Your Credit Score Has Improved
Even within the first 12 months or so, your credit score may have improved enough to make you eligible for a significantly lower rate. Perhaps you corrected a mistake on your credit report or paid off most of your outstanding debt. Maybe youve demonstrated that youre responsible by paying all of your bills on time, or your income increased. Whatever the reason, an improved credit score can make getting a better loan deal far easier.
The Right Time To Refinance A Car Loan
The main reason to refinance is to save money on your auto loan. If you just want to pay your car loan off faster, all you have to do is increase the payment each month theres no need to refinance.
However, not everyone can do this if their monthly payment is currently pushing the limits of their budget, and thats where refinancing comes in handy.
There are two different times when refinancing should be considered:
Youve Developed A Relationship With A Lender
Some institutions offer low rates for their members or customers. And some have special deals to attract new borrowers. 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 ensure youre getting the best rate possible.
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Its Better To Refinance Sooner Rather Than Later
Its never too early to think about refinancing your home loan.
There is no minimum time wait. A mortgage is a contract. As soon as you can get a better deal, you should terminate the contract and take that better deal, says Realtor and real estate attorney Bruce Ailion.
Closing attorney Chuck Biskobing says there are no major risks to refinancing within a year or so of purchasing.
Ive seen people refinance three times in a year to follow falling interest rates, says Biskobing.
Say you want to apply the money saved each month back to the loan in the form of accelerated payments toward the principal, he says. If so, you will almost certainly pay off the new loan faster than the old loan. And youre not adding enough time on the loan to really matter.
In other words, youre not resetting your loan term by much if youre just six or eight months into the mortgage.
But if youre much further into your loan say five to 10 years resetting to a new 30year mortgage may not pay off.
To find out if a refi is worth it based on your remaining term, try this refinance calculator.
Consider Applying For Prequalification
Take some time to shop around and see which offers you may qualify for. Applying for prequalification can be a good place to start. To get prequalified, the lender will look at certain information, like your credit and type of vehicle. Prequalification is typically considered a soft inquiry, which wont hurt your credit all on its own. But prequalification is not a guarantee of approval, and if you decide to apply for the loan, youll ultimately have to apply for it and face the hard inquiry that goes along with it.
Check around with several lenders and compare the interest rates, loan terms and total cost of borrowing available to you. Find out if any of the loans qualify for an autopay discount. Opting into this feature may lower your interest rate and help ensure you dont forget a payment a win-win for you.
You may be tempted to choose an offer with a longer loan term, which could result in a lower monthly payment. But keep in mind youll end up paying more in interest and increase your risk of becoming upside down.
Above all, consider the main reason you want to refinance and whether each loans terms address that need.
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When You Shouldnt Refinance Your Car Loan
If youre in the middle of shopping for a personal loan, mortgage or other financing option, now is not the right time to refinance your auto loan. Applying for a loan would hurt your credit score and possibly cause you to receive a higher interest rate on any loan offers.
If your current auto loan has a prepayment penalty, then refinancing could incur that penalty. Depending on the penalty and your current interest rate, it may not be worth refinancing. If youre not sure whether your loan has a prepayment penalty, look up the loan contract or call the lender and ask them. Some prepayment penalties only apply if you recently took out the loan, so its best to verify over the phone or through documentation.
Example: Cut Your Interest Payments By $29000 With A Refi
Your previous home buying or refinance process wasnt easy. There was a lot of red tape involved, and the closing costs were expensive. So why would you want to repeat all those steps again?
There are plenty of good reasons.
First, you may be able to save a lot of money. In 2020 and 2021, mortgage rates reached their lowest levels in history meaning thousands of dollars in savings for many. Current rates are still at historic lows.
Say you recently closed on a $250,000 mortgage for 30 years at a 4.5% fixed rate.
Assume you now have the opportunity to refinance at 3.75%, resetting the 30 years.
