Yahoo Autos When Can You Refinance a Car Loan?
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When can you refinance a car loan? Anytime you want. It's faster and easier than refinancing a mortgage. There are some things to consider first, however. Whether your goal is to get a better interest rate or a lower monthly payment, refinancing your auto loan could help, but it's not the right move for every situation. So before you call the bank, review these tips to learn how to get the best deal.
What It Means to Refinance Your Car
So, what does it mean to refinance? It means taking out a new loan to pay off the original one; and doing so could save you a lot of money. The term can match the duration of your existing loan, or you can get one that's longer or shorter, depending on your needs. Many borrowers choose to extend the length of their repayment period, giving them more time to pay off the debt. However, this practice will likely reduce or eliminate any savings you get by refinancing.
When Can You Refinance a Car Loan?
You can refinance a car loan anytime you want. Nevertheless, some lenders could make you wait six months or more, while others don't have any set waiting period after you purchase a vehicle. Regardless of who gives you a new loan, the bank can't refinance your car until your original creditor receives the title or certificate of ownership from the dealership or previous owner. This process can end up taking months.
Reasons to Refinance Your Auto Loan
Does it make sense to refinance your car loan? If you recently bought your wheels, you may realize that your payment or interest rate isn't competitive with the market, or perhaps you're simply unhappy with your financial institution's performance. Just remember, you should only refinance your car if it benefits your situation. Here are a few reasons why car owners should consider refinancing:
You Got a Bad Loan
Refinancing your vehicle's payment may be a smart financial decision if you take on a high-interest rate loan. Auto loans are tied to the prime rate, which has been on the rise lately. If the finance manager quoted you a rate you can beat on your own with a new lender, do it. Interest rates may have decreased since you purchased the car, or perhaps your dealership padded the rate to boost their profits. Either way, it's best to avoid this situation in the future and get preapproved before you go shopping.
Your Credit Rating Improved
Buying a vehicle on credit will improve your rating. As long as you make on-time monthly payments, that is. Even after just 12 months, your reliable track record could result in a nice spike on your credit report. Armed with an improved rating, you may be able to qualify for a significantly lower interest rate. There are a few other ways you can boost your overall score, including:
Pay off outstanding debt.
Increase your income.
Add new credit accounts.
Dispute any errors.
Use no more than 30% of your available credit.
You Found a New Lender
If you've developed a relationship with another lender, leveraging that situation could save you a few dollars each month. Joining a credit union could also come with member benefits, like special deals on auto loans. Some financial institutions will also refinance your initial loan with appealing rates to help attract new customers.
You Took the Rebate
Auto manufacturers routinely offer incentives like low-interest rates and rebates to boost sales. If you opted for the cash instead of the rate break, you might want to refinance your loan. Borrowers with excellent credit could end up benefiting from both perks. For example, you could take a $2000 rebate with a 7 percent interest rate, then shop around for a lower percentage rate from another bank over the next few months.
You Can't Make the Payments
If you're struggling to make your monthly payments, especially within the first year of car ownership, refinancing could provide you with some relief. Check with your current lender first, though. They may also be willing to extend the new loan beyond its original ending date or give you a reduced interest rate to keep your business, and both options will help lower your bill.
You should understand that refinancing an auto loan with a longer repayment period could end up costing you more in interest over the life of the loan. It might be best to keep your new term for only a short time. You can also make extra payments when you can to reduce your principal balance faster.
Your bank may offer you a cash-out refinancing option. With this option, your new debt will exceed what you owe, so you can get extra money to spend however you wish. This strategy is risky, as your debit could exceed your vehicle's value, putting you "upside down" if you decide to sell it or trade it in for another car despite a potentially lower payment.
You Have Other Goals
Whether you want to take an extended vacation or start a business, adding a few dollars to your monthly budget can help you achieve other worthwhile pursuits. Most car lenders don't charge origination fees, although you'll likely pay a modest title transfer fee to your state's motor vehicle department. Because it's so cheap, you can theoretically refinance as often as it makes sound financial sense.
Drawbacks of Refinancing an Auto Loan Early
Depending on your situation, there can be advantages to sticking with your current loan. You don't want to do anything that could adversely impact your finances, so consider these factors before refinancing your debit:
Failing to Qualify
Any time you apply for an auto loan, you run the risk of a denial. But, even if you do get approved, it's possible that you already have the best interest rate or you don't meet the standards for a top-tier one.
Early Payoff Penalties
Some car lenders may have prepayment penalties or other fees if you repay your initial loan early. So before you take your business to another lender, check with your bank and inquire about early payoff fees on your loan.
Risk of Repossession
Regardless of your current financial hardships, try to avoid cash-out refinancing. This method is reserved as a last resort because you're putting your vehicle at high risk of repossession. If that happens, your situation will only get worse. If you're experiencing a crisis, you can contact the National Foundation for Credit Counseling for help.
