Interested in saving money on your auto loan? Refinancing may be just the solution you need. But, what is it really?
If you've ever pondered this question, you are in luck. Today, we offer our comprehensive, but concise, guide to help you figure out if refinancing your car or truck is the right money-saving solution for you.
BENEFITS OF REFINANCING YOUR CAR LOAN
Auto loan refinancing is a pretty simple concept. It is the process where your existing car loan is paid in full with a new loan, often with a different lender and new terms. One of the reasons you may choose to refinance your auto loan is to decrease your interest rate, change your loan term, reduce your monthly payment, or add and/or remove a co-signer.
Refinancing makes this possible because you are creating a new loan with different terms than the one you are paying off. But, the biggest benefit to refinancing your auto loan is to save money. This can take form in a variety of ways:
A better interest rate:
Refinancing your auto loan may give you the ability to negotiate a lower interest rate, reducing the total amount of interest you will have to pay over time.
Changing the term of your loan:
Oftentimes extending the duration of your loan reduces your monthly payment. You can also take the opposite option and get a shorter term loan that reduces the overall amount of interest you would have to pay.
Lowering your payment:
This is often achieved by reducing the interest rate or increasing the duration of the loan. It's also possible to combine the two.
Still unsure if this is the right decision for you? We have put together some of the more commonly asked questions to help you understand the auto refinancing process:
When is the right time to consider auto loan refinancing?
You can refinance your loan at any time. You can even do it before you’ve made your first payment. But, that may not be the best choice depending on your specific situation. If you have really good credit, it's best to wait 2-3 months after the initial loan is originated. This is the approximate length of time that it will take for your car title to transfer properly. If you have decent credit, waiting six months is better. Finally, if this is your first vehicle purchase, it's best to wait one year. This will give you enough time to create a decent car loan payment history, which will help decrease your interest rate.
Is refinancing your car bad for your credit?
Like with any other loan, you will have to check your credit score to get the best option for you. The problem is, this can reduce your credit score by 3-5 points every time you run a check. Thankfully, there are some free ways to check your credit before shopping around. AnnualCreditReport.Com is sponsored by the three major credit bureaus: Equifax, Experian and TransUnion and allows you to view your credit report once a year for free
Is it difficult to refinance a car loan?
No, it's not. There are even some options out there for those with bad credit. But, there are some factors that may affect your success, like how old your car is, if your car has over 100,000 miles, and if you owe more money than your car is worth.
Can you refinance a car loan for more money?
There are some instances where you can receive cash when your new loan closes. One of these methods is called a cash-out refinance. With this type of refinancing, you are able to withdraw the equity in your car to take care of personal business, like consolidating debt or purchasing needed appliances.
Can you refinance with late payments?
The quick answer to this question is yes. In fact, your current auto loan lender may suggest this route as a solution to late or missed payments since refinancing can actually lower your monthly payment.
Because refinancing your car restructures your current loan, it is a great option for many - especially those who find that their car payments are just too high. It’s also a viable solution for those who find themselves in unexpected financial troubles or who need to take care of some personal business. In short, it can help you remove some of the financial weight off your shoulders.
Considering refinancing your auto loan? We can help. Call us today to get started on your journey to financial freedom.