Refinancing a car
- 1 Auto Loan Refinancing Calculator
- 2 Refinancing a Car the Easy Way
Auto Loan Refinancing Calculator
This calculator will help you to figure if you should refinance your current auto loan at a lower interest rate. It calculates monthly payments and net interest savings on your automobile loan.
Your Guide to Auto Loan Refinancing
No doubt you've heard about the benefits of refinancing a home loan. Frankly, it's pretty hard to avoid those mid-afternoon and late night television ads championing the benefits of home equity loans, and promoting the financial advantages of refinancing an existing mortgage. But did you know that you can also refinance an existing auto loan?
Auto loan refinancing offers many of the same benefits as home loan refinancing (albeit on a somewhat smaller scale), and under the right circumstances can be a real boon to anyone diligently working away at a high interest car loan. Refinancing allows you to secure a lower interest rate on your loan, reduce your monthly payments, and even free up some much needed ready cash. However, refinancing a car loan does have a downside, and it is important to understand both the advantages and disadvantages before you put pen to paper.
Car Loan Refinancing in a Nutshell
Refinancing an existing car loan is a relatively simple process. Essentially, you are using a new, and more favorable, loan to pay off the loan you have now. Of course, nothing is ever that simple. You first have to find a lender who is willing to underwrite a new car loan that gives you a lower interest rate, as well as offering more manageable repayment terms. Still, if you can secure a new loan that is even a single percentage point cheaper than your current loan you can save a significant amount of money, especially if the remaining balance on your existing loan is fairly substantial.
The Pros and Cons of Refinancing Your Auto Loan
There are some definite advantages to refinancing your current car loan, and they all have to do with managing your money more effectively. Some people refinance their auto loans to save on the total cost of their purchase, while others choose to refinance as a way of lessening their monthly financial burdens. In some cases, when there is sufficient equity in the vehicle itself, people choose to refinance in order to free up some ready cash. Let's take a closer look at some of the benefits of refinancing your existing auto loan.
- Lower Interest Rates – This is the most common reason people choose to refinance their car loans. If your credit was less than stellar when you applied for your original loan, or if you opted for dealer financing on your purchase, you may have been forced to accept a higher interest rate than you would have liked. More to the point, interest rates are always in flux and what was a good deal two years ago may not be so attractive now. Refinancing your existing auto loan at a lower interest rate can save you a considerable amount of money over the life of your loan. Even shaving a point or two off of your current interest rate can save you hundreds, if not thousands, of dollars on the total cost of your loan.
- Smaller Monthly Payments – The second most popular reason for refinancing an existing auto loan is to lower your monthly payments in order to make the repayment plan a little more manageable. This can be a definite advantage if your financial status has changed since you took out the original loan, and you are finding that the size of your monthly payments is becoming something of a burden. Again, this ties in directly to securing a lower interest rate on your new loan.
- Reduce the Term of Your Loan – If you refinance your car loan at a significantly lower interest rate, it is possible to shorten the term of the loan with little or no impact on your monthly payments. This makes it possible to pay off the debt quicker, ultimately saving you money on the total cost of the loan.
- Cash Out for Emergencies – If you've built up some equity while paying on your current loan, you may be able to take advantage of a cash-out option when you refinance your vehicle. The new lender will base your new loan on your vehicle's current value, using guidelines set down by the National Automobile Dealers Association. If your vehicle is judged to be worth more than you owe, a lender may agree to pay off your current loan and pay you the difference in cash. It's worth noting, however, that while a cash-out option can be beneficial in an emergency, it typically results in the extension of the life of your loan and an increase in its total cost.
- Changing Lenders – This is more of a personal consideration, but it does come into play when deciding to refinance an auto loan. If you are unhappy with your current lender, and you find their services lacking in any area, you may choose to refinance your vehicle simply as a way to partner with a lender that is more supportive or responsive to your needs as a borrower.
While there are some distinct advantages to refinancing an existing car loan, there are also some disadvantages that you need to be aware of, and they can negate any possible savings that you may have anticipated.
