Lowering Your Monthly Payments
You can refinance your loan to lower your monthly payments without changing the actual amount of money you owe through the lifetime of the loan. This strategy is often used when there is a change in someone’s income and that person can no longer afford the monthly payments.
In this case, the lender offers a lower monthly payment plan, but extends the length of the loan. Because you will be paying the interest rate of your loan over a longer period of time, this type of loan refinance may end up costing you more in the long run.
Best Online Refinance Loan: Lightstream
LightStream
- Minimum credit score: Not stated
- Loan terms : 24 to 84 months
If youre looking to apply to refinance an auto loan online, LightStream is a great option. With low rates that reward borrowers with good credit, LightStream also features a fast online application and same-day funding.
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0.5% discount with auto pay
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Same-day funding
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No restrictions on make, model, or mileage
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Online application only
LightStream offers competitive rates, a wide range of refinance options, and an entirely online process for refinancing. It also gets strong customer service ratings, receiving a top score in the J.D. Power 2020 Customer Lending Satisfaction Study.
How Often Should I Refinance And When Should I Do It
Refinancing your car loan can save you money on interest if you do it right. If you first got your auto loan when you had bad credit and youre working on improving it, you might be wondering how often you can refinance a car loan? Theres no legal limit on how many times you can refinance a car but there are pros and cons that you should weigh carefully and lenders may not approve you over and over.
You may also wonder how long should you wait to refinance a car as your credit score goes up? The short answer: it depends. Although many lenders might not have any restrictions on when you can refinance your auto loan, others might not feel comfortable refinancing a brand new auto loan. At LendingClub, the minimum is 90 days, says Alia Dudum, a spokesperson for LendingClub. She adds, This is usually to confirm that youre making on-time payments, so stay on top of those payments if youre hoping to refinance in the near future.
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Reasons It Makes Sense To Refinance An Auto Loan
There are many cases in which it might be a good idea to refinance your auto loan.
Perhaps you need a lower monthly payment to offset a tight budget, or you need to save the total amount the car financing will ultimately cost. Well break down a few factors that can make it profitable to refinance now.
Can You Refinance Your Auto Loan With Your Existing Lender
The rules for refinancing an existing loan with the same lender vary by financial institution. PenFed Credit Union, for example, does not allow refinancing for cars already financed with the credit union. Other lenders do allow borrowers to refinance an existing loan.
Keep in mind that it may not always be beneficial to refinance with the same lender. You might find a better deal by refinancing with another institution.
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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 as a result of 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. However, just shopping for car loans should have a minimal effect on your score, reducing it by fewer than five points for about 12 months, says Dave Shellenberger, vice president of scores and predictive analytics at FICO. Your refinancing rate also may be affected if youve missed or were late on your loan payments, or if you havent had the loan long enough to demonstrate that youll consistently pay on time, especially if you dont have a long credit history.
A Refinance Makes Sense When:
You need a lower payment. You might be able to refinance and reduce your monthly car payment by getting a lower APR and/or getting a longer term.
A long-term auto loan usually means youll pay more in interest over time. You could refinance for a lower payment now, and when your finances improve, either refinance again for a shorter term or put more money toward the loan principal so you can pay it off early. Both ways could help you save money on interest fees.
You could get a lower rate. A main goal of refinancing is to pay less in interest. You may qualify for a lower APR if your credit score or income improved since you first signed for your current auto loan. You can check your credit score here.
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Your Credit Score Has Improved And You Can Qualify For A Lower Rate
Congrats on improving your score! According to our parent company, LendingTree, if you raise your credit into the next tier in the FICO Score range you may see appreciable savings. Auto lenders rank consumer credit into Tiers A, B, C, D and F. Financing to applicants with D- and F-tier scores may only be offered as subprime or bad credit loans:
- Tier A: 781 850
- Tier D: 501 600
- Tier F: 300 500
When To Refinance Your Auto Loan
Choosing whether to refinance really depends on your personal financial situation. For some people, saving $15 a month isn’t worth going through the trouble of all the paperwork. For others, a monthly $15 savings over the life of a long loan makes a big difference.
