Auto Refinance

When interest rates fall, it is a good idea to look into the possibility of refinancing your auto loan to save money. Some customers may be wary of the process, thinking it is both challenging and time consuming. The fact is it can be very easy to refinance an auto loan. Even lowering your interest rate by a measly percentage point can translate into thousands of dollars saved over the life of your loan.

When you refinance your auto loan, you are essentially replacing your current loan with a new loan under different terms. In many cases, you will have to refinance your loan with a different lender.

Why Should I Refinance my Loan?

There are plenty of scenarios in which refinancing a car loan is a good decision. Those who are going through significant life events (relocating, starting a family, etc) might need extra money for expenses. Others may be dissatisfied with their current terms and conditions or lender and are ready for a change.

Regardless of your reasons for refinancing, finding the best interest rate should be a top priority. Even if you have a few blemishes on your credit report, you should still consider refinancing with bad credit to save money. Once you have determined your eligible refinancing interest rate and have established a repayment schedule, you are ready to apply. The application process is relatively easy in most situations, and the entire process is usually completed within 7 to 10 business days, depending on the specific lender.

Reduce Your Monthly Payment

Most people refinance an auto loan to take advantage of interest rates that are lower than when they purchased the vehicle. However, some consumers are less concerned with falling interest rates and simply want to lower monthly payments instead. In the latter scenario, the length of the auto loan might be extended to save money if interest rates have not declined significantly. This might result in a loan that costs more over time, but saves you money each month.

Manage your Equity

If a vehicle has equity, or is worth more than the consumer owes on it, then a lender may provide a consumer a loan of its total book value. The lender then gives the consumer the amount of cash in excess of what the consumer owes. This is called a cash-out option, which is great for consumers who urgently need cash and have auto equity. Additionally, consumers may secure much lower interest rates through auto loan refinancing than through other loans for the same cash amount.

Things to Consider when Refinancing

In every state, you will have to pay a title transfer fee when refinancing. This is usually somewhere between $5 and $65. Some lending companies charge application or document fees when refinancing, while others do not. If you are subject to any fees, be sure to take them into consideration to make sure it is still worth your while to refinance. If you want to pay off your loan faster than the stated financing term, some lenders may charge a prepayment fee.

Potential Problems

Auto refinance loans may not be worthwhile if a consumer has only paid into the interest and not yet on the principal amount of their current loan. This is often the case with recent purchases. There is probably no benefit in auto refinancing in this situation, as the consumer will have to start over with a new loan for exactly the same amount already borrowed.

If a consumer owes more than a car is worth, then they have negative equity. Consumers with negative equity are called "upside down." This is a common situation, because cars often depreciate in value more quickly than consumers can pay for them. Car refinance may not be available in this case, as there is little incentive for lenders. If the consumer defaults, the lender will end up with a car that is not worth the amount of money lent. However, there are exceptions, and even "upside down" consumers may be able to find refinance loans by examining all their options.