the content we publish or the reviews that you read on this site. We do not contain the entire universe of businesses or financial deals that might be accessible to you. Tom Werner/Getty Images
3 minutes read. Published February 24, 2023
Written by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in helping readers in navigating the ins and outs of securely borrowing money to buy a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain confidence to take control of their finances by providing clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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If you have questions about money. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to give our customers the right guidance and the tools necessary to make it through life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and reliable. Our award-winning editors and reporters provide honest and trustworthy content that will help you make the best financial decisions. The content created by our editorial staff is factual, objective and uninfluenced by our advertisers. We’re honest about how we are capable of bringing high-quality content, competitive rates and helpful tools to you , by describing how we earn our money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and, services, or by you clicking on specific links on our website. This compensation could impact how, where and in what order products appear in listing categories in the event that they are not permitted by law. This is the case for our mortgage home equity, mortgage and other home loan products. Other elements, such as our own website rules and whether or not a product is available in your region or within your self-selected credit score range can also impact the way and place products are listed on this website. Although we try to offer the most diverse selection of products, Bankrate does not include information about each credit or financial product or service. If you’re having trouble paying your current loan payments, replacing the current auto loan with a new one can be an excellent way to save money and continue to drive your car. But there are some common mistakes to avoid in order to ensure you don’t get into another financial bind. The top seven mistakes in refinancing your car Avoid these common traps when refinancing your vehicle loan. 1. Don’t check the refinancing requirements. Lenders have specific requirements in refinancing. Keep an eye out for requirements pertaining to the car’s age, mileage and the amount you have left to repay the loan. For example, lenders often will require a minimum of six months of repayment to your loan and a balance of between $3,000 and $5,000 to refinance. Bankrate tip
You can find specific refinancing requirements from lender’s websites or Bankrate’s .
2. Do not contact your current lender first . While your current lender may not offer the lowest interest rates, it is still the best place to start. Before you look into refinancing options that aren’t offered by the current lender, it is wise to approach them and tell them about your situation to determine if they are able to assist. Certain lenders provide this service , that alters the conditions, the payment due date or interest rate to provide borrowers with financial relief. Tip from Bankrate
If you do go through with refinancing your loan there is a chance that they’ll offer more than an existing lender could.
3. The extension of the loan term too long Refinancing is a way to save money, but if you extend your loan too much, you could spend more money over the loan’s duration. While a will mean lower monthly payments but you’ll also be paying more interest. Tip from Bankrate
Before adjusting your term Take advantage of an auto refinance to make sure you are saving money.
4. Don’t take into account your credit score Like most situations with financing, your credit is used as the main determinant for approval. Thus, improve it and before changing your loan. You’re more likely to receive the available and get an improved loan overall. Credit scores of 670 and greater typically qualifies borrowers for the most favorable interest rates. Tips from Bankrate
Check your credit ahead of loan applications by using AnnualCreditReport.com.
5. Only shopping with one lender Just as you would in the process of obtaining your first auto loan, we recommend comparing at least three lenders. So, while signing off on the first loan offer may be tempting, not all options are created equally. In the end, the lower your interest rate the lower your car payment. You want to ensure you’re getting the most competitive rate out there. Tips for Bankrate
Compare the current rates offered by a range of lenders. Pay close attention to the eligibility requirements, repayment options, and how it compares to the current loan.
6. Insolvency on your loan Prior to refinancing, you should determine where the equity of your car lies with a . Equity is the amount by which the value of your vehicle is greater than the amount you have to pay on the auto loan. If you have debt that is greater than what your car is worth or you have equity that is negative, refinancing is likely not the best option. Bankrate tip
Don’t make a deal to refinance a vehicle that you can’t afford. Find out where you may be overextending and estimate the expenses prior to signing the new loan.
7. Don’t give up after the first rejection Auto loan refinancing guidelines differ from lender to lender So the fact that you’ve been rejected by one doesn’t necessarily mean that you’ll be rejected at all. If you’re wondering, “Why can’t I refinance my car?” you have the right to question the lender to explain the reasons under the (ECOA). They must tell you why the application was rejected. Bankrate tip
Knowing why you were denied will help increase your odds of approval later on. For example, if you have a credit score that is low, you can work towards improving it before applying next time.
The bottom line While refinancing your vehicle loan could be risky It is an excellent way to lower your monthly cost and continue paying for your car. Be aware of these mistakes common to all in mind and be up-to-date with current information for you to be sure you leave with the best loan to meet your needs.
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Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers in navigating the ins and outs of securely borrowing money to purchase a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain the confidence to control their finances through providing clear, well-researched facts that break down otherwise complex topics into manageable bites.
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