Refinancing your car loan could get you lower rates and save money.
Did you know you can refinance your car loan to maximize savings with a lower interest rate? The guide below will take you through the ins and outs of refinancing and show you some options to compare.
How does refinancing a car loan work?
Refinancing your car loan means simply switching to a different lender that offers you lower rates, fewer fees or easier repayment options. If done correctly, refinancing your car loan could help you pay off your loan sooner, saving your hundreds of dollars.
Car loan options to compare
Benefits of auto refinancing
If your interest rate is above 6%, it could be a good idea to consider refinancing your car loan. Here are a few other reasons to consider:
- You can reduce your payments. Better rates and fees may be available and refinancing can save you money.
- You can sign up with a better lender. Not all lenders are created equal. Some have better customer service, easier account management and add-ons or discounts that may not have been available with your previous lender.
- Your credit score has improved. It’s a whole new ballgame when you have good credit. You’ll likely be offered better interest rates and terms across the board.
- Maximize cash flow. Perhaps you need money for a project or to help pay off a debt with unfavorable terms. If you only owe $2,000 on your car, but need $3,000 — you could take on a loan with better terms for $5,000 and use the surplus.
- Lower payments. You could refinance and extend your loan term length to free up some money each month. But even though the payments are lower, you’ll be paying more in interest in the long run.
- Remove a cosigner. If you want to remove a cosigner from your loan, you can do this by refinancing.
How to refinance your car loan
Once you’re sure refinancing is the right choice for you, it’s fairly easy to refinance your loan.
- Compare your options. Make sure you meet the eligibility criteria and are aware of all fees and charges. Once you’ve found the right loan, contact the lender directly or visit its website to apply.
- Select Refinancing as the loan purpose.
- Submit the relevant documents and information. This usually includes information about the lender you’re with currently, your personal information and details about the car.
- Pay off your previous loan. This may be done on your behalf by your new lender or you may be required to organize this yourself.
- Close your previous loan. While the loan is paid off it’s important to ensure the loan account is closed.
What factors should I look for when refinancing a car loan?
Refinancing isn’t for everyone. Though it’s easy to look for lenders to help lower your rate, not all lenders will lend to you if your car is worth less than what you owe. Lenders also look at the age of your car and how much you owe. Other things to consider are:
- Lower payments. Lower payments could mean more interest over time. Consider this option only if you need more money each month.
- Lower interest and fees. Take into account the interest rate, upfront and ongoing fees, as well as the loan term you’re asking for to determine the cheapest option.
- Loan features. If you plan to make extra payments or repay the loan early, make sure your new lender lets you do this without penalty.
- The lender is legitimate. A number of lenders offer financing for cars, but not all are legit. Compare lenders by reading reviews to see how transparent the lender is with rates and fees and how easy it is to contact them if you run into a problem.
How to compare car loans when you want to refinance
If you believe refinancing your car loan could be a good option, consider these factors when selecting a car loan to fit your needs:
- Interest rate. Compare the interest rate across all car loans available to you — the lower the interest rate the better.
- Flexibility in repayments. Can you make payments weekly, twice monthly or monthly? Can you make additional payments to pay off your car loan quicker without being penalized?
- Additional fees. Understand the fees you may have to pay both upfront and over time. Look for the refinancing option with the lowest fees to help you save money.
- Maximum loan amount. Lenders often cap how much they offer to borrowers. Make sure that the lender you choose offers enough money to cover your loan amount.
You can either refinance yourself or enlist the services of an auto loan broker, who’ll work on your behalf to get the most competitive refinancing option. Either way, it’s important to compare your car loan options before making the decision to switch.