Refinance Car Loan Today - Quick Guide
If your auto loan payment is bothering you and you are worried about the high cost that you're paying, you can consider a refinance car loan. Everybody has heard of home refinance loans, this refinance car loan is similar to the refinance home loans. Refinance car loan saves you a lot of money and you can free yourself from the high interest rates that you are paying for your current loan.
These refinancing loans have low interest rates; flexible re-payment plans and pays off your debts quickly. When you get your car financed, you should also consider about the other options of lending. The refinance loan will improve your car loan status to much better level and relieve you from worries. Refinance car loans are easily approved by lenders. To get a refinance auto loan, you may need to know what to do and how to do. Here is your solution and guide to refinance your car:
About refinancing an auto loan
For saving your money, it is wise to refinance your car. Most people only know about refinancing home loans and they never considered refinancing their car. In the refinance auto loan, a different lender will pay off all your due amount of the car loan and the collateral or the security will be transferred to him. This lender charges much less interest rates than your previous loan. It reduces the time and the amount of money for your re-payment and the property is safe. The refinance loans need a separate lender; your first lender will not refinance your auto loan.
Refinancing is a very good deal because even people who have bad credit score can be eligible for this loan in lower interest rates. If you have a bad credit score, you should refinance your car at lower annual percentage rate. This type loan can be more beneficial with co-signer. If your credit report does not look good, then your co-signer's credit score will help you get lower interest rate as the lender will be assured of having a definite source of repayment in case you fail to pay. You should refinance your car loan early as most of the interest is paid in the early payments. Getting a refinance early will save more money.
Things you need to know before refinancing you car
- Your first lender cannot refinance your loan.
- Sometimes you can be charged with some additional fees and penalties like, loan application fees, early termination penalties and origination fees. You need to be careful to notice if these fees are charged of you. When lender claims of no such fees, you will need to have it writing from him. Also be cautious of hidden charges. Whether the lender legally charges you the above fees or no charges at all, the re-registration fees and the fees for transfer of the name of lien holder are liable under your state law. The amount will be decided according to your state law.
- Find out if your first lender has any early termination penalties or not. Even if there is one, paying the penalty for refinancing will still be better than paying that sky high interest every month.
- Check your credit score. You may have a bad credit report but still you will be able to get the refinance loan. While your bad credit auto refinance loan will not have a very low interest rate, it will still be much better then what is offered by the first lender.
- Your credit score should show your income of a minimum of 6 months and at least 6 months of no bad credit. As the bank or the lender will consider a few months of payment on time and approve your refinance car loan.
Who can opt for a refinance auto loan?
People who got their cars financed from the dealers at a considerably high interest rate can go for refinancing. This saves your money. After buying the car, you can start researching about the refinancing rates. Your refinancing loan should have minimum of 1% difference from your first loan, though they are usually more than that. If the dealer has got you stuck somewhere between 21%-25% APR and have a bad credit score, you can still be able to get a refinance loan.
Even if you are buying a car with bad credit score, you are eligible for refinance auto loan at much lower interest rate, than what is offered to you by the dealer. As the interest rates are so low, you will be surprised to find out the amount of money you save after you refinance your car. Even with bad credit score, you will have a lower APR.
Someone who opts for buying a car with bad credit, may mistake refinance with more debt. Refinance is actually a swapping of your first auto loan with another auto loan having lower interest rate. If your credit score is 600 or more your chances of getting a refinance is good, even if you have bad credit, tax liens or had bankruptcy. The interest rate may not be very low but it will be lower.
Moreover while repaying your interest; you can add some amount of principle each month, this will again reduce your repayment time.
If you are getting a good APR from your dealer, you can still go for refinancing, as there is no harm in saving a few more thousand dollars because a good APR means good credit score and if you refinance, your interest will still go lower than your first loan. Again, you save money and reduce the time of repayment.
What should your credit score look like?
Before going for a refinance or even loan, you should have your accurate credit score, as this is very important. Your APR and loan eligibility will depend on your credit report. You can get the credit score online from various websites. The credit report is important because if you do not know your credit report, the lender or the dealer will charge you high interest rates, saying that you have a low credit score. This happens more often, when people do not know their credit scores.
