When Should I Refinance My Auto Loan
The short answer is that you can apply for auto refinancing anytime you want. However, there are some general guidelines to help you get the best terms and rate. Youll want to wait about three months after your initial loan just to make sure the title has completely transferred properly. This option is best if you have stellar credit. If you dont, wait at least six months and build a solid payment history. If its your first auto loan, wait even longer to demonstrate good financial habits.If youre thinking about auto refinancing, youre probably most interested in a lower monthly payment and who isnt? However, lower payments can sometimes cost you more over the life of your loan. Before you apply to refinance your current auto loan, here are some things to consider to help determine if its right for you. And if you have questions, were here to help.
What Are Car Loans And How Do They Work
Auto loans are secured loans that use the car youre buying as collateral. Youre typically asked to pay a fixed interest rate and monthly payment for 24 to 84 months, at which point your car will be paid off. Many dealerships offer their own financing, but you can also find auto loans at national banks, local credit unions and online lenders.
Because auto loans are secured, they tend to come with lower interest rates than unsecured loan options like personal loans. As of October 6, 2021, the average APRs according to a Bankrate study are the following.
How Can You Refinance An Auto Loan
Each lender has its own process and requirements for refinancing auto loans. However, the steps to refinance are generally similar to taking out an initial car loan. Heres what the refinance process looks like:
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Things To Watch Out For When Refinancing A Car Loan
Just like with any financial arrangement, it is important to keep your eyes out for red flags. Ensure that the lending agency is reputable and offers a reasonable interest rate. Make sure that you are dealing with a proven institution and be sure to read all the fine print. If you are unsure as to the meaning of a phrase, it is better to ask.
Take a look at the cost of refinancing the vehicle. Are there any upfront expenses? Are you going to be paying more down the line? If so, how much more? Make sure that you have all of the information above before making your decision. As always, avoid deals that seem too good to be true. Understand your rights and the responsibilities of the lender. Be certain that you are comfortable with the arrangement and that it is in your best financial interests.
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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Factors To Consider Before Refinancing
Here are some factors to consider before you decide to refinance your vehicle:
- Requirements for refinancing: Every bank or lender has different requirements that determine whether youre eligible for refinancing. Some specific things to look for before deciding to refinance are a clean car title, whether youre upside down on your loan and whether youre current on payments.
- Prepayment penalties: A prepayment penalty is the fee that you must pay if you pay off your loan early. Not all lenders charge this, but it could affect your overall savings.
- Time remaining on the loan: If youre near the end of your current loan, it may make more sense to finish paying it off instead of sinking time and money into refinancing.
- Your financial state: Your debt-to-income ratio is one of the many factors considered by lenders. The more debt youre able to pay off before applying for a new loan, the better terms you receive will be.
Is Your Loan Balance Higher Than The Value Of Your Vehicle
Kelley Blue Book offers resources and tools for finding used-car values. If the outstanding loan amount is higher than the cars market value , you may have trouble getting approved for a new loan or see little difference in the new loan terms offered to you. Some lenders may allow you to roll the outstanding balance on your current loan into your new loan, but keep in mind that this will add to your overall debt.
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Nerdwallet’s Top Auto Loan Refinancing Lenders
- RefiJet – Refinance loan: Best for comparing offers from multiple lenders
- RateGenius – Refinance loan: Best for comparing offers from multiple lenders
- LendingClub – Refinance loan: Best for applying directly with a lender
- MyAutoloan – Refinance loan: Best for comparing offers from multiple lenders
- Upstart – Refinance loan: Best for comparing offers from multiple lenders
- LightStream – Refinance loan: Best for applying directly with a lender
- Tresl – Refinance loan: Best for comparing offers from multiple lenders
- Autopay – Refinance loan: Best for comparing offers from multiple lenders
Refinancing With A Better Credit Score
On the flipside, your credit score may have improved since your original plan was arranged. You may have consistently made repayments on your vehicle whilst also improving your credit rating in other areas of life, such as with being approved for a mortgage or credit card.
