The Auto Loan Refinancing Guide The decision to refinance your auto loan involves some research and preparation. Part of that research includes determining whether your objective is to obtain better rates and terms or reduce your monthly payments. Regardless, refinancing simply replaces the current loan with a new one.
This guide will explain the ins and outs of refinancing your automobile loan, from the nitty-gritty of the steps you need to take, the benefits and drawbacks as well as the essential requirements.
Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the ways and pitfalls of taking out loans to buy cars. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are enthusiastic about helping readers gain the confidence to manage their finances through providing concise, well-studied information that breaks down complicated topics into digestible pieces.
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Get a new loan First step in refinancing your auto loan will be to determine if the process is the right choice for you financially. Two main scenarios where a refinancing might be a good idea are: if you can get a better rate or if you are having trouble making payments. In order to decide whether refinancing is the best decision, take the time to review the current loan. It is recommended to evaluate the potential savings with what you currently pay for loan. Finally of your credit score to ensure that you can ultimately get a better loan. Remember: If your score is at the same level as it was the day you signed -or, even worse, lower refinancing might not benefit you. ARTICLES RECOMMENDED
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The refinance process likely going to be fairly similar to what you did when you were applying for the initial loan. After you’ve met the minimum of three lenders you are able to apply with the one that’s best suited to your requirements. Most lenders allow for an online application, however you’ll likely need to submit an initial credit check prior to acceptance — which can reduce your score a bit. Be aware of the information details that the lender has to offer in relation to mileage, vehicle type, time you’ve had the loan and remaining loan balance. In addition, it is recommended to have your paperwork in order ahead of submitting. This includes details regarding your vehicle — and information regarding your previous loan that you would not have needed for your first loan application. Suggested ARTICLES
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In the end, you will be able to be able to receive an auto loan. Now, you can pay off your old loan and begin making payments on your new one. The procedure varies based on the lender, but you will either receive the payment either directly from the lender or sent directly to the previous lender. Either way, it is recommended to confirm that the process was done before halting payments on your previous loan so you don’t wind in the middle of late fees or other charges. Recommendations for ARTICLES
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PROS Monthly payments less expensive
Possibility of paying off the loan earlier
Lower interest rates, CONS fees
More paperwork
Could extend loan Are auto refinancing options for you? Refinancing your auto is the best option if you’re looking to save money — particularly on the interest you pay or you require relief but can’t find your . However, due to the high inflation, determining whether it is right for you is a matter of careful thought. Reasons to consider refinancing your auto loan Your credit rating has improved Credit score serves as the main goal for the rates lenders will offer you. If your credit has improved since the time you agreed to your loan and you’re in a better financial position, it might be worthwhile to refinance to get more competitive rates. Reduce your monthly payments If your current loan is putting a strain on financial resources and you’re in danger of missing a payment Refinancing could be an alternative. Be aware of the amount that you extend the loan duration, but the longer it runs, the higher your interest over the course of the loan. The interest rates have slowed down, however this not the case currently because of the Federal Reserve’s actions to quell inflation, refinancing is an excellent option when interest rates have dropped. Keep up with current interest rates to decide if refinancing is a good option. If you have dealer financing, if you initially agreed to dealer financing terms It is likely that you did not get the most competitive terms. Check around to secure more competitive rates. Requirements for refinancing an auto loan Every lender has their own criteria for eligibility when it comes to automobile refinance loans. There are some requirements you will likely run into.
The remaining loan balance Every lender has its own rules regarding loan amounts, but in the event that you have a small amount left, or even more, lenders may stray away. Typical minimums to refinance fall around $3,000 and the maximum is usually less than $50,000. There is a time remaining on the loan Based on your position in the term of your loan, refinancing might not be feasible. Most lenders will require you to be in the minimum of six months into your loan and have at least six months remaining. On the other end If you’re already a long way into the loan it may be more beneficial to simply pay it off instead of refinancing. Credit score The higher your credit score and the higher your credit score, the better rates you will receive. So while having a perfect credit score isn’t a requirement, anything less than 600 won’t leave you with higher rates — or even cost more. The model year and the mileage of your vehicle. A majority of lenders won’t permit refinancing of vehicles that are more than 10 years old. To add to the age of your vehicle If your car has been driving a lot of miles, lenders might steer away. The range of 100,000 to 150,000 miles are typical. Debt-to income ratio The best amount varies from lender to lender however, you generally need less than 50. Your debt-to-income (DTI) proportion is the amount of your income minus your debt. It is recommended to use a in order to find your DTI before applying. It is best to utilize a which will do the heavy lifting for you. Once you have a handle the amount you could potentially save you begin your refinance process.
