Refinancing your car is a means of getting another loan with new terms to pay off your car loan. It is a very sensitive process, therefore you need to understand some concepts before venturing into this. If you have ever thought of refinancing your car but you don’t know if it’s a good idea, then this article is for you. Don’t stop reading as this write-up conveys when you should refinance your car, how to refinance your car, car refinance companies in the US, and answers to questions like, “Can you refinance a car loan with different banks?” and “Does refinancing a car hurt your credit.
Meaning of Car Refinancing
A car refinance means replacing your existing car loan with a new one by refinancing your vehicle. The new loan repays your old debt, after which you start paying it back each month. Car refinance, also known as auto refinance, is a solution for car owners to modify the debt obligations related to their vehicle. The procedure for refinancing a vehicle loan is comparable to that of refinancing a mortgage because of both the duration and interest rate of the new debt obligation.
If a car owner needs to access some of the equity in their automobile, they may be able to refinance their car loan using a cash-out facility rather than a lease buy-out option. Before refinancing, vehicle owners should be aware of the dangers and consequences of lengthening terms. We can submit refinancing applications fast, and many lenders have the ability to do so.
When Should You Refinance Your Car?
#1. The Initial 60 to 90 Days of the Auto Loan
The transfer of your vehicle’s title from the manufacturer or former owner to your current lender often takes at least two to three months.
If the title hasn’t moved, the majority of lenders won’t even consider a refinancing application. However, waiting can present an opportunity to pre-qualify with various lenders and compare rates. They might have decreased your credit score due to the hard inquiry that was made when you applied for the initial loan.
Your new loan’s interest rate could go up as a result of this decline. If your FICO score isn’t at least 690 and you don’t already have excellent or decent credit, you’ll profit from waiting a bit longer.
#2. Your Credit Score Has Increased
The creditworthiness of a consumer is indicated by a number between 300 and 850, called a credit score.
A borrower will appear better to potential lenders if their score is higher. Because auto lenders classify applications based on credit levels, your credit score is crucial when applying for vehicle financing.
The credit tier you are in has a significant impact on both the APR you receive and if you even get an offer. You may be eligible for a better finance offer if your credit has improved since you first bought the car and you’ve moved up a tier.
#3. You Desire to Alter the Loan Term
Refinancing your auto loan makes sense if you need a reduced monthly payment as well. To obtain a reduced payment, you could lengthen the loan term on your auto refinance.
However, it’s crucial to remember that extending the loan period would lower your monthly payment, as it would also result in a higher overall interest cost.
The opposite is also true. If you shorten the period, your monthly payment will rise while your overall interest expense will decrease.
#4. Interest Rates Have Decreased
According to market conditions and governmental laws, interest rates change throughout time. Knowing when to refinance your auto loan depends on paying attention to these rates.
Depending on when you took out your current loan, you may be able to refinance at a more favorable interest rate in the future. If that’s the case, refinancing your car loan could save you a lot of money over the course of the loan.
If the average U.S. consumer loan rate has dropped since you got your auto loan, you may get a better rate.
#5. You Have Accrued Equity
If the value of your car exceeds the amount owed on it, you might be able to refinance at a lower interest rate
Get in touch with your existing lender, find out how much you owe, and then divide it by the value of your automobile to determine your loan-to-value ratio.
#6. You Despise Your Present Lender
The main reason many consumers decide to refinance is that they dislike the way their existing lender conducts business.
A lender’s relationship can be seriously soured by rude customer service representatives or shoddy record keeping. Refinancing with a new lender could help ease some of your difficulties if you really can’t stand your present lender.
How Can I Refinance My Car Loan?
#1. Check to See Whether You Can Benefit From Auto Refinancing
Although there are several advantages to refinancing, there isn’t a one-size-fits-all approach. Here are a few questions you can ask yourself before applying for a car refinance.
- Is there a fee for early payment?: It might not be worthwhile to try to refinance if the present loan you have contains a prepayment penalty. Prepayment penalties indicate that they will charge you a fee if you repay the loan early.
- What costs are you going to bear?: After refinancing, there can be costs associated with re-registering the car and transferring the title. Before refinancing, it is wise to research the fees in your state because they differ by state.
- When was your car made?: In terms of whether they will refinance an automobile, lenders might have limitations. For instance, some lenders forbid refinancing on vehicles older than eight years or with more than 100,000 miles on them.
- Your credit has changed?: Refinancing might result in a reduced interest rate if your credit has improved, which could save you money in interest over the course of the loan.