- If your credit score is more than 620, then you will be taken as a "Prime Borrower"; your interest rates will be low and you will have a lower APR on your car loan.
- If you credit score is 620 or less, then you are a "Subprime Borrower"; your interest rates will be higher because there will be risk on repayment.
To be a Prime Borrower, your repayments must be on time, no history of bankruptcy and no due taxes. A person will have a Subprime Borrower's credit score when there are delayed payments of credits and taxes on his credit report. Also, if the person had been bankrupt in past or the person had a few bankruptcies in past. These factors pose risk on repayment of the loan, so they are charged high interest rates.
Your credit score affects the rates of the car insurance. You need to maintain a good credit report all throughout and not try to clean it up just when you are going to buy a new vehicle. The lenders or the banks will not accept your loan application if your credit report shows items of dispute. So, either you wait until they resolve or start resolving them from before, to avoid delays in applying for loans. It will take a time of two months to resolve your disputes and get your credit score verified.
The mistakes that are done while trying to understand your credit score:
- If you have not missed any payment, your credit score should be high - Now that's a mistake you are making. Though paying on time is a factor, but it's also one of the factors. There are other things that will reduce your credit score for refinance car loan. So, don't depend on only this.
- You have many old accounts, but you do not use them. So, it is fine- Well, no it is not. Your old accounts may be inactive but it will still show on your credit report and that means too much credit. This will pull down your score. So, you better close those old accounts first.
- Also having many open accounts will pose a risk of your running over the credit limit on all the open accounts. This will cause much damage to your credit score.
- High credit will surely get your auto loan approved- Actually it may not. Lenders will validate whether you had a car loan before or not. If you haven't had any, your loan may not get approved or get an approved auto loan with high APR or annual percentage rate. If your present debt amount is high, even with a high credit score, your loan can be rejected.
Advantages of refinance car loan:
- Offers you a lower interest rate.
- It reduces your annual percentage rate by two or more points.
- You save a lot of money.
- You are relieved from paying bulk amounts every month by extending the repayment duration of a refinance car loan.
- Your credit score is also improved when you refinance your car.
- There are no hidden charges or penalties on repayment.
Your chances of getting an approved refinance auto loan are higher when:
- You have a verified address and income source.
- Your credit balance is low enough to impress the lender.
- You have a steady job. Self employed people may face some difficulties.
- You do not have a history of bankruptcy or at least it should be more than 3 years old.
- You are not a graduate, freshly out of college. You need to work at least 6 months in a job before applying for a loan.
- Your debt load is not very high and will not pose a risk to repayment.
- You have a previous loan on your credit report; it will help you to get a new one too.
- If you are eligible for a credit union then it is much easier. As they can lend you more money than banks and at lower annual percentage rates.
When should you not choose to refinance your car?
- If the reduced interest rate is reducing your APR by few points only.
- When your first loan has a penalty charge on early re-payment which is more than what you can save from the refinance loan.
- If the refinance car loan has an interest rate that is high enough to extend the duration of your payment more than the life of your car.
While refinance car loan seems a very good idea for most of the car buyers, as it not only saves money but reduces the duration of repayment, there are a few things you can miss while you enjoy the benefits of refinance. Like the "Balloon Payment". Balloon payment means the balance of a loan that remains after paying the interest, which is the principle amount or the exact amount you borrowed. This can happen if the monthly repayment of a loan only includes the interest or a very small amount of the principle. When the duration of repayment ends, you find a remaining unpaid balance that is completely due. This is the principle amount of the loan.
So, it is more than just important to find out about all the details of the loan. You can get your repayment amount and the interest rate calculated on a few websites on internet. Comparing and planning your loan amount accordingly will help you avoid any inconvenience. You ask for suggestions from professionals and also research about the interest rates of refinance car loans and get the quotations for your reference before you apply for a refinance loan. You can also calculate your credit score online before going for a refinance car loan. This way you will have an estimated idea about the kind of interest rates you can enjoy with refinance loans.