Refinancing your car loan is faster and easier than you think. You need a history of six to 12 months of steady, on-time payments to make a car loan refinance possible and worthwhile. You can apply to refinance online, and there’s a good chance you’ll be able to lower your monthly payment. See below for tips on how to get started finding your best car loan refinance.
- If you’re looking to buy a new or used car, see our guide to finding the best car loan.
Best places to refinance your car loan
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Online lenders can quickly check your credit, give you a decision and, if approved, give you the money for your car loan refinance within a day. Furthermore, most auto loans carry no prepayment penalty, and refinancing has no startup fees. Your credit history will have a direct impact on the interest rate you’re offered. Whatever a lender’s minimum qualifying credit score, it’ll still check your credit report.
Here are a number of situations when it makes sense to refinance your auto loan.
If your credit has improved. When you bought your car, maybe your credit history wasn’t great. Say you wound up with a loan at a 6.5% interest rate. If you’ve made six to 12 months of on-time payments, your credit has probably improved and you can qualify for a lower interest rate, which will reduce your monthly payment and save you money in interest over the life of the loan.
When interest rates drop. Interest rates fall for a variety of reasons: a changing economic climate, increased competition in the marketplace and regulatory changes. If rates are lower now than when you first got a car loan, a refinance could help you pay off your loan sooner or save you money on interest. It only takes a few minutes to check rates and see what you can qualify for.
A dealer marked up your interest rate. When you got your existing loan, the car dealer might have charged you a higher interest rate than you could have qualified for somewhere else. This often happens to shoppers who don’t check their credit score before buying a car. There’s a good chance you can undo the damage by refinancing into a loan with a lower interest rate.
If you can’t keep up with payments. You may have bought too much car, or overestimated your ability to pay off your current auto loan. Or maybe you’re facing unexpected financial challenges. By refinancing, you can extend the loan’s term, which will lower your payments. Don’t take this step lightly. If you extend the term of the loan, you’ll pay more in interest, but it’s better than damaging your credit by missing payments.
How to refinance
- Review your current loan to make sure there are no prepayment penalties. Most auto loans don’t include one. When you apply, specify that you want to avoid one in your refinance.
- Check with at least two lenders to see what new interest rate you can qualify for. Comparing two or more offers gives you the best chance of finding the lowest rate.
- Remember that selecting the “Auto Pay” option during the application process will give you the lowest interest rate. You’ll receive a decision quickly and, if you’re approved, the lender will provide the interest rate the loan would carry.
- If you can afford a higher payment, consider shortening the term of your new loan to pay it off sooner. This will save you money by reducing the amount of the interest you will pay.
Refinancing your auto loan is a little-known, valuable tool to reduce costs and manage your money. See if it makes sense for you.