The two big triggers that create potential savings are:
- A change in your own credit score.
- A change in rates being offered.
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How Refinancing A Car Loan Affects Your Credit
Each time you refinance an auto loan, it affects your credit. If you refinance a car loan, the bank or credit union youre applying to will need to run a new inquiry on your credit history, which results in a hard inquiry on your credit report.
A hard inquiry has a negative impact on your credit score it drops your score by a few points. Although the immediate impact of a hard inquiry lessens after a few months, it does remain on your credit report.
If you have strong credit, such an inquiry will have less of an impact however, if youre struggling to rebuild your credit score, its advisable not to apply with too many credit lenders because it can negatively impact your credit score.
If Your Financial Situation Has Changed Or You Just Want Better Car Loan Terms Refinancing Your Car Loan May Be A Good Move
When you refinance your car, you take on a new loan to pay off the balance on your current car loan. Maybe your credit has improved and you might qualify for a lower interest rate, or your financial situation has gotten better and you want to remove the co-signer from your original loan. Refinancing with a new loan could mean getting better terms and rates that are more in line with your current financial needs and long-term plans.
Read on for tips to help you determine if a refinance is right for you, and to learn how to refinance a car loan.
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You Need To Lower Your Monthly Loan Payment
Refinancing at a lower rate can lower your interest bill, says Dudum. But not everyone can qualify for lower interest rates. Dudum adds, You can also refinance to lengthen your auto loans term and reduce your monthly payment.
This is a great option if money is tight. It will mean more interest paid over the life of the auto loan, but that higher overall cost might be worth having a little more wiggle room now. Its important to consider this option carefully in light of your current financial situation and long-term goals.
There are also several risks to replacing your original loan with a new one.
Interest Rates Have Dropped Since You Took Out Your Original Auto Loan
Interest rates change regularly, so theres a possibility that rates have fallen since you took out your original auto loan. Even a drop of 2 or 3 percentage points may result in significant savings over the life of your loan.
Lets say your original auto loan was for $25,000,with a 7% interest rate and loan term of 60 months. If you keep this loan,youll end up paying a total of $29,702 on the loan. After a year of paymentson this loan, your balance is now $21,000. If you were to refinance and get aloan for $21,000 for the remaining 48 months with a lower interest rate of 5%,youd end up paying a total of $23,214 on your refinance loan. Combined withthe $4,000 you paid on the previous loan, youd have paid a total of $27,214 tofinance your car $2,488 less than if you had kept your original loan.
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What To Do After Refinancing
Whenever you refinance a loan, your credit score will decline temporarily, not only because of the hard inquiry on your credit report, but also because you are taking on a new loan and haven’t yet proven your ability to repay it. Be sure to make your payments on time, and after a few months, your credit score should go back to where it was. In fact, it may even improve as you show that you’re able to handle the new loan. To see how refinancing and your new loan payments are affecting your credit score, you can get a free credit score to check.
Refinancing a mortgage, auto loan, personal loan or other loan can help lower your interest rates, reduce your monthly payment and give you more wiggle room in your budget. But because refinancing can negatively affect your credit score, it’s important to carefully weigh the benefits versus the costs before you start shopping for a new loan.
How Often Can You Refinance A Car Loan And Mistakes To Avoid
Buying a car is a big decision. For many people, its one of the largest purchases they will make aside from buying their home. While it can be challenging to choose the right car to buy and take out a loan for the initial purchase, refinancing a car loan can be an even greater mystery since its not something you do often! Here are some questions you should be asking if you are in the market for a refinance.
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Are You Unhappy With Your Current Auto Loan Maybe Its Time To Consider Refinancing
The principle behind auto loan refinancing is simple: You take on a new loan to pay off the balance on your existing auto loan. If youre struggling with a high interest rate or an unaffordable monthly payment, refinancing could be the key to finding better, more favorable terms.
Refinancing your auto loan could help lower your monthly payments by lengthening the term of your repayment. Or it could help you save money through a lower interest rate.
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$364 |
60 months |
Your expected monthly payment would go down to $364, and youd pay a total of $1,830 in interest.