Youll save close to $100 a month on your monthly mortgage payments. Add that up over 30 years, and you will have paid almost $29,000 less in interest. And the lower rates go, the bigger savings you could see.
If you count on staying put for a while, this strategy is usually worth it.
It makes sense to refinance if the interest payment savings make up for all the related costs and fees associated with closing a new mortgage, says Cororaton.
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When Can You Refinance
You do not need to wait any minimum amount of time before refinancing your car loan. You just have to meet all the requirements for the new loan to refinance. Refinancing is possible immediately after buyingeven before you make your first monthly payment. Just be sure that you actually end up with a better deal, and that refinancing doesnt cause you to pay more for your vehicle.
In some cases, you may be unable to refinance until you have documentation from your states Division of Motor Vehicles . Gathering registration details may slow you down somewhat.
Requirements Of Car Refinancing
Refinancing lenders, as a general rule, want to refinance a car for its actual value. Remember that refinancing involves paying off your original loan to replace it with another one, and a lender may not want to pay out more than its worth.
Refinancing lenders dont usually just rely on your credit score to see if you qualify. Other typical refinancing requirements include:
- Your vehicle is less than 10 years old
- The car has less than 100,000 miles on it
- The vehicle has equity
Even if you have the credit score to refinance your car soon after driving it off a dealers lot, you may not qualify if the vehicle doesnt have equity. Many brand new vehicles experience rapid depreciation in the first few years of ownership which could make the loan balance higher than its value.
If your vehicle doesnt have equity and your credit score isnt great, then refinancing may not be an option right away. To increase your odds of qualifying for refinancing, it may be worth it to pay down your loan as quickly as you can to get into an equity position, and make all your car payments on time to improve your credit score.
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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 credit score so youll have some idea about whether youd qualify for lenders advertised top rates. Dont forget to check for special deals. 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.
Gather The Necessary Documents For A Loan Application
After you submit your application, you’ll typically be required to provide some documents to your new lender. Having this information before you even start the loan process will help it go more smoothly.
Documents that you may be required to share include:
- Copy of your driver’s license
- Vehicle registration
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What Is Auto Loan Refinancing
When you refinance your auto loan, you replace your existing loan with a new loan. This strategy can help you save money on your monthly payments via a lower interest rate or longer term. Auto loan refinancing may also allow you to pay off your car loan faster so you can finally own your vehicle free and clear.
You Wont Be Penalized For Repaying Your Existing Loan
Refinancing your auto loan means paying off your existing loan early. This could be a problem if your existing loan contract includes a prepayment penalty clause.
Take a look at your contract to see if youll be charged fees for early repayment. Before applying for auto refinancing, make sure to crunch the numbers so you can determine whether prepayment fees would cancel out the financial benefit of refinancing.
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Rules For Refinancing Usda Loans
The U.S. Department of Agriculture offers two mortgage programs for rural home buyers: guaranteed loans and direct loans. To refinance a guaranteed loan, you must have had the mortgage for at least 12 months. For direct loans, there is no waiting period for refinancing.
The USDA offers three options for refinancing into another USDA loan. If you get a streamlined refinance or non-streamlined refinance, you must have made on-time payments in the last 180 days. For the streamlined assist program, you must have been current on your mortgage payments in the last 12 months.
Apply For Anauto Refinance Loan
Once youve shopped around, collected all of your information and made a decision, youre ready to apply.
Youll need to complete a loan application for the lender you choose. This is where the documentation you gathered can come in handy, as you may have to provide it in the application. This application will count as a hard inquiry, which can lower your credit scores by a few points.
If your loan is approved and you sign the loan paperwork provided by the lender, you should get a document from your lender with all the terms of your new loan. Keep a copy for your records, as it will include details on when your payment is due, the minimum amount youll need to pay each month and your options for making loan payments.