- Longer Repayment Periods – It's important to understand that refinancing isn't always a guarantee of savings. Sometimes, even though you've refinanced at a lower interest rate, you can still end up increasing the total cost of your loan. If your new lender offers you a better rate, but extends the life of your loan at the same time, you may not see any real savings. In fact, you may actually end up paying more in the long run. If you are trying to lower your monthly payments, or you need to take advantage of a cash-out option, refinancing may still be the smart move. But you should consider it carefully before entering into an agreement that may end up costing you more than you may have anticipated.
- Negative Equity – Negative equity means that you owe more on your vehicle than it is actually worth, and this can happen all too easily if you refinance a car loan on extended terms. If you are already upside down on your existing loan, you may find it extremely difficult to find a lender willing to refinance your vehicle, and if you do you are likely to be faced with much higher interest rates to offset the reduced collateral value of your automobile.
Refinancing a vehicle is not for everybody, and there are times when it can work against you. That being said, if one or more of the following conditions apply, you may find that refinancing makes good financial sense.
- Interest Rates Have Dropped – If interest rates have dropped significantly since you first purchased the vehicle, refinancing may be a good option. It's worth pointing out, however, that when you refinance a vehicle it will be treated as a used car loan, and as such will be subject to a higher interest rate than if you were borrowing towards the purchase of a new automobile. This is because the collateral value of the vehicle will have depreciated since the original purchase. Still, if you can shave even a couple of points off of your current loan you can save a fair amount of money.
- You Failed to Get the best Rates on Your Original Loan – This happens all too often when dealer financing is involved, or when buyers fail to fully research their loan options before finalizing a purchase. If your current loan is saddled with unusually high interest rates, refinancing is a wise decision.
- Your Credit Score Has Improved – If your credit score was compromised in any way when you applied for your original loan, you may have been forced to accept a relatively high interest rate. A credit history that is even slightly marred can easily result in interest rates of 18% or more. After a period of making regular on-time payments on your original loan, you may find that your credit score has improved, in which case you might be eligible to refinance at a lower interest rate.
- Your Financial Situation Has Changed – It doesn't take much of a financial setback to turn a simple car loan into a monthly burden. If your financial circumstances have take a turn for the worse, it may be wise to refinance your vehicle, if only to make your monthly payments more manageable.
Where to Apply for Refinancing
Banks and credit unions are usually the best options when it comes to refinancing your vehicle. Online lending companies are also a viable alternative, and some even specialize in auto refinancing. However, online lenders rarely offer the competitive interest rates that are available from traditional banking institutions. Moreover, dealing one on one with a bank or credit union in your community typically makes the entire loan process easier. You can speak with a loan officer directly, and go over all aspects of your refi agreement before you sign the contract. You will also have direct access to customer support throughout the life of your loan.
As with any car loan, you will want to investigate a few different lenders in order to find the best deal that is available. Compare and contrast three to four different refinancing offers, and pick the one the best suits your financial needs at the time. Remember, refinancing a vehicle is simply paying off one loan with another, and you do not want to rush into any agreement that you don't fully understand, or that you are not completely comfortable signing.
Applying to Refinance Your Vehicle Loan
When it comes to refinancing an auto loan, the application process is relatively quick and painless. In fact, you'll likely find it much easier than when you applied for your original loan. Many lenders, banks and credit unions among them, allow customers to apply for refinancing online, often with same day approval. You may even be able to finalize the loan online with an e-signature, or by printing out the loan documents and returning them by mail. Having said all that, it is always helpful to speak with a loan officer in person to ensure that you fully understand the terms of the agreement, and in order to negotiate the best deal possible.
Whether you decide to apply online or in person, you will need to have some specific information at your fingertips in order to complete your application. The following checklist should help ensure that you have all of the necessary documents at hand when it comes time to contact a lender.
- Valid Drivers License – Standard when applying for any auto loan.
- Social Security Card – Again, standard when applying for any loan. Your lender will use your social security number to verify your identity.
- Title and Registration – Your lender will need to see the title to the vehicle to confirm that it is registered in your name. You will also be expected to provide proof of insurance.
- Pay Stubs – Your new lender will want to verify your income to ensure that you have the financial means to pay off your new loan. Most creditors require 2 to 3 months worth of valid pay stubs as proof of employment and income.
