Your monthly car loan payment is a fact of life. Paying it is part of your monthly ritual, and it can seem like a financial hardship, every time that it comes due. What if you could make your car payment less of a monetary burden?
Refinancing your car loan can give you added financial flexibility and savings in several different ways. Here’s an overview of how refinancing works, whether it’s right for you, what it takes to qualify for refinancing, and how to get started refinancing your vehicle loan.
How refinancing works
The process of refinancing replaces your current auto loan with a new loan, which usually has a lower interest rate or APR. This typically results in lower monthly payments, and less interest paid overall. You may also have the option of extending or decreasing the term of the loan, which can either reduce your payments further, or let you pay off the loan sooner. The flexibility of refinancing lets you adjust your auto loan to your current financial reality.
Another point in favor of refinancing is that most auto loans do not have prepayment penalties, so there is usually no cost involved in getting out of your old loan, and into a new refinanced loan that saves you money every month.
Is refinancing right for you?
There are a variety of reasons why you might consider refinancing your vehicle loan:
- You find a lender who can offer you a lower rate.
- Your income and/or credit history have improved since you bought your car.
- You need to free up some funds for other expenses.
- You can’t keep up with your car payments and need to pay less per month.
There are also some situations where refinancing probably won’t work for you:
- Your car is too old, or its mileage is too high.
- Your loan balance is too small to justify refinancing.
- Your loan has a prepayment penalty that cancels out the benefits of refinancing (this is rare, but not unheard of).
What does it take to qualify for refinancing?
It depends. If you’re seeking a loan with a traditional bank or credit union, the most important qualification for refinancing your vehicle loan on better terms is proof of an improvement in your credit history. A proven record of making your current car payments on time, as agreed, for a period of six to twelve months should be proof enough of this to get you a lower rate from lenders when you refinance.
Lendbuzz can often refinance even without a change in your credit score. Because we look at different metrics, like education and salary, we can often offer better rates without a FICO score. This is another reason to check your refinancing options with a variety of lenders.
How to get started on refinancing your auto loan
Going through the refinancing process is about the same as applying for any loan. Before you start, you will need to have all the necessary information about your current car loan, including:
- The amount of your monthly payment
- The balance remaining on the loan
- How many monthly payments are left on the loan
- The interest rate/APR on your loan
- Contact information for the lender, in case you need to contact them
If you’re an international studying or working in the United States, you may also need:
- Current Visa
- Bank account
- Proof of residency
Review your loan contract carefully, to verify that there are no prepayment penalties listed in it. Now you can research and apply for loans, with those lenders who are offering better rates than you currently have. Use a loan calculator to compare how much you will save with each of your prospective lenders. Here are some sources to research:
- Banks and credit unions – especially if you’re currently banking with them.
- Your current lender (they may want to compete to keep your loan).
- Lendbuzz. You can check our rate calculator on our homepage: https://www.lendbuzz.com
Here’s a tip: Make all of your loan applications within a 14-day period. This way, they will all be treated as a single inquiry, and will have a minimal effect on your credit rating. Learn more about how hard inquiries can impact your credit score.
Refinancing your car loan is a good thing!
Whether you need a lower monthly payment or more time to pay off your loan, refinancing your vehicle loan can be a great benefit to both your budget and your lifestyle.
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