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Improve Your Cash Flow
If you currently owe less than what your vehicle is worth, you may be able to access more cash by refinancing. For instance, lets say you have owned your vehicle for three years. Your vehicle is currently worth $8,000, and you still owe $5,000 on your auto loan. You need money for a small home improvement project. One option would be to refinance your vehicle for $6,500. You will still owe less than what the vehicle is worth and have $1,500 of new money available to spend after the new loan pays off your previous $5,000 balance. The $1,500 can now be used for your home improvement project.
Be careful, though. A car, unlike a home, is always a depreciating asset that can lose more than 10 percent of its value within the first month of ownership and more than 20 percent within the first year.
You dont want to risk going underwater on your loanthat is, owing more on your car than the car is worth.
If I Shop Around For Rates Will That Hurt My Score More
A common misconception is if you shop around for rates and have your credit pulled multiple times, this will hurt your credit score beyond doing just a single application.
This is not true. The credit scoring agencies of both FICO and Vantage are aware this is happening, and they encourage borrowers to shop around. Making multiple hard inquiries within a few weeks span will behave as one single credit pull as far as your score is concerned.
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Who Is The Best Va Loan Lender
NerdWallets Best VA Mortgage Lenders of March 2021 BNC National Bank: Best for traditional lending experience. New American Funding: Best for borrowers with weaker credit. NBKC: Best for traditional lending experience. Quicken Loans: Best for online VA mortgage experience. NASB: Best for VA mortgage experience overall.
Mistakes To Avoid When You Refinance Your Auto Loan
When you take out a loan to finance the purchase of a new or used car, you dont have to be stuck with that loan until the end. If you refinance your original loan with a new lender, you could end up saving money by getting a lower interest rate and monthly payment. But as with any financial decision, its best to take time to consider whether or not refinancing makes sense for your individual circumstances. If it seems right for you, make sure you avoid these common mistakes when it comes to refinancing so you can maximize your savings.
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When Your Credit Health Has Improved
Your credit scores are a factor in determining your auto loan rate. If your scores have gone up since you bought the car, and youve made on-time car payments, you might get a better rate, which could save you money in interest over the life of the loan.
Lenders may use your FICO® Auto Scores or base credit scores to help determine your creditworthiness. But no matter which they use, better credit scores can indicate to lenders that youre more likely to pay off your loan, so they may give you a lower rate.
Not sure if your scores have improved? On Credit Karma, you can get your free VantageScore 3.0 credit scores from TransUnion and Equifax.
Where Can I Refinance My Current Auto Loan
You can refinance your auto loan by visiting your local OneAZ Credit Union branch. If you do not have time to visit a branch, you can request an appointment with a banker on your computer, phone or tablet, or call the OneAZ Virtual Team at to apply. Or to apply online in five minutes or less.
In addition, you do not have to be a current member at OneAZ Credit Union to apply for a loan. to learn what it means to be a OneAZ member.
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How To Refinance A Car
For the most part, refinancing a car loan is similar to getting a car loan for a new purchase. Start by doing your research on various lenders to get an idea of what terms are available and which offers you might qualify for.
With some lenders, you may be able to submit an application to get pre-qualified. This process typically doesn’t affect your credit but can be valuable in helping you see what you qualify for based on your credit scores.
Once you have enough offers to compare, select the best one for you and submit an official application. The lender may require information on you, the car and your existing car loan. Provide this information as quickly as possible to make the process go smoothly.
If you get approved and you accept the terms the lender offers, finalize the loan by signing the paperwork. The lender will pay off your existing loan directly.
During this process, don’t forget to continue making payments on your current loan until it’s paid in full. The last thing you want is to have your credit dinged because your new lender didn’t pay off the old loan in time.
Getting The Best Car Loan Rate
If you decide to refinance after considering the important factors outlined above, there are steps you can take to increase your chances of getting the best rate possible. Research your options online and aim to get a minimum of three quotes to compare interest rates.
Try your current bank first, and be sure to check out a few online banks, which at times offer better interest rates. In the end, getting a great deal comes down to having good credit, in addition to taking the time to educate yourself and think through the decision.
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