In this case, refinancing your auto loan would save you $23 per month and a whopping $1,366 over the remaining life of the loan.
How Long Should I Wait Before I Refinance My Car Loan
In principle, you could refinance your automobile practically immediately after purchase because there is no legal waiting time for refinancing a car loan in any state or federal jurisdiction. Indeed, you may accept a cash refund from an automaker in exchange for manufacturer financing, then refinance at a reduced rate with your bank, credit union, or online lender.
These circumstances are most likely applicable to people who have good credit. Borrowers with bad credit may be required to prove a track record or a minimum duration of making on-time, complete payments. Before attempting a refinance, wait as least a month after purchasing a car. The dealer and your states department of motor vehicles may take several weeks to process your vehicles title and other documents.
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Refinancing An Auto Loan Multiple Times
Refinancing is when you replace a loan contract on your vehicle for a new one with different terms. Theres nothing stopping you from applying for refinancing as many times as you want. However, this doesnt mean youre going to get approved every single time you apply.
When you refinance, you need to meet the requirements of the lender. This means that your car loan and your vehicle need to meet some minimum standards, and your credit score does, too.
Despite meeting the requirements, if a lender sees that youve already refinanced once or twice, they could simply say no they may get the impression that youre in over your head. A borrower thats refinanced more than once can be viewed as a red flag. On top of that, it may not be in your best interest to refinance more than once anyway.
Does Refinancing Hurt Your Credit Score
When you refinance a loan, you are closing out an old loan account and replacing it with a new one. This can affect your credit score because, among many factors, most scoring models take into account the age of the credit accounts on your credit reports. The longer your credit history, the better.
In addition, if the credit bureaus see too many hits to your credit in a short amount of time, your score may be impacted.
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Figure Out Your Current Loan
Start by determining the rate on your existing loan and finding out how much you still owe. Its also wise to get your current so youll have some idea about whether youd qualify for lenders advertised top rates. Dont forget to check for special deals. and to find. And remember that if you have a late-model vehicle, you may be eligible to refinance at a lenders new car rate, instead of higher used car or general refinancing rates. So check that, too.
What Credit Score Is Needed For A Texas Cash
Most cash-out refinance lenders in Texas will require:
- A credit score of at least 620
- A debt-to-income ratio of 45% or less
The state does not set these underwriting rules. Instead, private mortgage lenders can decide whether youd qualify for a new mortgage loan based on your credit profile.
Thats not to say a bank has the freedom to approve you even if you have a bad credit score or a super high DTI. Lenders have to stay within Fannie Mae and Freddie Macs regulations for conventional loans.
But mortgage lenders do have some leeway. If your credit score isnt great but you have a low DTI, for example, a lender might make an exception and approve you.
This is why its so important to shop around between different lenders. Current law in Texas has made shopping around a little easier for cash-out refinance customers.
The state now allows savings and loan associations, credit unions, bank subsidiaries, mortgage companies, and mortgage bankers to offer cash-out refinance loans. So you can shop around with a wide range of lenders to find the best rate and terms on your cash-out loan.
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Youve Developed A Relationship With A Lender
Some institutions offer low rates for their good customers. And some have special deals to bring new customers in. For relatively new vehicles, some lenders will refinance your existing loan at their attractive new car rate. These rates can be better than what you initially took on when you first applied for the car loan. It pays to continually evaluate your loan and your payments to be sure that you are getting the best rate possible.
Two Types Of Credit Inquiries: Hard And Soft
There are two types of inquiries that can occur on your credit report hard inquires and soft inquiries.
Both types of inquires allow third parties to examine your credit, but only hard inquiries will pull your scores down.
Hard inquiries occur when a financial institution checks your credit report to make a lending decision. Hard inquiries are common when you apply for a mortgage, a car loan, or a credit card.
Soft inquiries occur when a person or entity checks your credit as part of a background check. Unlike hard inquiries, soft inquires will not negatively affect your credit scores.
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How To Refinance Your Car Loan
The process to refinance your car loan is similar to the requirements you met when you applied for your original loan youre simply getting a new auto loan to replace the old one.
To get started on your auto loan refinance, youll need to complete the following steps:
