Wednesday, November 29, 2023

When Should I Refinance My Car

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What Is A Car Refinance Loan

Should I Refinance My $13,000 Car?

Car loan refinancing is when you take out a new loan, generally with better terms such as a lower interest rate, to replace your existing auto loan.

Say you have a better credit score today than you did a year ago, or car loan interest rates decrease across the market as a whole youre not locked into your current loan forever. A car refinance loan can get you a better loan term or interest rate, which can lower your monthly payment.

But refinancing isnt always about the savings. You can refinance for other reasons, like adding or removing a name from the loan after a divorce.

Your credit score doesnt have to be stellar to qualify for refinancing. Some lenders are even willing to work with borrowers who have bad credit, but the terms you receive may be less competitive.

But Dont Wait Too Long

If you wait too long, you may lose out on any of the benefits of refinancing. To see a benefit, youll want to have at least 2 years left on your current loan.

Also, different lenders have different refinancing requirements. In addition to your credit score and payment history, lenders will look at the size of your loan balance and the age or mileage on the car.

If you hold on to your car too long, your lender may decide that the cars condition or the size of the loan makes it ineligible for refinancing.

Question : What Is The Current Value Of My Vehicle

You probably looked this up when you initially purchased the vehicle, but youll need an updated approximation of your cars worth.

There are factors that could affect the value:

  • Age: As they age, the value of vehicles generally goes down. The rate at which they depreciate depends on the type of vehicle you have.
  • Mileage: Assuming this car hasnt been sitting in your driveway since the day you bought it, the mileage has gone up, and that brings value down.
  • Damage: Were you in a fender bender? That may show up on the reports for the vehicle and could drive down the value. Even if theres nothing on record, cosmetic defects can ding your cars present-day value.
  • Maintenance: While routine things like regularly-scheduled oil changes can help extend the life of your car, there are plenty of maintenance issues that could negatively impact your vehicles value. Just a few examples: worn tires, non-functioning air conditioning or lights burned out.

If youre wondering what is on record about your car, here are three ways to check your VIN report for free.

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Borrow Instacash To Help Cover Your Car Payment

We all know the feeling of getting overwhelmed by car expenses. Fortunately, MoneyLion has you covered. Give yourself time to figure out the right plan. MoneyLions Instacash will get you the money that you need until you can get your car refinanced.

  • No credit check
  • Up to $250 in minutes
  • No monthly fee

Does It Pay To Refinance My Car Loan

Should I Refinance My Car?

Lowering your monthly car payment by refinancing might seem like a no-brainer, but keep in mind that there are costs involved in refinancing. Though they don’t tend to be nearly as significant as, say, refinancing a mortgage, you’ll most likely need to pay a new titling fee, even if you paid for one as part of your current loan. You might also get hit with recording and administrative fees that can eat away at your ultimate savings.

Now the good news is that lenders will often let you roll these fees into your monthly payments, as opposed to having to fork over the cash up front. But if your goal in refinancing is to lower the overall cost of your car, you’ll need to take these fees into account when deciding whether to move forward.

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Will Refinancing My Car Loan Save Me Money

Budget-conscious borrowers are always on the lookout for ways to save money on their debt, including what they pay in interest on their auto loans. Replacing an existing car loan with another one at a lower interest rate can help you decrease your expenses. So when should you consider refinancing your car loan? One of the most popular times to consider an auto loan refinance is when interest rates dip. However, there are a few other times when you may have the ability to reduce the interest rate you pay on your auto loan.

When To Refinance A Car

Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been previewed, commissioned or otherwise endorsed by any of our network partners.

Figuring out if and when you should refinance a car can be tricky, but if you approach it the right way , youll be able to make the right choice. You should refinance a car when it could help you save money, get you a lower payment or both. You should probably skip refinancing if youre underwater on your current loan, youve bought the car recently or your current loan has prepayment penalties.

Heres more on when to refinance a car and when to wait.

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How Does An Auto Refinance Work And Is It A Good Plan For Me

When interest rates drop, its the perfect time to refinance a loan to lower your monthly payment and to save money on the life of the loan. Perhaps youve heard of a mortgage refinance, and maybe you even took advantage of low mortgage rates by refinancing your home loan. But did you know you can refinance your auto loan, too?

