Time your refinance to your advantage
Have your paperwork in order
Know what could disqualify you from refinancing (and avoid it!)
Read on to take a closer look at these three rules and what they might mean for your vehicle loan refinance.
It’s hard to ignore how expensive everything is right now, and if you’re making monthly car payments, there’s a good chance you’re overpaying. But there’s an easy fix for that: refinance. By refinancing your car loan, you may be able save a lot of money every month, and that can really make a difference in your everyday budgeting. But how do you know where to start? And what are the rules for refinancing your car?
There are conditions that can make you a better candidate for a beneficial refinance, or make a refinance more valuable to you. The time might be right to refinance if any of the following apply to you:
Your credit score has gone up
Market rates have fallen
Your debt-to-income ratio has improved
Your monthly payments are too high for your budget
You got your loan from the dealership and have had it for at least 6 months
When lenders are determining which APR (annual percentage rate) to offer you, one of the biggest factors is your credit score. Your credit score tells lenders how likely you are to repay your debts. It is based on your past payment history, your outstanding debt, the length of your credit history, your credit mix, and how much new credit you have.
Here are just a few reasons why your score may have increased since your initial financing:
You made consistent, on time, full payments
You paid down some debt
You had a negative event expire (such as a bankruptcy)
You had hard credit inquiries expire
You corrected mistakes in your credit report
Simply paying your bills consistently can have a positive effect on your credit, so even if nothing drastic has happened since you financed, your score still might have increased. It's a good idea to request a copy of your credit report to see how healthy your score is and ensure that there aren’t any mistakes.
Another major factor in the car loan APR you are offered is the prevailing market rates. You do not have control over this, so timing is everything. If the market rates were high when you initially financed, you may be eligible for a lower APR. Conversely, if the prevailing rates have increased since you initially financed, you might not find a lower APR.
Your debt-to-income ratio is a huge factor in your car loan APR. This tells lenders if you are overextended in your monthly budget, which can help them decide how likely you are to repay. If your income has increased since you originally financed or you have paid down some of your debt, you may qualify for a lower APR.
Even if you do not qualify for a lower car loan APR, refinancing your loan can allow you to change your repayment schedule. And by lengthening your repayment schedule you can give yourself some much needed breathing room in your monthly budget. If you stretch your repayment from 36 months to 60 months, that allows you to pay off your loan over an additional two years. That can easily lower your car payments by hundreds of dollars every month. You will end up paying more money over the life of the loan, but it will be worth it if you find yourself falling behind on your bills (and hurting your credit in the process).
Millions of Americans who got their loans from dealerships are paying higher rates than they qualified for—even with good credit!—due to something called dealer’s reserve, or dealership rate markups. If you got your loan from a dealership, and are otherwise eligible for refinance (read on!), refinancing as soon as possible can help you save the most money over the life of your loan.
While you don’t need a lot to get started on a refinance, it’s advisable to be ready when you start applying. You want to make sure you can shop around for your best rate with minimal effect on your credit.
Here’s what you’ll need:
Your personal information & vehicle details
Your current loan information
And time to research
When you refinance, you will need some paperwork for your applications. This will most likely include:
A Photo ID
Your vehicle’s information (make, model, any paperwork)
Proof of income and financial history
Proof of residence
Proof of insurance
You want to look at your current loan to see what the terms are: the APR, the repayment period, and what fees are associated with your loan. One of the biggest things you want to look for is whether or not there are prepayment fees. If there are significant fees, it might not be worthwhile to refinance.
You want to do your research when you refinance. What lenders have good reputations? Where are you most likely to get a good deal? Using a company that specializes in car refinance can save you a lot of time in this area, as they have relationships with lenders across the country and are guaranteed to find you the best deal possible.
Having all of this information compiled and ready to go will make applying for refinance quick and easy.
There are a few things that can make you a bad candidate for refinance, namely:
Trying to refinance too soon after you get a new loan
Waiting until your loan is too old
Waiting until your car is too old or has too many miles on it
Having a loan with too little money on it
While this is not a hard and fast rule, experts generally recommend waiting a minimum of six months to a year before refinancing. This gives your credit score some time to bounce back after opening a new account and gives you some time to make payments on your loan and boost your score that way. But technically speaking, you only need to wait as long as it takes to get the paperwork filed to refinance.
The earlier in your loan term that you refinance, the more beneficial it will be for you. So don’t wait until the very end of your loan to apply.
Every lender will have different requirements for this, but your car cannot be too old or have too many miles on it. Typically if your car is over 10 years old or has over 100,000 miles on it you will have a harder time securing a refinance.
If you only have a small amount of money left on your loan, chances are you will have a hard time securing a refinance. Lenders will simply not think it is worthwhile to take on the hassle of refinance with such little payoff.
Refinancing your car loan is easy, especially when you use a company that specializes in it. Get started with Auto Approve today to see how much money refinancing can save you! No hard credit pull or commitment required.
Car loan refinancing is when you pay off your existing car loan with a new car loan that has better terms for your unique situation.
You can shorten or lengthen your loan term, find a lower APR, and add or remove a co-borrower.
When you refinance to a new loan with a lower car loan APR, you pay less overall in interest and fees — that can mean saving a lot of money. Even if you don’t qualify for a lower APR, changing your repayment period can help you get a lower monthly payment or pay less overall.
