Owning a car is a near-necessity—but the buying and loan process can be a headache, especially for those whose credit is in a fragile place. Maybe you were inexperienced and were drawn into a loan plan that gave you higher interest rates than you deserved, or maybe you thought you couldn’t get any better. You’ll be happy to learn that refinancing your car loan can save you thousands of dollars.
Even if you have poor and/or nonexistent credit and took a non-prime or subprime loan and had to settle for high interest rates on your initial loan, you may still be eligible to refinance before the end of the term.
If you’re in this position or if you’re curious about the possibilities of lower interest rates, read on to explore your options and the steps to take in order to achieve those lower payments to better manage your finances.
Why Should I Refinance? Benefits of Refinancing
There are numerous reasons why refinancing could make sense. Here are some situations that could apply to you.
Lower Interest Rate: This is the big draw to refinancing. Both prime and non-prime buyers can benefit from a lower interest rate, depending on various factors (which we will cover).
Extending a Loan Term: If you are looking simply to reduce your overall monthly payment then refinancing could allow you to spread repayment over a longer period of time (term) than your original loan. This could, however, raise your interest rate, making you pay more in the long run.
Remove/Add Co-signer or Payee: This applies to many situations; whether you’ve bought a car for someone and eventually they want to put the loan in their name when they’re financially able, or if you’ve co-signed with a teen who had little to no credit history for their first car, but now has the means to be the formal signer on the loan. Refinancing will allow you to make these adjustments.
(No credit check/information required).
Should I Refinance?
If any of the above sounds like something that applies to you, then maybe refinancing could be a good choice. However, refinancing will only make sense if you’re in a position to benefit from it.
Let’s take a look at what you need to look at in order to determine if a loan refinance will be worth it for you:
Check Your Credit Score: If your credit has increased since you purchased your car, and you signed on for a non-prime high-interest loan, then refinancing could definitely be beneficial. You’re no longer financially “at-risk,” so you could be offered lower interest rates. Even if you already had good credit at the time of your loan signing, and it has increased even more since (even if only by a few points), you could still benefit from a lower interest rate!
Review Your Financial Situation: Have you been promoted at work? Are you earning more money? Have you cleared debts that you had when buying your car? All of these factors improve your debt-to-service ratio and can get you qualified for better financial terms.
Why Shouldn’t I Refinance?
Apart from all the reasons why you should look into refinancing, there are certain situations where refinancing could either yield little or no benefit, or even give you more strain.
Your principal loan amount is almost paid off: Typically, the longer you wait to refinance, the less you’ll be able to save on interest. The interest rates on car loans are typically front-loaded, meaning you’ll pay more towards the beginning. So, if you’ve nearly paid off your loan, you’ve most likely already missed your chance of refinancing.
Your car is well-used and well-loved: If your car is rather old and has a significant amount of miles on it, then refinancing probably won’t yield many benefits. Most of the time, it only makes sense to refinance within the first few years of owning a car. Most banks actually have a limit on mileage and age of vehicle that they refinance, typically topping off at around 90,000 miles and about 7 years old.
Refinancing fees can be a burden: If you look into refinancing and realize you’re paying more just to find out what you’ll be saving—if anything at all—then maybe the curiosity isn’t worth the money. There can be prepayment penalties, additional interest in addition to the principal amount, or loans with precomputed interest that make you pay all the interest in addition to the principal. The refinancing fees alone can also break the bank.
Your future credit situation may change: If you are looking into applying for more credit in the near future, then refinancing just won’t make sense. You’ll be incurring more debt, making you less eligible for lower rates. In any case, an auto refinance will negatively affect your credit, and could result in the denial of your future credit requests.
Refinancing Your Car Loan: What You’ll Need
As you had to qualify for your current loan, you must also be eligible for refinancing, providing the same documentation as your initial loan. Most loan lenders have similar criteria with only slight differences in what you tangibly need in order to refinance.
So, if you have everything on the list below, you’re ready to start your refinancing process:
- A paper trail of your sources of income (current and recent pay stubs, tax return info, etc.)
- Void check or bank account info for pre-authorized payment agreement
- Financial space to handle the payments (i.e. debt-to-service ratio)
- A credit history and a minimum credit score
- A place of residence where you can send/receive mail
- Photo Identification (to verify you are who you say you are)
- Vehicle information (make, model, year, trim, mileage, title, etc.)
How It Works
Before you settle on your refinancing service, it’s worth it to shop around. Getting a quote from various lending partners will give you the peace of mind in deciding on the service that will most benefit you. (Did you know 411 Drives has a 98% approval rating and our agents search through thousands of offers to find the best one for you.)
One thing to keep in mind is that you should never refinance through your car dealership. It’s typically less about saving you money than about giving them another sale under their belt.
You can check with your local bank, a credit union, or a financial aggregator. Typically, a local bank won’t give you the best deal, and ideally, you’ll want to refinance through an agency like 411 Drives that is driven to finding you the lowest rates. Our biggest motivation is to help you find the best deals from all your options.
Refinancing and financing your car loan are nearly identical processes. You provide all your information, and they give you the quote based on such. What makes refinancing different is that you have to provide information about your current loan and interest rate.
Looking to buy a new or used car? Want to upgrade to an SUV or a better brand? Submit a no-obligation application today and find out why 411Drives has the 411 on all your car needs.
