Refinancing an auto loan is the process of taking out a new loan to pay off the remaining balance on your existing loan. Some people can benefit greatly from refinancing. For these borrowers, refinancing can help them secure better interest rates, lower monthly payments, and extended loan terms. However, refinancing is not right for everyone.
If you want to refinance your auto loan, it’s important to understand whether you can benefit from this option and what you should expect during the process. You should also learn how to find the best auto refinance company so you can get the most favorable deal possible. Here’s what you need to know before refinancing your auto loan:
Can I Benefit From Refinancing My Auto Loan?
Every borrower’s situation is unique, so while some borrowers may benefit from refinancing, others may not. Before you apply for refinancing, it’s important to understand whether you will benefit from this decision.
You may want to refinance your auto loan if:
- Interest Rates Have Fallen
- Your Credit Score Has Improved
- You Didn’t Shop Around the First Time
- You Can’t Afford Your Monthly Payments
Interest Rates Have Fallen
If interest rates have fallen since you took out your auto loan, you may benefit from refinancing. Why? The higher the interest rate, the higher the cost of the loan. So if you can secure a lower interest rate by refinancing, you can save a significant amount of money.
Interest rates don’t need to plummet for you to benefit. Even a minor decrease of one to two percentage points could save you thousands of dollars over the course of the loan.
Your Credit Score Has Improved
Your credit score is one of the main factors that impacts your interest rate. Borrowers with high credit scores tend to qualify for lower interest rates than borrowers with low credit scores. This means you could end up paying much more in interest simply because your credit score was low when you first applied for the loan.
But if your credit score has improved since you took out the auto loan, refinancing might be a good idea. Now that your credit score has increased, you may qualify for a lower interest rate on your auto loan. The lower the interest rate, the less you will pay over the course of the loan.
You Didn’t Shop Around the First Time
Experts recommend obtaining quotes from multiple lenders before taking out any type of loan, including an auto loan. This is called “shopping around,” and it allows you to compare offers from different lenders to find the best deal possible.
Unfortunately, many borrowers fail to shop around when taking out an auto loan. Instead, they accept an offer from the first lender they submit an application to without determining whether they can obtain better terms elsewhere.
If you didn’t shop around, you may have realized shortly after taking out your auto loan that you could have found a better deal with another lender. You may be able to correct this mistake by refinancing to secure better terms.
You Can’t Afford Your Monthly Payments
Your financial situation may have changed since you initially took out your auto loan. If you can no longer afford to make your monthly payments, you may want to consider refinancing.
Refinancing may help you get a loan with a better interest rate, which will lower your monthly payments. Even if you don’t qualify for a lower interest rate, you may be able to lower your monthly payments by extending your repayment period.
Either way, refinancing may make your monthly payments more affordable so you can avoid defaulting on your auto loan.
Will Refinancing An Auto Loan Impact My Credit?
You should consider how refinancing an auto loan will impact your credit before deciding whether this is the right decision for you.
Refinancing your loan may temporarily lower your credit score. This is because your new lender will need to check your credit to finalize your refinancing agreement. To do this, your new lender will perform a “hard inquiry.”
Hard inquiries can lower your credit score, but not by much. FICO reports that every hard inquiry lowers your credit score by five points or less.
Refinancing your car loan can also reduce the average age of your accounts, which is another factor that impacts your credit score. Remember, refinancing involves replacing an existing loan with a new loan. Because you are taking on a new loan, the average age of your accounts will decrease, which could cause your credit score to take a slight dip.
However, these negative effects are only temporary. If you are unable to afford your current auto loan, refinancing could actually improve your credit in the long run. Why? If you can’t afford to pay your current auto loan, chances are you will probably miss some payments in the near future, which can drastically lower your credit score.
Refinancing can make your payments more affordable so you can avoid this outcome. Making on-time payments on your refinanced loan could improve your credit score over time.
Is It Expensive to Refinance An Auto Loan?
There are certain costs associated with refinancing an auto loan.
For example, you may incur a prepayment penalty for paying off your existing auto loan early. Read the terms of your loan agreement to find out whether you will be charged a prepayment penalty and if so, how much it is.
Even if you won’t be charged a prepayment penalty, you may need to pay several refinancing fees to obtain a new loan. These additional charges may include service fees, application fees, lender fees, and title transfer fees. Some lenders charge more than others to refinance, which is why it’s so important to do your research.
How to Find the Best Auto Loan Refinance Companies
Now you should have a better idea of whether refinancing is right for you. If it is, you need to know the best place to refinance your auto loan. Here’s what to look for when searching for the best auto loan refinance company:
- Easy application process. You shouldn’t have to jump through hoops to refinance your auto loan. Look for a lender that offers a simple and straightforward application process.
- Competitive rates. Find a lender that offers competitive rates so you can obtain the lowest interest rate possible on your new loan.
- Great customer service. The lender you choose should be happy to guide you through the process of refinancing.
- No hidden fees. Save money by searching for a lender that doesn’t include hidden fees in their refinancing agreement. Find out exactly how much you will pay if you choose to refinance.
What is the Best Company to Refinance An Auto Loan?
Your search for the best company to refinance an auto loan is over. LoanCenter has helped thousands of borrowers refinance to secure more favorable auto loan terms. Now, it’s your turn.
There are no hidden costs or application fees associated with refinancing with LoanCenter. Your loan will only include the loan amount, title transfer fees, and any fees charged by the state you live in.
Don’t wait any longer to take advantage of the benefits of refinancing. Contact LoanCenter today to find out how much you can save through refinancing.