Simply put, refinancing involves replacing one auto loan contract with another on the same vehicle. This is usually done to save you money on your monthly payment. There is no fixed cost for refinancing, but you may have to pay fees and charges associated with your new loan. These should be minimal compared to your savings if you play your cards right.
Car refinancing steps. To refinance your car, you must first qualify, that is, know where you stand in terms of credit. You will also want to gather the information you need about your car and your loan. Refinancing is usually reserved for borrowers with good credit, so if your credit score is not great, you should check that it is at least higher than when you originally took out your loan.
Then contact your current lender and get your loan repayment amount. You usually receive what’s called a 10-day repayment, which includes your loan amount and 10 days of interest charges. You need this information to apply with a new refinance lender. You should also know the year, make and model of your vehicle, its mileage, and whether or not there is equity in your vehicle. If you are in a negative equity situation, you are not eligible for refinancing your car.
Finally, it’s time to research the best rates and terms you can find. You can do this by requesting refinancing from multiple lenders to see which offer is right for you. This is called buying rates. When you make multiple requests for the same type of credit in a two week period, a single serious request should impact your credit score, even if they all show up on your credit report.
Is refinancing a good idea? Before embarking on refinancing, it is important to ask yourself why you are choosing this option. Has your credit score improved enough to qualify you for a better interest rate? Have overall national interest rates fallen? Maybe your financial situation has changed? Maybe you need to add or remove a co-signer or co-borrower?
Whatever your reason, the primary goal of refinancing should be to lower your monthly auto loan payment. You can do this by qualifying for a lower interest rate, a longer loan term, or both. If you simply extend the term of your loan, you can still lower your payment, but without a lower interest rate, you’ll end up paying more overall.
Does refinancing a car save money? Suppose a borrower takes a loan of $ 20,000, with bad credit, and qualifies for an interest rate of 12% for 60 months. This borrower pays $ 444.89 per month, for a grand total of $ 26,693 with interest.
Now imagine that it has been 18 months and the borrower has already paid $ 8,008.02 but needs to reduce their monthly payment. The borrower requests refinancing on the remaining loan balance, just under $ 12,000. At this point, the borrower has 42 months on the original loan.
Assuming borrower qualifies for $ 12,000 at 10% interest, for 48 months. They both extend the term of their loan and get a lower interest rate, which is a good way to keep your monthly costs as low as possible. The new loan gives them monthly payments of $ 304.35, for a total of $ 14,609. Even with the interest, they save almost $ 140 per month and over $ 4,000 in total through refinancing.
Our opinion. Refinancing can be a great way to save money on your monthly auto loan costs. If you are unsure of where to turn to begin your refinancing process, we want to help. Simply complete our Fast and Free Auto Loan Refinance Application Form to get started today.