Refinancing an auto loan can often lower the monthly payment but a recent survey from RateWatch shows many buyers are unaware of this option
Auto Loan Refinancing
Here at Auto Credit Express we realize that car buyers with bad credit that are currently financing a vehicle sometimes find that by refinancing through another lender can lower their loan payments and free up additional cash. We were reminded of this recently when RateWatch released the results of a new survey it conducted entitled Auto Lending: Today's Customer.
According to RateWatch, a great many borrowers either overlook or are not interested in refinancing their car loans as the survey found that:
- 27% of respondents did not know that refinancing their auto loan was an option.
- 59% of respondents knew that refinancing was an option but chose not to refinance.
- Those ages 30-44 were most likely to be aware of auto refinancing options, but only 20% had taken advantage of them.
- Those who have owned their vehicle for 5 or more years were most likely to have known refinancing was an option and follow through with a refinance. More than half of those who have owned their vehicles for less than 5 years were not aware refinancing was an option.
But at the same time, credit-challenged consumers considering this option should know that the circumstances have to be just right to accomplish this. When it comes to borrowers who are reestablishing credit, just because they want to refinance doesn't necessarily mean they'll qualify.
That's because this type of loan is typically available only if a borrower's FICO scores are good - although it can sometimes happen if the loan is in good standing, payments have been made regularly and there's enough of a history (timely payments on their current loan for anywhere from 18 to 36 months) on which to make a loan decision.
Advantages to refinancing an auto loan include:
- Lower monthly payments resulting from a better interest rate - something that can also reduce overall interest costs
- Lower monthly payments resulting from extending the existing loan term - for example, if the current loan term has 24 to 36 months remaining on it, refinancing can add an additional 12 months (possibly more) to the loan term. Although this extends the payoff date (and typically increases the overall interest costs), a lower payment can free up money for utility bills and other essentials. It also can reduce the possibility of late or even missed auto loan payments
- Refinancing can also help raise a borrower's FICO scores by making it easier to make timely monthly loan payments
The Bottom Line
Although many borrowers are unaware of the advantages of auto loan refinancing, consumers with low credit scores need to realize that they may not qualify for this loan option, especially if their loan is fairly recent.
One other tip: Auto Credit Express helps buyers with damaged credit find those dealers that can offer them their best opportunities for a car loan approval. So if you're ready now, you can begin the process by filling out our online auto loan application.