When you're considering refinancing your car, your current lender might be your first thought. Not all lenders can refinance auto loans, though. Whether or not your lender is able to help may depend on the situation.
Although it's not necessarily common, many auto lenders allow you to refinance internally. If your lender does let you refinance your car, you can usually do so at a lower interest rate. Here are some things to consider if you're thinking of refinancing your car loan with the same lender.
What Does It Mean to Refinance Your Car?
Refinancing is replacing your current auto loan contract with another one with different rates or terms. The chief reason to do this would be to get a more favorable interest rate on your loan, which you would be able to do if your credit has improved or if rates have dropped since you got the loan. Lowering your interest rate will lower the amount of interest you pay over the course of your loan by lowering the monthly payment.
You can also renegotiate the term of your auto loan when refinancing. Opting for a shorter term will result in less interest paid and quicker ownership of your car, but at the cost of a higher monthly payment. On the flip side, you can also extend your loan to reduce your monthly payment, but this would, of course, increase the total amount of interest you pay throughout the loan.
Refinancing your auto loan can also be a good option if you are upside down on your loan, meaning you still owe more than the value of the car. While still a suboptimal situation, refinancing can help you lessen your monthly burden by stretching out the payments over time, which can lower your chance of defaulting.
Can I Refinance With My Current Lender?
Your current lender is typically a good place to start when you're looking to refinance your car. However, they may not be willing or able to help you with refinancing, so you may have to seek help from a new lender. Refinancing your auto loan at a lower interest rate benefits you as the consumer, but it means less profit for the lender. Because of this, your current lender may not advertise that they offer refinancing, or they may not offer it altogether.
Why Choose The Same Lender For Refinancing?
Assuming your current lender offers refinancing, there are several good reasons to stick with them. Firstly, it will be a more convenient process than refinancing elsewhere. Your existing lender will already have all of your financial information on file. They'll also already be familiar with your payment history, and may reward you with a discounted rate if you have a clean record of on-time payments. Additionally, refinancing with a different lender may require cumbersome DMV title paperwork, as the new lender would have to be made the owner of the vehicle until it is paid off. You'll also avoid the hassle of rate shopping when refinancing with your current lender, which also avoids potential inquiries.
If your current lender isn't able to refinance your loan, you can look for help in many places; banks, credit unions, and online lenders all have the potential to help. But how do you know who to turn to? This is where rate shopping comes in.
Rate shopping means applying for something, in this case refinancing, with multiple lenders to find the most ideal situation and deal that works for you. The rate shopping window can range, but to minimize the impact on your credit, all your refinancing requests should be made within a 14-day period. When you do this, credit report, but only one impacts your credit score.
If you do go the rate shopping route, there are potential benefits to refinancing with a new lender. First of all, you might find a better rate or otherwise more favorable loan agreement with another bank or credit union. Another reason to go with another lender would be if you have had a negative experience with your current lender. It is also worth noting that even if you end up rate shopping different lenders, you might end up getting the best deal with your original lender anyway.
Things to Keep In Mind
One thing to keep in mind when considering refinancing your auto loan is that it is not guaranteed that refinancing will be your best option. Even if you're unhappy with your current loan, you won't necessarily be able to refinance into a more favorable one if your credit hasn't improved since you initially took the loan out. You might need to ride out the rest of an unfavorable auto loan if you're already toward the end of the term, as well. Looking to refinance into a loan with a lower payment may be tempting, but you'll undoubtedly end up getting saddled with a longer term and paying more interest over the course of it.
If you decide refinancing your auto loan is right for you, you'll also have to keep in mind that there is more to rate shopping than just the interest rates themselves. Another lender might offer you a refinancing option that looks tempting given the interest rate, term, and monthly payment. However, switching to a new lender has the potential to saddle you with unwanted fees. Some lenders will hit you with a refinancing fee no matter how favorable your credit or payment history is. There may also be DMV fees associated with transferring your vehicle's title to the new lender.
One last thing to keep in mind is that the first refinancing offer from your current lender, or a prospective lender, might not be the best you can get. Rate shopping might not be an easy or time-efficient process, but it could pay off for you if you find significant savings from a different lender. Even if you end up refinancing with the same lender, you would get peace of mind in knowing that you found the best deal.
The Bottom Line
Rate shopping can be more difficult as a bad credit borrower, and you may be left choosing between several loans with high-interest rates. In this case, working with a refinancing lender that specializes in bad credit can help. In order to refinance, your credit score typically must have improved from when you first took out your bad credit car loan. This is only one of the standard refinancing requirements, though. In general, you also need to be current on your loan, have no negative equity, and both your loan and vehicle must meet lender specifications.
Ready to refinance your vehicle? If you're ready to see what you qualify for in terms of refinancing, we want to help. At Auto Credit Express, we work with many different refinancing lenders, and we want to connect you to one that can help. Simply fill out our fast, free, auto loan refinance request form to get started.
