When you decide to buy a car on credit and arrange to finance, you enter into an agreement that may run for several years. Like almost all contracts, however, it will have an escape hatch you can use in case you need to get out early – and this doesn’t have to be declaring bankruptcy.
It is absolutely, irrefutably and undoubtedly true that keeping an eye on your finances will help you to save money and build wealth. One way to do this is to make a budget – another is to be aware of the opportunities open to you, including finding out whether the best place to refinance an auto loan can save you money over the long run.
Table of Contents
- 1 How Does Auto Loan Refinancing Work?
- 2 Is Auto Loan Refinancing a Good Idea in Your Situation?
- 3 Can You Refinance Your Car Loan with Bad Credit?
- 4 Which Is the Best Company to Refinance With?
- 5 What Will Refinancing Your Auto Loan Cost You?
- 6 What Happens if You Extend Your Loan Term?
- 7 Can You Refinance if You’re Upside-Down on Your Car Loan?
- 8 Refinancing Auto Loans Takes Little Effort and Can Help You Cash In
How Does Auto Loan Refinancing Work?
When thinking about your current car loan, there are two main things to consider:
- What you have to pay each month, and
- How much you’ll end up paying in total.
In other words, how much you’re able to afford out of each paycheck and the effective end price of a vehicle are closely related. Auto refinancing is usually done when one or both of those factors are no longer working out for you.
A refi simply means exchanging one loan’s terms for another one you qualify for. This is done thousands of times each day and, especially if you can get approved at one of the best auto loan refinance companies, maybe one of the most worthwhile financial decisions you can make right now.
Is Auto Loan Refinancing a Good Idea in Your Situation?
While everyone’s circumstances are different, there are generally two reasons why people decide to refinance a vehicle loan:
- You Think You Might be Able to Negotiate a Better Interest Rate
Interest rates on debt and short-term investments, including car loans refinance rates, vary over time based on what the Fed does, how much appetite the financial industry has for taking on more consumer debt, the state of the economy and, apparently, the phase of the moon. Your credit rating may also have improved since you signed your current loan agreement, making it possible to pay less. If your original loan was arranged through the dealership where you bought the vehicle, refinancing can almost certainly save you money.
- You’re Struggling to Keep up with Payments
If your expenses suddenly increase, or you’re earning less than before, one way to ease the pain is to look at auto loans with a longer repayment period, even at the same interest rate. The following example shows how you can juggle these two factors in your favor:
Just remember that interest drives up the amount you owe on a car even while depreciation reduces its value. Eventually, even selling the vehicle might not be enough to repay the loan, a condition that’s called “being upside down”. Determining whether or not you’re at risk of this happening should you stretch out the loan term is your own responsibility, not that of a refi consultant.
Can You Refinance Your Car Loan with Bad Credit?
The short answer here is “Yes”; the slightly longer answer is “Maybe”.
There are several lending organizations willing to work with people with bad or even no credit. Their interest rates are usually pretty high, though, so if your credit score is lower now than when you bought your car, you’re probably better off not refinancing.
Credit scores, however, are rarely the only thing auto refinancing companies look at. If, for instance, you used to work freelance but have recently taken a salaried job, your credit rating remains the same. Your income is more dependable now, though, which makes you less of a risk in the eyes of a lender. This isn’t the only way in which you may be able to refinance a car loan with bad credit: other options, such as taking a personal loan or second mortgage, might achieve the same result.
Once your credit score has improved, however, you should most certainly check out what refinancing options are available to you. The same goes if you took out a fixed-rate loan when interest rates were high.
Which Is the Best Company to Refinance With?
Auto refinance companies, of which there are thousands, each has their own policies and practices. These can and do change frequently, making it impossible for the average person to keep track of which is most suitable for them.
This has led to a number of refinance originator businesses being established; their specialty is to know the auto refinancing market and introduce clients to suitable lenders (CashNetUSA loan company, etc.). Some, of course, are better in terms of how accurately they match one to the other, their commercial connections and their basic business practices. The following 5 are all good starting points when you’re thinking of applying for refinancing; which one will work best for you depends on your circumstances.
Direct Loan Transfer
DirectLoanTransfer has a very streamlined application process, which makes them a good choice if you don’t know a ton about how financial stuff works, or alternatively when you need to explore your refinancing options as quickly as possible (if, for instance, you’re about to start missing payments).
The entire process, from logging onto their website and entering your details to being sent to a lender’s website, takes about ten minutes. As with any service of this kind, Direct Loan Transfer recommending you to a particular auto refinance organization doesn’t guarantee approval but means that it’s very likely that you can do a deal even if you have poor credit.
