Car refinancing is paying off an existing auto loan and opening a new loan using the same vehicle as collateral. The result is a new car loan on your vehicle, usually with a different lender. If you time it right, refinancing a car can either lower your monthly payment or save you money, or both. But, there are also instances when it’s not a good idea to consider refinancing an auto loan.
When Refinancing is a Good Idea
Have you checked your FICO credit score recently? Has it gone up? If you opened an auto loan with bad credit and two or three years have passed, you might want to consider refinancing. The reason why? You could get a lower interest rate.
The average interest rate for car buyers with bad credit is around 16 percent, which is pretty high. Even worse, rates are expected to increase over the next few years, meaning the overall cost to finance a vehicle is expected to go up. So, now may be the best time to consider refinancing, especially if your interest rate is around that 16 percent.
Another situation where refinancing is a good idea is if your financial status recently changed. If you changed jobs, or your monthly income decreases, you can refinance to extend your loan term. This typically lowers the monthly payment to make it more affordable, but you end up paying more in interest charges in the long run.
When Refinancing is a Bad Idea
Even if your credit improves, there are a few situations where refinancing won’t work in your favor, and you more than likely will get turned down. In fact, there are three main situations where a lender isn’t going to refinance you:
- Being upside down – Negative equity in your current car means you owe more than the vehicle’s worth, and most lenders aren’t willing to refinance someone if they’re upside down.
- Being delinquent – Being behind on payments is a red flag to lenders. Most aren’t willing to refinance someone if they’re delinquent.
- Having an old car – Lenders have vehicle age and mileage restrictions when it comes to refinancing. If your car falls outside their requirements, they won’t refinance you.
Need a Car Loan?
If you're in a situation where it makes sense to refinance your auto loan, you can get the process started by filling out the simple and secure refinance request form on our website.
On the other hand, if you need a car loan, Auto Credit Express can connect you to a local dealer with the lending resources available to help you get an auto loan, even if you have bad credit. When you’re ready, get started by filling out our online auto loan request form. Our service is free of cost and obligation, so you can let us help you find a dealership with confidence.