What Should I Know Before Refinancing My Auto Loan?
Signing an auto loan contract is a big commitment. It’s a financial decision that will have you paying money out of pocket every month for at least five years, plus interest. A lot can happen within that time frame, which can make you want to adjust your initial contract, which lenders aren’t obligated to do.
Fortunately, there is a way to change your auto loan. You can refinance it. Refinancing isn’t very difficult to do, costs nothing to apply and gives you a chance to adjust your finances. Since this is a big decision to make, there are a few important things you should learn before considering this as an option.
What Is Auto Loan Refinancing?
Financial situations can be really confusing, but auto loan refinancing isn’t all that complicated. You might look into this option if you’re looking for a better payment plan on your auto contract or if your financial situation has changed significantly (for worse or better).
A refinanced auto loan replaces your existing loan with a new one. The length of the loan and number of months left on the current loan can be shortened, extended or stay the same. Ideally, this new loan would have a lower interest rate and come from another lender. The new loan amount will only include the remaining balance from your current loan.
You should consider refinancing your auto loan if:
- Your credit score has improved
- Your interest rates have increased
- You can’t keep up with the payment schedule
- You’re looking for a lower rate
Refinancing your car loan gives you the option to revise your existing loan situation. Often, your current lender won’t budge from your signed contract. This means your options become limited over time and adjustments won’t be made.
A new auto loan can help bail you out of a locked contract with no strings attached.
Perks Of Refinancing Your Auto Loan
There are some convincing perks to refinancing your auto loan that can cater to your personal needs.
- It costs nothing to apply
Submitting an application for a refinanced auto loan has no fees and their turnaround for approval is often very quick. - There’s no extra fees
For the most part, auto loans don’t have a prepayment penalty or startup fees. - Your loan can lock in lower interest rates
Credit scores play a big part in all loans, particularly when it comes to interest rates. If your credit score has improved, it’s still unlikely that your existing car loan will lower your interest rate. However, you might qualify for a refinanced auto loan with lower interest which will lower your overall costs per month.This is a long-term advantage as well, since you’ll be boosting your total savings over the life of the loan. - Reduce the cost of your monthly payments
With a new lender, you might be able to renegotiate your payment plan. This means you might be able to lengthen or shorten it based on your current financial abilities.
Make Sure To Find The Right Lender
Among all of the things to consider when refinancing your auto loan, you have to look into various lenders. Different banks have certain criteria that needs to be met in order for your application to be accepted. They also offer different contracts that can appeal to certain borrowers.
The better your credit score is, the easier it will be to find a lender. But with a few clicks of research, you might be able to find certain banks that are known to accept clients with lower credit ratings.
Since there isn’t a cost for the application process, consider applying to multiple lenders and see which one offers you the best deal. It doesn’t take long to fill out or receive a response containing information. Do your research and look into the many lenders to help you decide which will best suit your needs.