#refinancing auto loan
Auto Refinancing Tips and Scams
Last Modified: September 09, 2015 by Jeff Ostroff | Originally Published October 9, 2002
- Auto refinancing explained and how it saves you money.
- Why you should consider refinancing even if you have a low APR.
- Reviews of sites with low rates.
- How to check your credit and score before refinancing a loan.
- Steps to increase the chances on getting loan approval.
- How to get out of paying 21% APR to 25% APR even if you have bad credit.
What is Auto Refinancing?
It is one of the best kept secrets around for saving you money, but most people never think about it. You pay off your current car loan with a refinance loan from a different lender that has a lower APR.
How You Benefit
You lower your monthly payments and your interest rate drops. This can save you thousands and can allow you to pay off your car even quicker. It’s just like finding money in your pockets after doing the laundry. Use the cash that you saved to pay off other debt.
Note: Most lenders will not refinance their own auto loans so you will need to apply with a different one.
Who Should Refinance a Car Loan?
I like to use the 1% rule. After you buy your car, start watching the interest rates at refinance sites we recommend like CARCHEX or LightStream and see if you can find a rate at least 1% less than your current rate. Use the calculators on their sites to see how much you will save. You’ll be astounded at how much money you just found.
Steps to ensure a speedy auto refinance loan approval
These are important points, so pay close attention. You would hate to get rejected for making a silly clerical error.
- Applications need to be in the same names with exact same spelling as the names on your current auto loan
- Have your car loan account number handy
- You must refinance more than $7,500 – any less and it’s not worth the lender’s time
- Have vehicle’s proper information – including the car’s year, make, model and VIN found on your dashboard or registration.
- You will not be able to borrow more than the value of the car
You should know your credit score before you begin the refinancing process. The better your credit score, the lower the refinance rate. You can easily get your credit score online at TransUnion or Experian.com (you get your 3 credit reports and 3 scores by Experian instantly online, with enrollment in Experian.com ). Once you have your credit report in hand, you should correct any mistakes you may find in your credit history. This will increase your credit score and help save more money.
Tip: If your APR is low but you got tricked into a longer term loan to lower the monthly payments you may not need to refinance to save money. You can pay extra on your monthly payments which will get the car paid off faster and lower the amount of interest you pay over the life of the loan. Keep in mind that typically the longer the term, the higher the APR will be so make sure to analyze your situation and apply my 1% rule.
Fact: You Will Not Need to Have Your Car Appraised
Many people erroneously believe a car appraisal is required. Unlike a home loan where the value and equity is important, lenders only care about the balance left on your current car loan.
Many people have asked me why there is a need to refinance when interest rates have been so low for so many years. There are two answers to this question. First of all, the majority of people may not have qualified for the ultra low rates that are advertised. In this case you will likely be able to get a better rate now, especially if your credit score has improved.
The second reason is that too many people got ripped of by the dealership and tricked into a much higher APR loan than they should have qualified for. If this happened to you, you stand to save a ton of money by refinancing.
CarBuyingTips.com Auto Refinancing Example
Let’s say you borrowed $16,500 for 60 months. Now, let’s assume your credit was bad, you had no previous credit history or the dealer put you in a higher APR loan than you should have gotten. Believe me, this finance situation happens quite a bit. Suppose the dealer got you approved when no one else would at 21% APR for a 60 months. Sound familiar? Here is an example of refinancing with another lender at 7% APR.