Refinance Car Loan Interest Rates - Low interest rates have fueled a refinancing frenzy for homeowners, with mortgage lending rising 51% in mid-February, according to the Mortgage Bankers Association. That fever can be contagious, and you're considering refinancing your car loan for reasons like: getting a lower rate that pays off faster or offering a lower monthly payment.
Can you refinance? Possibly. Unlike some mortgages, your current loan rarely has prepayment penalties or early payment fees. Also, unlike a mortgage, car refinancing rarely has significant costs for a new borrower.
Refinance Car Loan Interest Rates
Refinancing is "very quick and easy to do," said Phil Reed, auto writer for financial advice site NerdWallet. "There's no reason not to think you're going to get a better grade," he added, adding that not much documentation is usually required.
Now Is The Best Time To Refinance Your Car Loan — Here's Why
"To successfully refinance your auto loan, you need to lower your rate significantly and not extend the term," said Greg McBride, senior vice president and chief financial analyst at personal finance site Bankrate.
Finding a significantly lower price can be difficult for a number of reasons. First, auto loan rates have been low for a while now, so many people already have a great rate for their situation. Second, when you refinance a new car loan, you are now borrowing on a used car. Although the gap in interest rates has narrowed in recent years, used car loans still have higher rates than new car loans.
"We have to move the rate higher to get more savings," McBride said. "Going from 8% to 7% saves you less than $10 a month, going from 8% to 4%, and now you're saving $28 a month," he says, with the first $25,000 loan.
By extending the term of the loan, adding a year or two to your payment, it tries to save you more per month. Bad idea, experts say: Paying interest for more months, even at a lower rate, could mean you spend more on your car payment in the long run. The smart financial choice is to keep your payment level and pay off the car faster.
Pros And Cons Of Refinancing A Car Loan
"If you can get a better rate, you should reduce the debt, but that's a hard thing to tell people," Reed said.
All that being said, some people should definitely look into refinancing. Prime candidates are people who have significantly improved credit scores as assessed by the major credit reporting companies (Equifax, Experian, and TransUnion)—because they're getting a higher interest rate on their current car loan.
"That's a classic example if you've improved your credit, you've been in a corner before and you're paying an above-market rate," McBride said.
You can check your current score through one site with the major credit companies. Federal law entitles you to one free report each year. However, during the COVID-19 pandemic and until April 2021, companies are offering free weekly reports on the same site. If you need to improve your credit score, there's plenty of advice on how to do it, including from Bankrate.
How To Refinance An Auto Loan
The second group responsible for recycling will be consumers who arrange financing through dealers and pay more for the loan. This can happen when the dealer who arranges the loan gets a rate from the lender for the buyer and sets the loan at a higher level to service. Most lenders allow this hidden markup, which is additional revenue for the dealer at the buyer's expense.
"Maybe dealers are taking advantage of that," said Reed, noting that buyers with average credit are more vulnerable. Federal estimates show higher risk for minority buyers. Reed says it's easy to have car buyers.
"When you're in the dealer's finance department, your head spins," he said. "Many people are too weak to talk about debt."
That risk is one reason experts and the Consumer Financial Protection Bureau all recommend getting a loan and prefinancing before going to the dealership.
Refinancing A Car Loan
If you have taken out a long new car loan and are currently underwater, this question will not be answered if you owe more than the current value of the vehicle. Even if you find a willing lender, your collateral for the loan (ie, your car) is less than the amount you want to borrow.
"If your only option is missing loan payments, getting a lower payment is a viable strategy," says Reed, but it's a risk. "You can lose your car, ruin your credit, and have no chance. It's going down."
Before trying to get financing, McBride recommends contacting your current lender for help. "The payment is very common," he said. "If you are experiencing financial difficulties, contact your existing lender. Working with your lender will not affect your credit.
"Be prepared for the final score to be higher than the original value after the credit check," says Reed. But the lender must "explain" the justification, which includes a loan problem or a change in the value of the vehicle.
How To Refinance A Car Loan
"Be wary of any company that takes a Social Security number just to be on the safe side and let you get out of control of your credit," says Reed. "Find out if they do a credit check" that requires an SSN and can affect your credit score.
"Drag your feet on multiple lenders over the course of several months," McBride said. However, he said that if the various programs are all "on a tight deadline" of 30 to 45 days, you won't be penalized for shopping around. "It all counts as one program."
"You have to make sure that what you're getting in the mail is consistent with what you're doing online," Reed said. "There's a good chance you could put something on the loan document that you didn't know about. You could sign something wrong. They could put out a service agreement or a warranty, or they could put a fee they're estimating. It changes something and says, ``everybody pays for it.''
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Refinancing Your Auto Loan May Be The Key To Balancing Your Budget
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Whether you want to take advantage of a lower interest rate or change your loan terms, there are several reasons to refinance your car. But how often can you refinance your car?
Here at Gides Auto, we'll explore the refinancing process - if you can afford it, how often you can and shouldn't refinance your car. Before refinancing your car, don't forget to compare the best car finance rates to save money.
Can You Refinance A Car Loan & When Should You?
Why We Trust Our Team The Guides Auto Group is committed to providing you with reliable information to help you make the best possible financing decision for your vehicle. Our researchers, writers and editors are dedicated to finding suppliers and analyzing customer feedback and insights, so you can choose with confidence.
You can refinance your car anytime, there are no legal restrictions
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