Therefore, you may be able to access better interest rates than you were initially given now having proved youre reliable. Why not try and get the best deal?
Do bear in mind, however, that over-checking your credit score can be detrimental as leasers see it as representative of the need to borrow money, rather than shopping around out of personal interest. Therefore, if you know its improved, dont check a further ten times – go for it.
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What Factors Affect Your Refinance Interest Rate
A number of factors go into calculating your interest rate when you refinance your auto loan. Lenders use the following to determine the interest rate and repayment terms they offer you:
- : A higher credit score will result in lower interest rates. Borrowers with poor credit will receive much higher rates and may have trouble securing loans.
- Loan term: In most cases, the longer the loan term is, the higher your interest rate will be.
- Vehicle age: Some banks dont offer loans for older cars. For those that do, borrowing money for a vehicle of an older model year will often come with a higher interest rate.
- Loan-to-value ratio: Your lender may adjust its rate based on how much you still owe on the car compared to how much it is worth. This is known as LTV.
No matter what rates you see advertised, your rates will likely vary. Only borrowers with the best credit can qualify for a lenders starting APR or a rate near it. Most lenders offer free quotes online or over the phone. We recommend getting personalized quotes from several lenders and comparing them before making a decision.
An auto loan calculator or other similar tool can help you see the full cost of your loan.
Best Refinance Rates: Openroad Lending
- Minimum credit score: Not stated
- Loan terms : Up to 72 months
OpenRoad Lending offers auto refinance loans with extremely low rates. While they dont disclose their full range of interest rates online, qualified borrowers can expect to receive quotes for competitive rates.
Minimum refinance amount of $7,500 in most states
Refinance restrictions on vehicle mileage, age, and brand
OpenRoad Lending specializes in auto refinancing, offering traditional and cash-back refinancing options and a wide range of loan terms. Borrowers with excellent credit can refinance into some of the lowest rates available. In addition, it provides financing options for individuals across the credit spectrum.
- : Said to be very low, apply to see them
- Minimum loan amount: $7,500 in most states
- Repayment terms: Up to 72 months
- Recommended credit score: Not disclosed
- Availability: Nationwide
Founded in 2009, OpenRoad Lending specializes in auto refinance loans and offers a range of car-related financial products. Rates for refinancing are said to be very low, but you must apply to see them. OpenRoad Lending says that its customers tend to save $100 per month or more with their new lower payments.
Its traditional refinance product is open to borrowers of a range of credit ratings. There’s also a cash-back refinancing option, which allows borrowers to get cash out by refinancing their vehicle.
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Has Your Credit Improved
If your credit has improved, refinancing could result in a lower interest rate, which could save you money in interest over the life of the loan. But if your credit hasnt improved, getting a lower rate may be difficult unless interest rates have dropped since you got your current loan.
If youre not sure, check your credit to get an idea of where your credits at. Checking your credit reports can also help you identify any potential errors that may be impacting your credit scores and work on disputing them.
Apply For Your Auto Refinance Loan
There are a few steps youll need to take to apply for an auto refinance loan. Once youve decided on a lender, youll need to gather all required documents before applying. This can include information about yourself, like your name, address, and social security number, as well as information about your vehicle and your previous loan.
If youre interested in applying for an auto refinance loan, its a good idea to wait to apply until your finances are in order. For example, if your credit score is near a threshold, you might want to take steps to raise your score before applying to qualify for lower rates. Once your application is accepted, youll need to begin repaying your new loan. Its a good idea to set up automatic payments each month to make sure you never miss a payment.
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Here Are Some More Details About Lightstream
- No vehicle age restrictions There are no restrictions on the age or mileage of the vehicles LightStream will refinance.
- No prequalification option Without the ability to prequalify, youll be able to see your loan terms only if you submit an application and are approved for a loan. This will involve a hard credit inquiry, which can lower your credit scores by a few points.
Best For Great Credit: Lightstream
Lightstream is our top pick for auto loan refinancing for borrowers with good credit. The lender offers extremely competitive rates, and loans are available in all 50 states.
