How to Save Money by Refinancing an Auto Loan, Compared to refinancing a mortgage, refinancing a vehicle loan is simpler. You can save by paying thousands of dollars in interest and perhaps even get your automobile paid off sooner.
Before you begin, it’s critical to understand what the refinancing procedure entails and whether it’s a viable alternative for you.
When to Refinance Your Auto Loan
Every case is unique, therefore the first step in figuring out whether refinancing is a good idea for you is to quickly assess the state of the market and your financial circumstances.
Refinancing your car loan may be a good idea if:
- Interest rates have dropped since you bought your car.
- Your credit score has improved, which could mean you qualify for a better rate.
- You obtained auto financing from a dealership. It’s wise to consider alternative financing options when you can because dealer financing frequently carries higher rates.
How to Prepare for Refinancing
Auto refinancing should only need a small number of paperwork, unlike a mortgage. To ensure you have complete knowledge when questioned on the following, gather the following information before you start:
- A copy of your current loan papers
- Information about your vehicle, like the VIN and current mileage
Next, you need to be aware of your present loan status before looking for a new one. Think about the following inquiries:
- 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 were to pay 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 it may apply to some car loans.
Determine Whether Your Car Qualifies
While each bank has its qualifications, most won’t refinance a car unless it fits several requirements, like the following:
- Your current loan has less than $7,500 remaining.
- Your car is over seven years old.
- Your car has 100,000 miles or more—some banks set the cap at 70,000.
- You use the car commercially.
- Your car has a salvage title.
To learn more about the current interest rates in your area, contact a few banks. To find out the national averages, you can also utilize a website like bankrate.com.
To determine how much a refinance will save you, utilize an online auto refinance calculator.
Applying for an Auto Refinance Loan – How to Save Money by Refinancing an Auto Loan
After performing your calculations, if refinancing still seems to make sense, it is time to examine all of the specifics.
Inquire about any fees that you could be required to pay from the banks that you are considering. It is normal to expect to pay a minimal price to transfer the title and re-register the car, but certain banks may also charge a processing fee.
Find out if the loan has any pre-payment penalties. Avoid it if so.
Once you’ve compared all of your options, submit your loan application to the bank with the best deal.
Final Tips for Auto Loan Refinancing
The interest rate that your current bank may be offering to other lenders should be compared. If your existing bank rejects you, don’t be shocked.
Avoid offers for cash-out refinancing (i.e., refinancing for more than the amount owed so you get the difference in cash). They might be a wonderful alternative for home mortgages, but when it comes to vehicle loans, they’re not ideal because they lengthen and increase the cost of your loan. A cash-out refinance is unlikely to save you any money because cars rapidly lose value.