Get Your Payoff Amount
Next, calculate how much it would cost you to buy your leased car. If youre purchasing it at the end of your lease, youll usually have to pay any sales taxes plus the residual value of the car i.e., the estimated value of the car at the end of the contract, which the dealership specified when you first signed the lease. There may be other fees as well, depending on your contract.
If you want to purchase the car before the end of your lease, you may have to pay early lease termination fees. Usually, this is a set fee plus the difference between your lease balance and your cars residual value. The closer you are to the end of your contract, the less that remains on your lease balance, and the more affordable it becomes to purchase the car.
Finally, reach out to your car lease company or lessor and ask for the payoff amount or buyout amount. They should be able to give you an itemized list of fees and charges that you can compare with your contract. Check this extra carefully because lease companies often sneak extra fees and charges in here, which you can likely dispute because theyre not in the contract you agreed to.
If your car payoff amount would be cheaper than buying a comparable car at market value, which you can find on sites like Kelley Blue Book and Edmunds, then it makes financial sense to go ahead and buy it.
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.
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.
Check Your Credit Score
Your credit score and history are major factors lenders consider when you apply for refinancing. If you have made smart money decisions since then paying down your credit card debt and making on-time payments, for example your Lenders will view you as less of a risk and may offer you better rates.
Check your credit score before you start applying. This will help guide you toward lenders you qualify for and predict potential rates. Even those who have bad credit may still be able to get a loan with a lower rate by finding the right lender.
The better your credit score, the lower the interest rate you will likely receive from a lender. Your payment history matters, too.
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How Soon Can I Refinance My Vehicle After Opening It With Another Lender
You do not need to wait any minimum amount of time before refinancing your vehicle. DCU can refinance your existing loan as soon as you have the account information for your current lender. Consult your current lender to determine if the terms of your loan include payoff stipulations such as a prepayment penalty.
Where Can I Go To Refinance My Car Loan
If refinancing sounds like a good option for you, you may be wondering where can I go to refinance my car loan? Most lenders refinance car loans, including banks, credit unions, and online lenders. All of these can be good options. While dealerships offer refinancing as well, you will want to avoid refinance your car loan through a dealership. Dealerships essentially operate as middlemen between you and the lender, charging fees and adding onto the money you will have to pay.
Traditional Banks
Refinancing through a traditional bank is the most common way people refinance their loan. Traditional banks can offer pretty quick turnaround and you may qualify more easily if your credit score is less than ideal.
Many credit unions also offer car loan refinancing. While they tend to have more strict requirements, they tend to offer the most competitive refinancing rates.
Online Lenders
Online lenders are becoming increasingly popular options for car loan refinancing. Online lenders may be your best bet if you do not have the best credit, but their rates may not be as competitive as banks and credit unions.
Car Refinancing Specialists
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Understand How Your Credit Will Be Impacted
Virtually every time you apply for credit, a hard inquiry will reduce your credit score by a few points. If you then open a new loan account, it will lower the average age of your accounts, which may also lower your credit score.
That said, both factors are much less important in calculating your credit score than your payment history and making timely payments on your new loan will increase your score over time. So, unless you have applied for other credit recently or you dont have a long credit history, refinancing is unlikely to make much of a difference.
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Shop Around To Find The Best Option
Even if your lender is willing to refinance your loan, shopping around and comparing offers can help you make sure you get the best refinance loan for your needs and budget.
Compare the annual percentage rate, loan term and any fees such as origination fees across offers.
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You Need To Reduce Your Monthly Payments
Sometimes its not about saving money in the long term. Life changes like unexpected medical expenses or the loss of a job can mean you need lower payments. While it may cost you more overall, refinancing your current loan to get a longer term can help you reduce your monthly payments to be more manageable in the short term.
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You Can Change Mortgage Lenders At Any Time
It is not possible to switch lenders unless you have agreed to a written contract with the lender. According to real estate experts, this type of requirement is uncommon. If all of your credit inquiries occur within the same 45-day period, your credit score will not be impacted by the fact that you can apply to multiple mortgage lenders. A single credit check from various mortgage lenders is recorded as a single inquiry by the credit bureau during this time period. It is your right as a consumer to choose a new mortgage lender if you are dissatisfied with your current one, and you can do so at any time.
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How Much Does It Cost To Refinance Mortgage
According to ClosingCorp, the average refinance closing costs will rise to $2,375 in 2021. In most cases, you will be responsible for 2 to 5 percent of the loans principal amount in closing costs. If you refinance your $200,000 mortgage, your closing costs could range between $4,000 and $10,000.
Refinancing Can Help Your Credit Score
Refinancing can lower your debt burden and/or monthly payments in the long run, which is why it may initially harm your credit score. You may experience a slight dip in your score in the near future, but it can recover within a few months. However, you will pay approximately 2% of the loan amount at closing, which is not always free. When you move to a different house before youve recouped those costs, youre most likely going to lose money even if your monthly payments decrease.
You Got A Bad Deal On Your Current Loan
This can happen if you financed through a dealership without doing your due diligence. Dealership financing typically comes from banks, independent lenders and captive financial arms owned by the car manufacturer. But sometimes dealers dont quote those lenders best rates and instead quietly mark them up to pad their profits. The best course to avoid this is to get a preapproved car loan before going to the dealership.
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Check Your Credit Reports And Credit Scores
Before you apply for a refinance loan, check your credit. Review your credit reports for any incorrect information and dispute those errors. Inaccuracies could hurt your credit scores, which could affect your ability to qualify for a new loan.
Checking your credit and knowing your credit scores can also help set your expectations before you start shopping for a loan. For example, if a previous bankruptcy is still on your credit reports, youll want to shop lenders that consider applicants with previous bankruptcies in their credit history. You can check your Equifax® and TransUnion® or request one free report per year from each credit reporting agency on annualcreditreport.com.