Available in all 50 states
Application triggers a hard pull on your credit
Only available to borrowers with good credit
If you have very good credit, you should take full advantage of it. Whether you’ve had it for years or itâs the product of a lot of hard work and dedication to paying off your debts and increasing your income now is the time to go out and secure a lower interest rate on your car loan. LightStream is a division of SunTrust bank that caters to consumers with good to excellent credit â LightStream requires a minimum 660 FICO. They perform a hard pull on your credit when you apply, so you should be prepared actually to make a decision when you do so. Hard inquiries can cause your credit score to fall slightly, which typically isn’t a big deal, assuming you apply for new credit sparingly. LightStream’s APR starts at just 2.49%, and refinanced auto loans are available in all 50 states.
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How Do I Refinance My Bad Credit Auto Loan And Where Do I Go
If youve had your car loan for some time now and youre considering refinancing for a better loan term or interest rate, where should you go, and how does the process work? You could use the same lender, but you should see what else is out there, too. To understand how refinancing works and where to look for a new loan, continue reading.
Why Refinance My Auto Loan
Depending on the details of your original loan, refinancing can save money on interest, reduce your monthly payment, or both. Here are the situations where it makes sense to consider applying for an auto refinance:
- If your car dealer financed your loan. Dealers often add a few points as a commission. So if your original loan was financed by your car dealers preferred lenders, theres a good chance you didnt score the best rate possible.
- If your credit score has improved. A difference of just 30 points on your credit score can make a huge impact on your rate. If your score has improved since your original auto loan, theres a chance youll save money with a refinance.
- You need a lower monthly payment. Refinancing for a longer loan term can reduce your monthly rate.
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When Is It Smart To Refinance Your Car Loan
Times, when you should consider refinancing your car, include various situations. Consider the following:
Consider Your Credit score
Has your gone up significantly in the recent past? If you find that your rating is drastically higher than when you initially took out your car loan, you will likely get a better rate if you refinance.
Can You Get a Lower Interest Rate?
Did you get your vehicle when interest rates were really high? It happens to countless households across the country. Many chose to refinance their vehicle when interest rates lower.
Where Do You Stand Financially?
If you have recently come across difficult times situations like unexpected expenses or even a decrease in income, you could find yourself unable to make regular payments. Instead of having a poor payment history on your credit, refinancing can make things more affordable.
On the other hand, if you have gotten a pay increase which you can substantiate with pay stubs, it can be wise to look into refinancing, too. This means that your income-to-debt ratio has improved and you will better qualify for a loan arrangement.
Auto Refinance And Your Credit Score
Refinance lenders typically conduct a soft pull on your credit for pre-qualification, and then a hard inquiry or hard pull on your credit when you actually apply. The former will have no effect on your score, but the latter will drag you down by a few points.
To minimize the drop, make sure to loan shop within a 14-45 day window, as credit bureaus and the VantageScore vs FICO Score systems will count these as one single pull.
Unauthorized hard inquiries arent unheard of, so make sure the lender is trustworthy. If you find unauthorized inquiries on your report, here are steps you can take to remove negative items on your credit report.
Your credit score will also drop slightly after finalizing the loan because a refinance counts as new debt. Since this new account is effectively replacing an older debt, the credit drop should be negligible.
In any case, remember to keep making your payments on your current loan until the refinance has gone through. Otherwise, your credit could be affected.
How to refinance a car loan with bad credit
Even if your credit score has gone up, if its still under 640, getting the best rates on an auto refinance is unlikely. There may be, however, some cases in which refinancing may be beneficial:
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Penfed Credit Union Reviews
PenFed Credit Unions A+ rating from the BBB indicates that the lender has a positive standing within the industry. While customers on the BBB website only give PenFed slightly lower than 1.2 stars out 5.0, its consumer ratings elsewhere are high. The lender has a very positive 4.7-star rating out of 5.0 on Trustpilot.
Negative customer reviews about PenFed usually mention slow processing times. However, positive reviews about the credit union consistently highlight low rates and an easy, customer-friendly loan process.
Our team reached out to PenFed Credit Union for a comment on its negative reviews but did not receive a response.