We often get questions from consumers about the financing process. In this article, we want to take the opportunity to answer questions people frequently ask us about refinancing a car loan.
Can I Refinance My Car Loan?
When you refinance an auto loan, you're replacing your current loan with a new one – hopefully, one with a better interest rate. Let's take a took at some refinancing questions and comments people have recently sent us:
1. "I have a vehicle loan already and I'm looking to refinance to get a lower monthly payment."
This is a great reason to refinance a car loan, especially if you had bad credit when you took out the original loan. In order to get a lower monthly payment, you typically have two options: refinance with a longer loan term, or refinance with a lower interest rate.
When you refinance with a longer loan term, your monthly payment drops, but you're still paying the same interest rate. The longer you stretch your loan, the higher the interest charges are going to be.
Your other option for lower payments is to get refinanced with a lower APR. If you qualify for a lower interest rate than what you have on your original loan, this means lower monthly payments and lower interest charges over the loan term.
2. "I am looking to refinance a vehicle I am in arrears on. The value of the vehicle is greater than the amount owed."
Refinancing might come to mind as a solution if you're in arrears, which means you're behind on payments. Unfortunately, you have to be current on your loan in order to qualify for refinancing. In fact, you need to consider a few things before applying to refinance an auto loan.
Besides being up to date on your payments, in order to qualify to refinance, your credit usually has to have improved since you took out the original loan, and a year or more generally must have passed.
In order for this person to qualify for refinancing, since their credit reports now show late payments on the loan, they'd have to catch up on any missed payments before proceeding at the very least.
Since the goal of refinancing is to make a loan more affordable, the correct first step to take in this situation is to talk to your current lender. Your lender may be able to help you catch up with your payments, and/or help you refinance the loan once you're current.
In this particular situation, the consumer does have one thing going for them: equity. For a car to qualify for refinancing, it has to have an actual cash value that's greater than what's owed on the current loan.
3. "I need information about refinancing a 2013 Dodge Grand Caravan, but it has more than 130,000 miles on it."
Just like there are loan requirements to qualify for refinancing, there are vehicle qualifications as well.
Each lender has their own requirements for cars they're willing to refinance. This typically means they only refinance vehicles which fall within certain age and mileage limitations, and going over either one disqualifies a car.
Another requirement is that lenders usually only refinance personal vehicles – commercial and delivery cars often don't qualify, and neither do motorcycles, ATVs, or RVs. Additionally, lenders require clean titles. Salvage or rebuilt titled vehicles don't qualify for refinancing.
To find out what the rules are for a lender you're considering applying with, you should ask about their specific qualifications ahead of time.
Another Car Loan Refinancing Tip
You can choose to refinance with your current lender or with a different one, but you should always rate shop. Rate shopping means you apply with many different lenders for the same type of loan to find the best deal.
In order to minimize the impact rate shopping has on your credit score, make sure you complete all of your applications within 14 days, which is the typical rate-shopping window. This way, all hard inquiries on your credit for the same type of loan only count against your credit score as one single hard inquiry.
It's also a good idea to check into whether refinancing is truly the right choice for you before you begin applying. Make sure you weigh your options thoroughly.
Are You Ready to Refinance?
If you're ready to refinance your car loan, but don't know where to start, our partners can help. By filling out our quick and secure refinancing request form, we can put you in touch with the resources you need to get the process rolling.
If you decide that refinancing isn't in the cards for you right now, but you still need a lower payment, why not look into getting a bad credit auto loan through our nationwide network of special finance dealers?
Auto Credit Express is teamed up with with dealerships all around the country that have the lending resources to help people with less than perfect credit. We can work to match you with a dealer in your area if you fill out our free, no-obligation car loan request form. Don't hesitate any longer, get started today!