The Documents Youll Need
Now that youve decided that refinancing your auto loan is the way to go, here are some documents youll need to complete the process.
- Personal information. Your new lender will need to be able to verify your identity. A social security card and a valid drivers license will be needed.
- Proof of income. Paystubs, bank statements, or offer letters are often sufficient. Be sure to contact your loan officer to make sure exactly which documents are needed.
- Your vehicles identification Number . The bank needs to know which car theyre refinancing, silly!
- Proof of auto insurance. Most car loans require full coverage insurance.
- Your current loans rates, payoff, and terms. Your new bank and lienholder need to know exactly how much they need to pay your old lienholder, so they can assume the debt, and generate a new auto loan for you. This is often called a 10-day payoff and can look a little different than what your balance says on your monthly loan balance statement.
Can I Refinance My Car Loan After 6 Months
Consider refinancing in six months. If you have a sufficient creditworthiness, you have the option to refinance after this period. The first time you get a car loan, you have to wait at least a year to refinance your loan. As a general rule of thumb, the borrower should have a good auto loan payment history before refinancing.
Should You Refinance For A Longer Or Shorter Term
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.
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.
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When To Consider Refinancing Your Auto Loan
Itâs a good idea to think about refinancing your auto loan if your credit score has improved since you first took out the loan. A higher credit score can qualify you for lower rates, saving you money on interest over time. However, you may want to hold off on refinancing a loan if your credit score has gone down.
Am I Likely To Qualify For Refinancing At A Lower Interest Rate
Your credit history will have a direct impact on the interest rate youre offered. If youve made six to 12 months of steady, on-time payments on your current loan, its likely that your credit score has improved. With a better credit score, you will probably qualify for a lower interest rate when you refinance.
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Is It Time To Refinance Your Car Loan Heres What You Need To Know
Anuj Nayar is the first financial health officer at LendingClub .
A significant shortage in key auto parts and a lack of new car inventory as a result of the pandemic have forced many people to put a pin in scoring a new set of wheels. Whats more, the lack of inventory is causing a spike in the average car price for both new and used cars. Sticker prices for new cars are up 8.6% year over year, and used car prices are up 27%, according to data from Edmunds.
But even if you are not going to be driving a new set of wheels this fall, you can still use your car or truck to do something almost as exciting save you money. Auto represents the third-highest share of U.S. household debt, with Americans owing more than $1.4 trillion on their auto loans as of Q2 2021. So working to bring an auto loan down could be huge when it comes to debt management.
If you didnt shop around for an auto loan the first time around, or if your credit score prevented you from receiving a favorable interest rate, you may be able to benefit by refinancing now. If youre interested in an auto refi, heres what you need to consider.
Check your APR rates.
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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Auto Loans Feature Fees
All loans will feature fees and closing costs, and your auto loan is no exception. Whether you buy or refinance, there may be a lenders fee or origination fee associated with your purchase. There may also be other fees including delivery charges, etc. Some fees are non-negotiable, others may be negotiated and SHOULD be negotiated. This is true of purchase loans AND refinance loans.
How To Prepare For Refinancing
Unlike a mortgage, auto refinancing should only require a few documents. Gather the following information before you begin so you have all the facts when asked about them:
- A copy of your current loan papers
- Information about your vehicle, like the VIN and current mileage
Next, before you start shopping for a new loan, you need to know where you stand with your current loan. Consider the following questions:
- What are you paying in interest?
- How many months do you have left on the loan?
- What is your current payoff amount? This is the amount you would pay the lender if you paid the entire bill today.
- Is there a pre-payment penalty in place? Some lenders only allow borrowers to pay off a certain amount of their loan each year without a penalty. It is more common with a home mortgage, though may apply to some car loans.
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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.
When Might Refinancing Not Make Sense
Interest rates aside, if youve almost paid off your balance, you may want to ride out your financing to the end of your term. While you could potentially save a little each month, it may not be worth it to refinance depending on the work and cost associated. Some institutions charge a pretty sizeable application or documentation fee, but it varies by lender or institution.
Lenders are also less likely to offer refinancing options if you owe more than the car is worth. This can happen when your car loses value at a faster rate than youve been paying down the balance. This is usually the result of having a low monthly payment because of a longer term.
You also might want to hold off on refinancing your car if youre planning on making any major purchases in the near future, like another car, a house, or anything that would require applying for credit, to avoid any potential changes to your qualifying credentials.
And you might want to skip out on refinancing completely if your existing auto finance package has prepayment penalties. While uncommon, some lenders do impose a fee when the car is paid off ahead of schedule which could make refinancing cost more than its worth.