How do you determine the savings from auto refinance to find out the potential savings of refinancing your auto loan you’ll need to look at the comparison of your current loan with the new one. It’s not as easy as looking at the two monthly payment amounts, instead, you must take into account how the total amount of interest will be impacted. How to refinance your auto loan 1 Browse online and apply for prequalification on 3 loans After review of your current loan, compare a few different types of lenders. Pay close attention to applicable interest rates and requirements because they differ by lender. 2 Gather relevant documents Following preapproval it is best to organize your documents prior to submitting your apply. Make sure you have details about your car as well as your financial situation and the first loan. 3. Make an application for the best deal The lender you choose will have an easy process you can follow to complete your application. Based on the lender you choose, you may be contacted in as little as a few minutes. The basics of auto refinance
Do you need to refinance your car loan if you have bad credit? While it is possible in refinancing you loan even if you’ve got , it may not be the most prudent financial choice. The only way to receive better terms from refinancing is to get a better credit score in addition. Instead, think about the possibility of a loan modifications or .
What is the difference between loan refinance and modification? Modification of loan, as the name implies, modifies your current loan to lower rates or defers payments , while refinancing is completed with an entirely new loan. Do you think it is a bad idea to extend your loan duration? Although it’s not necessarily negative or harmful to take a , a longer-term loan does carry more risk. The main risk is that you could end up ” ” as well as “underwater” in your loan for a long time. It happens when you are owed more than your vehicle is worth. Does refinancing hurt your credit? It could cause the reduction of your credit score because applying will cause a hard credit pull. In addition the score could drop due to the new account. This will result in minor declines and could help your credit score in the long run — especially when you’re having trouble paying your current loan. Does refinance start your loan over? While yes, refinancing can do that, but it’s not a perfect fresh start. In the ideal situation, your new terms will be more affordable thus making it easier to begin fresh. Once your old loan is completed, your previous payments are not carried over.
Do you need cash to pay off a car loan? Some lenders do require you to put cash down, typically for those who have poor credit. Therefore, cash is not necessary but can help lower the amount you pay. What to consider after refinancing your car? Even though you’re able to breathe easy with a brand new and improved loan in hand, there is still certain things to consider . These considerations will ensure you are in the loop with your new loan. Pay off your previous loan. As long as you wait for approval from your former lender it is important to keep making the payment on the loan. If there is a problem and you are overpaid, the lender will likely credit the amount back to you. When you get your newly-approved loan either you or your lender will make your final loan payment. Be sure to consult the details with the lender to avoid any extra costs. Begin paying off your new loan. The payment schedules differ for each lender but generally, you’ll need to begin making payments 30 days after accepting the loan. It is recommended to set up automatic payments if in place to avoid any missed payments. Also don’t put off any payments in order to avoid any building interest. If you feel yourself heading into a precarious spot contact your lender and let them know about the situation before it’s too late.
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APR From Hover to know more about apr. The annual percentage rate (APR) includes your interest rate, plus any loan fees. It reflects the total costs of borrowing. Term Hover to learn more about the term. The period of time until the loan matures and is due to be paid off at the end of. The terms can be expressed in months or years in accordance with the terms of your loan. Minimum credit score Hover to learn more about credit minimums. A minimum score on credit is typically required to qualify for a loan from a particular lender. Specific thresholds are not usually specified by a lender and, in some cases, the minimum score is the most accurate estimation based on the public records. Credit score refers to FICO 9.0 unless explicitly stated. 3.9
Bankrate Score
APR as low as 4.99-
36.00 %
The term is between 24 and 60 months
Min credit score not publicized
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Score of the Bankrate
APR starting at 5.24-
12.29 %
Term 24-72 mo
Min credit score of 700
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Bankrate Score
APR starting at 4.89 %
Term 36-84 mo
Min credit score Not publicized
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Score of the Bankrate
APR starting at 4.49 %
60-month term
Min credit score of 700
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Bankrate Score
APR starting at 5.34 %
Term 24-84 mo
Min credit score of 600
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4.2
Bankrate Score
APR starting at 2.99 %
Term 36-60 mo
Min credit score of 700
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Apply through the partner site APR starting at 3.99-
24.99 %
60 months of term
Min credit score 700
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Score at the Bankrate
APR from 7.29-
11.54 %
Time period 36-72 mo
Min credit score of 700
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Bankrate Score
APR starting at 3.12 %
Time frame 48-60 mo
Min credit score 700
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Bankrate Score
APR of 5.61-
29.99 %
The term is 24-84 months
Min credit score of 700
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Bankrate Score
APR starting at 9.49-
16.94 % with AutoPay Term 24 -84 mo
Min credit score of 700
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Score of the Bankrate
APR starting at 2.49 %
60-month term
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