What Are Some Reasons Why I Should Refinance My Current Auto Loan

Should I Refinance My Car Loan? | Capital One

Car owners will generally refinance their auto loans for three different reasons.

  • Lower the interest rate
  • Lower the monthly payment
  • Depending on your current situation, an auto refinance could achieve any of these results or even all of them.

    For example, let us assume you are one year into your current auto loan. Your original loan amount was for $35,000, at an annual percentage rate of 9%, on a five-year term and a monthly payment of $726.

    Loan amount: $35,000

    Loan term: 5 years

    Monthly payment: $726

    Total interest paid over the life of the loan: $8,600

    After a year of making regular payments, you decide to refinance your existing auto loan. You qualify for a loan amount of $29,000, a new lower rate of 1.74% APR* and a lower term of four years. This lowers your monthly payment to $626.15 per month, pays the loan off within the original five years, and saves you just over $4,600 in total interest.

    New Loan amount: $29,000

    *Interest rate of 1.74% APR includes a 0.25% discount for having a Benefits Checking account.

    Loan term: 4 years

    Monthly payment: $626.15

    Total interest paid over the life of the loan: $3,969.89**

    **Interest paid first year of original loan $2,915 plus total interest of new loan of $1,054.89.

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    Appraising A Vehicle For Auto Loan Refinancing

    When refinancing an auto loan, the appraisal process is referred to as a bookout and does not require an in-person inspection. Instead, you provide your lender details about your vehicle including your VIN, mileage, and current condition. Theyll compare that with your cars retail value to get your LTV. Youre typically not charged any fees for the bookout.

    LTV requirements for car loan refinancing are way different than mortgage refinancing. Because of the way vehicles depreciate , its not unusual to be upside down on a car loan.

    The maximum LTV is 125% to 135%, sometimes higher if the borrowers credit is stellar. The opposite is true too: If your credit score is too low, your lender may require an LTV closer to 80% or 90% or a down payment to bring the LTV down to an acceptable range.

    Differences Between Refinancing Your Car Loan and Mortgage

    Wait For The Right Reason To Refinance

    Be honest about why you want to refinance your auto loan. Here are the top reasons why car owners refinance:

    • Lower monthly loan payment: You can lower your monthly payments by refinancing to a lower interest rate or waiting for auto industry interest rates to go down.
    • Pay off your car loan faster: If you have a car loan with a repayment term thats 60 84 months long , refinancing can help you shorten the loan term, and that can help you own your car sooner.

    If youre facing a cash crunch and need to lower your monthly expenses but cant get a better interest rate, re-extending your auto loan at the same interest rate over a longer term can also help lower your monthly payments, but itll cost you more in interest over the life of the loan.

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    Is Refinancing Worth It

    If youre simply refinancing, and you know youll get a better rate and save yourself some money, its really a no-brainer. If, however, youre not sure youll save any money, use this auto refinance calculator to estimate your savings and decide if it makes good financial sense to refinance.

    In many cases, people refinance because they need to lower their monthly payment, usually due to some unforeseen financial crisis. Finding balance between your immediate financial needs and long-term financial health is never easy but if you do the math and plan accordingly, you can make the right financial decision for you and your family.

    If refinancing your vehicle is necessary to improve your cash flow, you may refinance now to get back into a positive financial situation. Once your personal finances have stabilized, start making extra payments on your auto loan to pay it down faster, provided that there arent prepayment penalties on your new loan. Youll pay off your auto loan sooner and save yourself some interest expense.

    How Soon Can You Refinance Your Car Loan After Purchase

    When Should I Refinance My Car Loan

    There aren’t specific rules about how soon you can refinance after taking out an initial loan to purchase your vehicle. However, you may at least need to wait until you receive your title showing the original lender as the lienholder. Your credit may have taken a dip after the original loan, too, so it might be helpful to wait a few months for it to rebound.

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    How To Change Transmission Fluid

    have a mechanic change your fluid for around $100essential supplies

    • Socket wrench set

    follow these steps to change your transmission fluid:

    • Pop the hood and take off the transmission fluid cap.
    • Slide under the car and locate the transmission fluid pan.
    • Put your drain pan under the current fluid pan.
    • Unbolt the transmission fluid pan with your socket wrench.
    • Let the transmission fluid drain into the drain pan.
    • Replace the old pan gasket with your new one, and reattach the fluid pan.
    • Use the funnel to pour the recommended amount of transmission fluid into your car.
    • Put the cap back on your transmission fluid and close the hood.