Pay Off Your Old Loan And Start Making New Monthly Payments
Depending on your lender, much of the transition from your old loan to your new one can be taken care of by the lender. For example, your new lender might pay off your old loan. But be sure to reach out to your previous lender to get confirmation that its been paid in full before you stop making payments on that loan.
Once your original loan is paid off, you can focus on making on-time payments on your new loan each month, which may help boost your credit.
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Considerations That May Stand In The Way
- Age of your car. In general, the newer the car, the better. To your lender, an older car has lower collateral value so you may not have an option to refinance the loan balance if it exceeds the vehicles current value.
- Prepayment penalties. Check that your current lender doesnt require you to pay a penalty for paying off your loan early.
- Other fees. State re-registration fees can vary significantly. Check with your state for the amount to be sure refinancing is worth as much to you as you expect. Also check for any fees your new lender will charge you for the refinance as those fees will impact the value of the new loan.
- Car was recently purchased. If youre thinking of refinancing your loan, consider waiting at least 6 months after the purchase of your vehicle. This allows your loan time to establish a loan history and to address any depreciation from the time of purchase.
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How To Refinance A Car Lease
There are several differences between leasing a car and taking out a loan for purchasing. With a car lease, you make a monthly payment to a dealership to drive a new car for a period of time, usually between two and four years.
Most car leases include a warranty, and some may also include free maintenance, such as oil changes. However, you may be charged fees if you exceed a set mileage maximum on your leased vehicle. You may also be subject to fees if your leased vehicle isnt kept in good condition.
Refinancing a car lease can reduce the high rates on a leasing agreement. Before deciding, however, consider the pros and the cons:
- Lose out on the money that you already paid into the lease
- Pay more in prepayment penalties
At the end of a lease period, you may have the option to sign a new lease for another vehicle or purchase the one youve been driving. The latter is called a lease buyout, and many auto refinance companies offer loans for this purpose.
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Estimate Your Car Lease Refinance Payments And Make Sure You Can Afford Them
When you refinance a car lease, youll use a car lease buyout loan to purchase the car. Some car lenders offer this as a special financing product, but for most lenders, its the same thing as your average car refinance loan.
Once you know how much youll be borrowing , you can use a car loan calculator to see what your monthly payments would look like. Then, you can compare these against your budget to see whether youd be able to afford this new payment amount.
If you have good credit youll be able to get a lower interest rate and monthly payment, but you can still get a lease buyout loan even if you have bad credit. Youll just need to be extra-careful about whether you can afford it if you are approved.
Keep in mind that you can stretch your loan term out for a longer period of time in order to get a smaller monthly payment. However, this can increase the total amount of interest youll pay on the loan before its paid off.
You May Already Have The Best Rate
If you purchased your car new, you likely got an attractive new car rate, especially if you took advantage of a special interest offer that can feature rates as low as 0% APR. The refinancing rates for some lenders, among them Bank of America, are higher than even their used-car rates. Also, interest rates have been at record lows due to COVID-19 experts predict rates will begin to rise in late 2022 to 2023.
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Can I Refinance A Car At The Same Bank
You can usually refinance your car loan with the same bank that financed your original car loan. But its a much better idea to shop around to see what other lenders can offer. When you look for a new car loan, you want to compare the following when you apply:
- The interest rate. The interest rate will be based on your credit score, your debt-to-income ratio, and the prevailing market rates.
- The repayment period. Look at your cash flow to determine how much you can afford to pay each month.
- The prepayment penalties. Its important to look at the prepayment penalties listed in each offer. There is no limit to the number of times you can refinance, so be sure that these arent too excessive. Its good to have the option to refinance again in the future.
- The customer satisfaction ratings. You should always do some research ahead of time to determine what their customers have to say about the company. How is communication? Are they reputable lenders? Bad reviews are a definite sign to stay away and refinance elsewhere.
You May Not Qualify For A Top Rate
If it has only been a short time since you got your initial loan, your credit score still may be suffering from the temporary hit from a hard inquiry to your credit report, especially if youve also applied for other types of credit, such as a mortgage or one or more credit cards. Your refinancing rate may also be affected if you were late on or missed loan payments, or you havent had the loan long enough to demonstrate that youll consistently pay on time, especially if you dont have a long credit history.
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Our Top Picks For Best Auto Refinance Companies
- RateGenius – Runner-up for Best Marketplace
- OpenRoad – Best for Low Credit Score
- AUTOPAY – Runner-up for Best for Low Credit Score
- Caribou – Best for Fair Credit
- myAutoloan – Runner-up for Best for Fair Credit
- LightStream – Best for Any Kind of Vehicle
- Digital Federal Credit Union – Best for Newcomers to Credit Building
Why we chose it: We chose LendingTree as best auto refinance marketplace because, among its approximately 40 lenders, some will consider borrowers with credit scores in the low 500s.
- Quote request form takes less than five minutes
- Serves a wide range of credit scores
- Minimum loan balance for refinancing is $8,000
- No 24-month loans terms start at 36 months
- No set loan amount range this varies by lender
- Loan Terms
- 36 to 72 months
LendingTree is a marketplace of about 40 lenders where you can compare rates for a wide variety of financial products, including auto refinance loans.
The companys marketplace covers the full spectrum of credit scores. This means that subprime borrowers people with scores between 580 and 619, also referred to as poor credit have a chance at refinancing their auto loan through LendingTrees network.
We particularly liked LendingTrees Auto Refinance Rates comparison tool, which allows you to input your zip code, loan amount and estimated credit score, and then get examples of potential auto refinance options with terms from 36 to 72 months .
- No limit on existing loan balance
- Prequalify with a soft credit inquiry