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Why Refinance Your Car Loan
Most borrowers choose to refinance their car loan in order to pay less interest on a monthly basis. When you refinance an auto loan to a lower interest rate, you can save hundreds or even thousands in total interest over the life of the loan.
You may end up with a lower monthly payment, which will free up money you can use to pay off other loans. A lower payment will also reduce your debt-to-income ratio, which reflects your monthly debt payments divided by your monthly gross income. If youre planning to apply for a mortgage at some point, a low DTI could also help you qualify for a better interest rate.
Conversely, some borrowers choose to refinance their car loan to a shorter term so they can repay the loan faster. You can also refinance a car loan to a longer term, which can provide some wiggle room in your budget. Another reason to refinance could be if you first got the car loan with a co-signer and want to remove them from the loan.
Ready To Make A Decision
Remember that you have options. While the prospect of saving money can be exciting, a refinance is nothing to rush into. Taking time to do research and considering both sides of the coin is the best way to make a confident decision.
The information in this article is provided for general education and informational purposes only, without any express or implied warranty of any kind, including warranties of accuracy, completeness or fitness for any particular purpose. It is not intended to be and does not constitute financial, legal, tax or any other advice specific to you the user or anyone else. The companies and individuals referred to in this message are not sponsors of, do not endorse, and are not otherwise affiliated with OneMain Financial.
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When Can You Refinance A Car Loan
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If you recently bought a car, you may wonder when you can refinance your car loan to reduce the interest rate or lower the payment.
Strictly speaking, you can refinance your auto loan as soon as you find a lender that will approve the new loan. That may be a challenge since most lenders wont refinance until the original car loan has been open for at least two to three months.
Delayed lender approval can be an obstacle to refinancing your car loan, but there are potential benefits to waiting.
You Cant Afford Your Car Loan Payments
Refinancing typically offers the option of extending the loan beyond the original ending date. That, along with any reduction in your rate, can reduce your monthly payments. But a longer term will also eat up some or even all of the savings from a lower refinancing APR. As a last resort, you also could consider cash-out refinancing, in which a lender will refinance your loan and give you cash up to and in some cases more than the difference between the amount you owe and the vehicles value, if higher. But such borrowing is extremely risky, especially since youre already in a pinch.
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Coronavirus Auto Finance Relief
COVID-19 has hurt lots of peoples finances. If youre worried about being able to keep your car, you may be able to get some help. Credit Karma has gathered a list of automakers and lenders that are offering relief options. We also have some other resources if youre looking for financial assistance.
But you may be looking to refinance to take advantage of lower interest rates which resulted from the Fed dropping its rates because of the pandemic. If thats the case, youll want to consider the advice in the article above.
In addition, some dealers are offering extreme financing deals for new vehicles, which may make sense for you if you were already considering trading in your car.
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Determine If Car Refinancing Makes Sense For You
It makes sense to refinance your car loan if youll save money either on your monthly payment and/or interest over the life of the loan. Beware that if you choose to extend your auto financing term, you may pay more overall in interest. Use an auto loan refinance calculator to see how much you could save.
The rules of when to refinance are as follows:
- 60 to 90 days into the car loan: It typically takes this long for the title and loan paperwork to be completed, which needs to happen before an auto refinance lender will consider your application. Auto refinancing this early works best for those with great credit .
- Six months into the car loan: By this time, your credit score should have recovered from any hard credit inquiries that happened when you took out the original loan. It may have even improved if youve made on-time payments. Refinancing your car at this point may be best for people with good credit .
- With at least two years left on the car loan: A history of good car payments can greatly help people who are working on improving or building their credit, like first-time car buyers. It doesnt make much sense, however, to do an auto refinance with less than two years left on the loan. You likely wont have enough time left on the note to greatly reduce the amount you pay in interest, even if you reduce your APR.
Can You Refinance A Car Loan Without A Job
You can refinance a car loan without a job. Depending on your financial situation, other factors may work in your favor to make up for the lack of income from work. Other sources of income Even if you do not have a job, this does not necessarily mean that you have no income.
Disadvantages of paying off a car loan earlyHow does paying off a car loan early hurt your credit? How Early Payment of a Car Debt Can Affect Your Score. Both revolving loans and installment loans can improve your credit balance, which can help improve your credit score.How much does it cost to pay off a car loan?Here’s an example usinâ¦
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.
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Determine If You Qualify For Refinancing
Find out whether youd meet a lenders requirement for a refinancing. Capital One, for example, wont refinance loans for cars that are more than seven years old, and the payoff amount on your current loan must be between $7,500 and $50,000. Like many lenders, it also wont refinance a loan that it issued in the first place.