Not many people know that they can refinance a car loan; it’s a little known fact. However, just like a home loan, refinancing a car loan has benefits in some circumstances. If you have a car loan with a high interest rate, you’d like to save some money, or you’re just looking to learn more, then you’ve come to the right place. Below you’ll find the top three questions people ask about refinancing a car loan.
1 – Should I consider refinancing my car?
While you may have had plenty of money at the time you bought the car, life changes could now mean that you’re feeling financially strained. Rather than defaulting on your loan, it’s better to consider refinancing. Doing so could lower your monthly payments significantly, allowing you to continue making payments without a problem, avoid damaging your credit, and prevent your car from being repossessed.
However, financial hardship isn’t the only reason to refinance a vehicle. Just like rates for home purchases, car interest rates go up and down with the market. This means that the current rate might be lower than the rate on your loan. While a rate that is only 1 or 2 points lower may not seem significant, you may actually save thousands of dollars over the course of the entire loan. In fact, many experts suggest that you monitor loan rates over time to see if current rates drop significantly.
Finally, you should take a look at your past and present credit score. When you purchased the vehicle, your current credit score determined what interest rate you qualified for. If your rate wasn’t stellar at the time, then consistent and timely payments on your car loan could have gone a long way to raising your rate. As a result, you might now qualify for a significantly lower interest rate.
2 – Will I qualify to refinance my car loan?
This depends on quite a lot of factors, but two major things lenders will look at is your current loan balance and the age of your vehicle.
Most lenders have requirements for how large or small a loan balance must be for the vehicle to qualify for refinancing. This is because many lenders are nervous to loan money out for a car that has too much owned on it. On the other hand, it doesn’t make sense for them to refinance a car that will be paid off in only a year, so neither will they accept loans that are too small.
Just like lenders will look at the loan balance, they will also consider the age of the vehicle. The older the car is, the more difficult it will be to refinance the loan. In fact, many lenders have hard rules on how old of a vehicle they will accept for refinancing.
3 – What kind of lenders will refinance a car loan?
If you’ve decided to refinance your vehicle’s loan, the first step is to find a lender who will do so. Experts recommend that you check with a variety of financial institutions from large banks to small credit units. While you’re calling around, make sure to ask about any discounts offered if you were to open a savings or checking account with the institution.
Just like with refinancing a home loan, there will likely be fees for refinancing a car loan. However, these fees are generally significantly lower than for a home. Make sure that you have all fees clearly explained to you, and compare the fees with how much money you’ll save b