However, if your credit hasn’t improved, it can be challenging to secure a cheaper rate unless rates have decreased since you took out your existing loan.
#2. Assemble Some Documents
Get ready with your personal information, proof of income, proof of auto insurance, details about your current loan, and details about your vehicle in advance.
#3. Examine Submitting a Prequalification Application
Spend some time comparing prices and looking for offers that you could be eligible for. You might want to start by requesting prequalification.
Lenders check at details like your credit and vehicle type to determine prequalification. We usually regard prequalification as a light investigation, which won’t harm your credit on its own.
#4. Apply for a Loan to Refinance Your Car
When you’ve done your research, gathered all of your data, come to a choice, and be prepared to apply.
You must fill out an application for a loan with the lender you select. This is when the support materials you obtained can be useful because you might need to include them in your application. They will record this application as a “hard inquiry,” which can cause a small drop in your credit scores.
#5. Pay Off Your Previous Debt and Begin Your New Monthly Installments.
Depending on your lender, they might handle a large portion of the changeover from your previous loan to your new one. For instance, your new lender could repay your prior debt. But before you stop making payments on that loan, make sure to get in touch with your previous lender to verify that someone has fully repaid it.
You can concentrate on making on-time payments on your new loan each month once they pay your old loan off, which might help improve your credit.
Is Car Refinancing Ever a Good Idea?
With an estimated $1.2 trillion in outstanding auto loan balances, the automotive sector in America reached record highs in 2019. The average monthly payment for a first-time loan has increased to $554 today, with 85% of new passenger automobiles being financed.
Let’s also look at the pros and cons of car refinancing
Pros of Refinancing Car Loan
Here are some of the benefits of refinancing your car:
- It will reduce your monthly payments
- The duration of your loan is shortened or extended
- Your APR being lowered will result in a decrease in the total amount of interest you pay for the loan.
- The acquisition of a lender with more practical payment choices.
Cons of Car Refinancing
- Greater range of interests.
- Reaching an underwater conclusion.
Can You Refinance Your Car With Different Banks?
It is not mandatory that you refinance your car with the same bank as there are many benefits.
You can refinance your auto loan with other banks rather than the same one, as it will provide you with the opportunity to compare offers and possibly find a better price. You’ll be presented with several borrowing terms from lenders.
For this reason, it’s important to compare offers in order to refinance at the lowest possible cost. You must thoroughly analyze the terms of your present loan before refinancing a car loan. For repaying a loan too soon, some lenders charge the borrower a fee.
Ask your lender whether you can refinance if they will penalize you, or weigh the penalty. against the money, you would save by getting a loan with better conditions.
Car Refinance Companies in U.S.A
Below is the top list of car refinance companies in the U.S. Each of these companies has been the best in one way or the other, comparing offers for multiple lenders, applying directly to buyers, etc.
- Refijet
- LendingClub
- RateGenius
- Upstart
- Autopay
- LightStream
- Tresl
- Allyclearlane
- Bank of America refinance loan
- Myautoloan
- OpenRoad
- PenFed.
The above are the top list of car refinance companies in the U.S
Does Refinancing a Car Hurt Your Credit?
Refinancing a car can hurt your credit temporarily. This is because your lender will run a hard credit inquiry after you submit a loan application and are pre-approved.
To establish your creditworthiness and set your interest rates, companies check your credit report with your consent.
Typically, having several hard credit inquiries in a short period lowers your credit score since it alerts creditors to the possibility that you may be taking on too much debt and might not be able to make your regular monthly payments.
Although you are permitted to have several hard credit queries affect your credit record in a short period, this exception does not apply to vehicle loans. We add together and count all hard credit inquiries throughout this time period as just one.
Although you are permitted to have several hard credit queries impact your credit record in a short period, this exception does not apply to vehicle loans. They add together and count all hard credit inquiries throughout this time period as just one.
Conclusion
When you refinance your car, you take out a new loan to replace your old one. You start making monthly payments on the new loan once it pays off your old debt. Refinancing applications are quick to complete, so you should decide as soon as possible.
I hope this article helped answer your questions about car refinance companies and if refinancing a car can hurt your credit.
When Should You Refinance Your Car? FAQs
Yes, within a few weeks after purchasing your vehicle, you might be able to refinance your loan, but this will depend on where you purchased the vehicle and the terms and conditions of your lease.
Some top car refinance companies include Refijet, LendingClub, RateGenius, Upstart, Autopay, LightStream
Refinancing a car can hurt your credit temporarily. This is because your lender will run a hard credit inquiry after you submit a loan application and are pre-approved.