Loanshub is geared to single professionals and couples aged approximately 25 to 40, though they’ll gladly work with others as well. People with a steady income, such as those who’ve been in the same job for the last three months, are their preferred clientele. As with DirectLoanTransfer, you can make use of their online platform without leaving your home or office, or in fact from any mobile device.
People with average to good credit can obviously expect to receive better offers. In case the vehicle refinance options Loanshub can provide you with don’t quite match your expectations, they make it very easy to search instead for the best personal loans using the same information you supplied them with earlier.
Extraloan’s business model is unusual in that they welcome almost anyone looking for vehicle refinancing options, regardless of their credit score. This is made possible by them having one of the largest networks of trusted lenders out there.
Extraloan, therefore, allows you to explore numerous options without having to apply for pre-approval for any of them, which would impact your credit slightly. This makes them a good choice if you’re on the fence about whether or not refinancing is for you, or you just want to see what kinds of savings you may be eligible for. They also offer similar referral and comparison services for some other kinds of financial products.
Unlike the services above, MyAutoloan specializes in financing autos, including loans for private party sales and lease buyouts. In one sense, this means that they have a better-than-average understanding of the car loan industry; on the other hand, this same bias means that they prefer to work with lenders like banks, credit unions and even car dealerships. These usually have less attractive interest rates than those offered by financial startups and other non-traditional funding sources.
You can also arrange auto insurance through them, though this is usually not so much a concern for those looking to refinance a vehicle they already own. Their focus on the car trade also makes their requirements and alternatives less flexible – if you don’t have a full-time job, for instance, you may have difficulty qualifying for a refi.
In contrast with MyAutoloan, Lendingtree aims to be a one-stop shop that helps you find the best terms on pretty much any financial product you need, from certificates of deposit to student loans to vehicle refinancing. Unlike any of the other online referral services we recommend, they promote themselves by showing you sample rates after asking for nothing more than your location and approximate credit score. Just remember the old proverb: if something looks too good to be true, it probably is. Various factors go into determining the terms you will actually be offered; these sample rates are probably based on ideal circumstances.
That having been said, Lendingtree has a pretty good reputation for customer service and fair dealing. If, however, you have a credit score below 600, one of the other options we’ve discussed might be a better bet.
What Will Refinancing Your Auto Loan Cost You?
Refinancing is typically the last thing you’re thinking of when shopping for an auto loan in the first place. This makes it easy to overlook the early repayment penalty most finance companies include in their contracts.
Since it costs lenders money to issue a loan, they want some guarantee that they will make a profit on it. If you later refinance, they lose the interest that would otherwise find its way from your pocket to theirs, so they cover their bases by charging a fee for paying the loan off early.
One other thing you might want to keep in mind is the cost of your time. This is one of the best reasons to use an online service to shop for the best deal on financial products. If you physically have to stand in line at different banks, it would take you half a day to get three quotes, as opposed to half an hour for dozens. By the way, online referral services charge no direct fees for inquiries – any of them that do this should be avoided.
There is another hidden “expense” that may surprise you: when applying for pre-approval, many lenders run a “hard” credit pull rather than just looking at a basic credit report. This shows the credit rating agency that your total amount of debt is likely to increase soon and will drop your score by a few points.
What Happens if You Extend Your Loan Term?
At least half of comparing different refinancing offers is about balancing lower (or higher) monthly payments with spending more (or less) during the total lifetime of the loan. Assuming that different options come with the same interest rate, one kind of expense always goes up when the other goes down; you can see this for yourself using an auto refinance calculator. If you are able to afford a higher monthly sum, it’s generally a good idea to go with a shorter loan term and pay less in total.
Another thing to consider here is that older vehicles, being less reliable and worth less, don’t qualify for the best car loans refinance rates. Automobiles older than 100,000 miles or ten years might not even be considered, so if your ride is pushing one or both of those numbers, extending the loan period can cause your new interest rate to be even higher than otherwise.
Can You Refinance if You’re Upside-Down on Your Car Loan?
Being upside-down on your car loan is like being underwater with your mortgage: the value of the asset you took out the loan to buy is now less than the amount you still owe. This is not a good place to be, but there might still be some refi options open to you.
One of these is to phone up your current lender and ask if there’s anything they can do for you, such as letting you pay off the loan more quickly and thereby getting above the waves that much sooner. They will not want to lose your business, and it never hurts to ask. You can also use an auto refinance comparison website to find out if you don’t qualify for a lower interest rate, or perhaps see if someone with a good credit rating is willing to co-sign on a new loan.
Refinancing Auto Loans Takes Little Effort and Can Help You Cash In
Often, people miss out on financial opportunities because they don’t realize how easy it is to seize them, or simply aren’t aware they exist. Auto loans refinance with bad credit is totally possible, whether your goal is to get the lowest interest rate or simply pay less each month.