- Tax Forms – If you are self employed, some lenders may require you to submit copies of your 1040 SE forms as further proof of income. You may also be asked to provide copies of your most recent tax returns (typically going back 2 to 3 years). Lenders use this information not only to verify employment and income, but also to track trends in your earnings.
- Credit Report – As with any loan application, your new lender will run a credit check to determine if you are eligible for refinancing. Your credit report will also have a significant impact on the terms and conditions of your refi loan. It is always advisable to check your credit report before you apply for refinancing, as this will give you a better idea of your eligibility, and will put you in a better position to negotiate more favorable interest rates.
Keep in mind that while you are researching lenders, and applying for a refinance loan, you must maintain your current repayment schedule. Should you miss any payments, you will not qualify for refinancing. Your responsibilities to your original lender will remain in force until the refinance agreement is finalized and your new lender has resolved the original debt.
Under the right circumstances, refinancing an auto loan can be a smart financial decision. It can help you reduce the total cost of your loan, or can provide some much needed financial relief if you are finding it increasingly difficult to keep up with the payments on your existing loan. Still, as advantageous as refinancing may be it is still a debt, and as such should be approached with all of the care and attention to detail that you would bring to any other loan important financial decision. Take your time, research a variety of different lenders, and only sign a contract when you have a refinancing agreement that you are comfortable with, and that you are sure will serve your current financial needs.
Refinancing a Car the Easy Way
Have you taken out car finance, but your situation has now changed? If so, you may be left asking ‘how and why should I refinance my car ?’ Today, we’ll be talking you through why an auto refinance loan may be the ideal option for you.
Car refinance isn’t for everyone, but it can be a convenient way to save you money. Taking out a car loan with a fixed interest rate may have been the best deal 12 months ago #8211; but since then, interest rates may have dropped. Instead of paying off your original loan, refinancing a car can save you money overall #8211; guaranteeing that you’re getting the best available rate.
But does refinancing a car hurt your credit ? The simple answer is no. In actual fact, refinancing can help you to maintain your credit score, even if you get into financial hot water. Financial setbacks may mean that the loan you initially applied for just isn’t viable anymore. Rather than falling into the red and missing payments, refinancing allows you to increase the loan term and, subsequently, lower your monthly payment.
After a long period of time with the same car, you may be ready for an upgrade. The deprecation of your car may mean you owe more than your car is now worth #8211; making it trickier to settle your finances before selling up. If a ‘voluntary termination’ or using your savings to pay the difference isn’t suitable for you, car refinance can give you a top-up loan to help you on your way to a new motor.
How to refinance a car loan with bad credit
It can feel like an ongoing battle trying to get accepted for car finance when you have a less-than-perfect credit score. But refinancing a car loan with bad credit doesn’t have to be as intimidating as it sounds #8211; and it can actually help you to get a better deal. By taking out the original car loan, your credit score is likely to have improved over the course of your repayment period. Lenders reduce the interest rate for lower-risk applicants, so a car refinance loan with your healthier credit score means you’re likely to qualify for a lower interest rate.
Find out more about bad credit car finance.
How does refinancing a car work?
Refinancing a car means replacing your current car finance with a new loan under different terms and, often, a different APR rate. The process of refinancing means that the new lender will pay off the outstanding loan, and create a new contract for you #8211; meaning that refinancing makes it possible to remove or add a co-signer on the contract, as it is entirely separate to the original car finance deal.
Can I refinance my car with the same lender?
The process of refinancing a car means the original contract is settled and terminated, often by a new lender. However, The Car Loan Warehouse offer a hassle-free car refinance service, meaning you can switch to a more suitable contract without having to change lenders.
Whether you’re refinancing a car loan with bad credit or just think an auto refinance loan makes economic sense, refinancing a car with The Car Loan Warehouse couldn’t be easier. Call our friendly advisors today on 0800 066 288 to discuss your options, or apply online for a refinance deal with The Car Loan Warehouse.
For a quick online quote, use our car finance calculator to see how we can make refinancing a car work for you.