- 1 Refinancing Your Auto Loan: A Little Secret that Could Save You Big Money.
- 2 refinancing auto
- 3 Refinance Auto Loan #8211; How it Works
Refinancing Your Auto Loan: A Little Secret that Could Save You Big Money.
ItвЂ™s funny. With all the research and shopping and stress that people go through when they buy a car; most people once they buy it, just drive it away, pay their monthly payment, and never think about it again.
The truth is, unless youвЂ™re currently paying zero to 3% APR on your current auto loan, you could save a lot of money by refinancing your auto loan.
Refinancing your auto loans works like this. When you purchased your car, likely at a dealership, you bought the car AND the financing rate that the dealer sold you. Most likely there was a fairly significant markup in that transaction where the dealer makes money вЂ“ especially if you have auto loans with bad credit.
When you refinance your auto loan, you are essentially paying off your current loan, with a lower rate (APR) loan from an alternate refinancing lender.
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1 Meet and greet
Let#8217;s make sure refinancing is right for you
So the first thing we want to do is make sure that refinancing is right for you and that it makes good financial sense.
It makes good sense, if since your original loan you find yourself in one of these situations right now.
Your credit score has improved.
You want to lower your monthly payments.
Interest rates have dropped.
You would like to access funds for other financial needs.
You didn#8217;t get the best rate when you purchased your vehicle.
If you are feeling that maybe you are paying too much for your present car loan, or if any of the above reasons appeal to you, then contact us and let#8217;s see about saving you money.
2 Share your story
We need to know about your situation and your needs
We will need the mileage, trim level, and VIN number of your vehicle to get started.
Let us know who your current lender is along with their contact information and your present balance.
Once you complete your application and are approved, we will handle all the paper work and make sure it is properly registered and filed.
3 Your new loan
Now it#8217;s time for the fun part.
Saving you time and money.
We shop the lenders to find you the best rate and terms for your financial situation. We handle the paper work from start to finish so you don#8217;t need to worry about anything.
We explain everything in detail, so all of your questions about the paper work and financing will be answered before you sign. It#8217;s that easy.
Have your VIN number, mileage and trim level available so we can speed up the process for you.
For faster service — also fill out the Credit Application.
Refinance Auto Loan #8211; How it Works
Refinancing an auto loan can be a good way to reduce monthly payments. However, it often doesn#8217;t bring the benefits that borrowers expect. Let#8217;s take a look.
A car refinance loan is no different than any other used-car loan. You determine the payoff balance on your old loan, arrange for a new loan, get a check from the bank or finance company to pay off the old loan, and begin your new loan. The new loan replaces the old.
A refinance loan does not have to come from the same bank, loan company, or finance company as the old loan.
It is possible that your auto loan company will be willing to modify the terms of your existing loan if you are in serious financial difficulty and need to lower your payments. This is unusual and should not be your only plan. Contact your bank or loan company to find out if this is possible in your case.
There are only two ways that refinancing a car loan can lower your monthly payments: 1) by lowering interest rate, and 2) by extending the payoff schedule, or both.
First make sure your refinancing expectations are realistic. What are your car loan payments now? Has your credit score improved since you began the loan? How much do you want to lower your payments? Are you currently upside down on your loan? Are you willing to extend your loan for a couple or more years?
Refinancing can reduce your car payments if there is a significant difference between your old interest rate and the rate that you might get now. The benefit is greatest if your old interest rate is very high – possibly because your credit score was low at the time, or you had unknowingly accepted a bad deal.
Auto loan rates have come down (as of this writing) over the last few years #8212; possibly enough to make refinancing worthwhile. However, if you originally bought a brand new car and took advantage of a special loan rate at the time, you might actually find current rates higher. In that case, refinancing wouldn#8217;t make sense.
If you are currently upside down on your present loan, you may not be able to refinance, especially if there is a large difference between what you owe and the value of your vehicle. Lenders don#8217;t want to lend more than a car is worth. The only way around this problem is to use cash to make up the difference to pay off the old loan.
The refinance interest rate that you#8217;ll get is based on your credit score. If you don#8217;t know your credit score or are not sure if your score has improved since your loan began, you should get it now. What#8217;s your FICO score? Find out now when you check your credit report for $1 at Experian.com!
If your score hasn#8217;t improved, or improved very little, you may not qualify for the lowest interest rates. You may not be able to better your original rate. Check current loan rates with Auto Credit Express who specializes in refinance loans, especially for people who have had credit problems in the past.
If you have had poor credit, paying off bills and making on-time payments for a couple of years may improve your credit score a little but, depending on just how bad it was, your score may not have improved enough to make a difference in interest rates. The negative elements on your credit history stay on your report for 7-10 years and don#8217;t go away even after you improve your credit habits. Many people are disappointed to learn that good credit habits take much longer to affect their credit score than does poor credit habits.
If you can#8217;t reduce your interest rate, another way you might benefit from auto loan refinancing is to extend your loan term. That is, extend the number of months that you#8217;ll have to pay off the loan. It#8217;s possible that your loan company will modify your existing loan rather than make you end one loan and begin another. This is not a great solution, but might help in a bad situation. Get a payment quote for an extended term loan at Auto Credit Express (see link above) to see if it helps. If not, you are not obligated to accept the loan.
In most cases extending a loan term is not a good idea because it almost always means that you will be upside down on the loan for almost the entire term. You will have no sell or trade equity until near the end of the loan. And you#8217;ll still be paying on an old car for years to come, possibly after the car has turned into junk.
Let#8217;s take a look at an example of how this might work.
Following is a simple example of an actual calculation in which it is assumed the buyer decides to refinance his car after one year:
New-car loan #8211; $30,000, 6% interest, 48 months. Months remaining #8211; 36. Original ayment amount #8211; $704.55
Balance owed after one year #8211; $22,570.
Refinance loan #8211; $22,570, 7% interest, 48 months. Refinanced payment amount #8211; $540.47
This shows a monthly payment reduction of $164 but notice that we#8217;ve extended the payment term out another year. Had we not extended the loan term, the payment would have been $697, a difference of only $7.
Also notice the interest rate on the used-car refinance loan is higher (because used-car rates are higher than new-car rates), which increases the payment amount. We could have extended the loan even further for an additional payment reduction, although that#8217;s usually not a good idea.
You can do your own car loan refinance calculations with this online auto loan calculator.
Where to refinance your auto loan
Any lender or bank who grants used-car loans can refinance your old car loan. You could check with your bank or a credit union to determine if refinancing will benefit you, and get pre-qualified.
However, since it#8217;s so easy and free, we recommend going to an online company such as Auto Credit Express and PersonalLoans.com find out instantly if you qualify. If you like their offer, simply complete the paperwork and you have a new loan. The application process is free and there is no obligation. They work with people with bad credit, no credit, bankruptcies, and repossessions — and offer good rates.
If you#8217;re thinking about refinancing your auto loan, make sure you do your homework and determine if it will reduce your payments enough to be worth doing. You have better chances if your credit score has improved significantly and you are not greatly upside down on your old loan.