    Trading In While Upside Down On A Car Loan

    One of two things usually happens if you trade in a car thats underwater: You pay the negative equity in cash, or you roll the negative equity into the loan for your new car. Keep in mind that rolling negative equity into a new loan means you may be upside down on the new car before even driving off the lot.

    Dont get too excited if you see a dealership ad promising to pay off the negativity equity for you. The Federal Trade Commission warns that trade-in deals like this are usually too good to be true. Instead of paying off the negative equity, the dealer will likely roll the balance into the new loan as mentioned above. Read the financing disclosures carefully to avoid getting duped.

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    Your Credit Score Has Improved

    If your credit score has improved over the years, it might be a good idea to refinance your car. Increasing your credit to the next tier in the FICO Score range can result in significant savings. Consumer credit is divided into five categories by auto lenders: A, B, C, D, and F. Car loans for applicants belonging to D and F tier may only be available as subprime or bad credit loans:

    Cant Make Your Car Payments

    Should I Refinance My Car Loan? | Suncoast Credit Union

    Having a car provides many conveniences. You do not have to worry about lugging groceries on the bus or waiting 45 minutes for the train. However, for those experiencing financial problems, having to pay a car loan can make owning a car seem more like a burden than a convenience. If you are behind with payments, or worried you will be soon, assessing your financial situation and actively pursuing your options can help you make the best of a difficult situation.

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    Assess Why You Are Struggling To Make Car Payments

    Are you facing a temporary hardship, or is the car just not affordable? You will be better able to determine an appropriate course of action if you know why you are struggling. If you are not sure if you can afford to keep your car, create a budget, listing your income and expenses could be helpful. Are you spending more than you are earning? If so, that is probably one of the reasons why you are struggling with your payments. Can you make any changes to your expenses or income to make the payments more affordable, such as getting a part-time job or eating out less? It is also helpful to consider if you can get by without the car. Is there another car you can drive? Are you able to carpool or take public transportation to work? If you absolutely need the car to get to work or run errands, it may make sense to sacrifice whatever you can to be able to keep the car.

    When Should You Consider Refinancing Your Car

    Refinancing a car isn’t for everyone and deciding when to refinance can be challenging. The benefits of refinancing might be limited or non-existent in certain instances. For example, if you have a poor payment history on your current loan or are close to paying it off, it may not be to your advantage to refinance.

    However, there are times when refinancing your car can benefit you. Consider refinancing your car if any of the following situations apply to you.

    Your credit score increased

    Your credit score is one of the main factors a lender considers when determining loan approval and credit terms. If you financed your car with a low credit score, refinancing your car could get you a better interest rate or even reduce your monthly payment

    Interest rates have dropped

    If you bought your car when interest rates were high, refinancing your vehicle can save you money, possibly more than you realize. An interest rate decrease of only 2% to 3% could save you hundreds if you do not extend the term of your loan. An auto loan calculator can show you how interest rates affect your monthly payment and the total amount you could pay in interest.

    You didnt shop around for rates initially

    Your monthly payment is too high

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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.

    Should You Refinance For A Longer Or Shorter Term

    When Should I Refinance My Car

    In order to decide how to approach your refinancing, there are some key things to consider. A key aspect is the duration of the new loan. The term of the agreement dictates what it will cost you in the long run. Loans with a shorter term will cost more on a monthly basis, though will end sooner. This results in less interest payments over time.

    Conversely, longer-term agreements have smaller monthly payments. However, that does not mean you will ultimately pay less. Long-term loans have more time to compound the interest. It results in your paying a significantly higher price for the vehicle than you would with a shorter term.

    In order to understand how the term of the loan will play into your households larger financial picture, there are other details to consider.

    Financial Situation

    Consider your ability to make payments and how much you can afford. Weigh this against your willingness to pay out the loan faster, even if it means some frugality. Additionally, consider whether you will qualify for a better rate. If your credit is better than when you initially entered into the agreement, you should be fine to proceed.

    New Loan Term

    When you pay out a loan over a longer term, you are eventually spending more in interest. Depending on how well you are able to make your existing regular payments, it may be worth discharging the loan faster. Conversely, if youre struggling and dont have a long-term solution yet, refinancing is a reasonable option.

    Monthly Payments

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