Refinancing your car loan is a great way to save money. Whether money's a little tight or you want to open up more monthly cash flow for more important things, either refinancing to a lower car loan APR or by changing your repayment term can drastically change your monthly payments. And refinancing to a lower rate can even help you save more money overall and pay less monthly. But are there any upfront fees associated with an auto loan refinance? That's what we'll be taking a closer look at in this article.
How much money does it cost to get an auto loan refinance, and is it worth it?
When you refinance a car loan, what happens?
Auto refinance is when you pay off your existing car loan with a new car loan, ideally one that has better terms and a better car loan APR. And while it may sound complicated or time consuming, it’s actually super simple. It’s much easier and faster than refinancing a mortgage, and if you use a dedicated auto refinance company, they can handle a lot of the paperwork for you.
To refinance a car loan, there are just a few simple steps you need to take.
Gather your documents
Make sure you have all of the paperwork you will need for your car loan refinance. You will typically need the following:
- Your personal information. This will include your photo identification, social security number, and proof of residence (note that it must be a physical address, not a PO Box).
- Your car’s information. You will need to know the make, model, year, VIN (vehicle identification number), and mileage of your car.
- Proof of income. You will need proof of employment. Recent pay stubs are perfect for this.
- Proof of insurance. You will need to prove that your car is insured.
- Current loan information. You will need all of your current loan information, including the balance and the lender’s contact information.
After you have all of your documents together, you may want to scan and upload them on your computer if you are planning to apply online. The more prepared you are, the faster the refinancing process will be.
Make sure your credit is in good shape
Before you apply for auto loan refinance, you want to be sure that your credit score is in good shape. After all, the higher your credit score is, the lower your car loan APR will be. Request a copy of your credit report to check for any mistakes or errors and report anything that is incorrect. If your credit score isn’t great, consider waiting a few months and focus on increasing your score in that time.
Before you apply, you won't have any solid offers to compare. But you can do research on different lenders and see what their customers have to say about them. Are their customers happy with their loans? Is there good communication and customer service? Narrow down on three to five lenders, ideally a mix of traditional banks, online lenders, and credit unions.
Apply and compare
After you’ve done your research, it’s time to apply. If you use a company that specializes in auto loan refinance, they can help you through the application process and help you decide which offer is right for you. Look at the following terms in each offer:
- The interest rate
- The prepayment penalties
- Your cash flow and the repayment terms
- Customer satisfaction
- Hidden fees
Sign and save
Once you’ve decided on the auto loan refinance that is right for you, you can sign on the dotted line and start saving immediately. Most lenders and refinancing companies will take care of most of the paperwork for you. This involves paying off the balance of the old loan and beginning payments on the new loan. But be sure to reach out to the previous lender to ensure the loan was paid off in full.
At Auto Approve, we specialize in refinancing and know how much of a drag all of that paperwork can be. And that’s why we collect all of the documents you need and send them to you electronically. All you need to do is e-sign and let us handle the rest. We even handle the DMV paperwork for you!
How much money does it cost up front to refinance your car loan?
There are a few upfront costs associated with refinancing your car loan. They will vary from lender to lender and depend on not only your current loan’s terms, but also your new loan’s terms. Here are a few fees that you may be responsible for:
- Prepayment fee. Your current lender may charge you a fee for paying off your loan early. Read through your current loan’s paperwork to see how much this fee will cost you.
- Transaction Fee. Your current lender and new lender both may charge you a processing or transaction fee. You may be able to get this waived however (it doesn’t hurt to ask).
- Late Payment Fee. If the new loan takes some time to process, you may have a late payment on your existing loan, and there may be a fee associated with this.
- Registration Fee. You may be required to re-register your car when you refinance your car loan. This varies from state to state so be sure to visit your DMV to find out.
- Title Transfer Fee. States may also charge a title transfer fee, even though the title is just moving from one lender to another.
As everyone’s loans are different, it’s hard to say exactly how much the upfront costs of car refinancing are. It may be next to nothing, or it might be a few hundred dollars. But refinancing a car loan can save you a lot of money in the long run, so don’t let any short term costs dissuade you from auto loan refinance.
Is refinancing a car worth it?
Most people are overpaying on their car loan payments. And because of this, you can stand to save a lot of money with an auto loan refinance. Car loan refinancing may be right for you if any of the following apply to you.
Your credit score has improved
Car loan refinance rates depend heavily on the applicant’s credit score. So if your credit score has increased since you initially took out your loan, you may qualify for a lower interest rate. Credit scores indicate how likely a person is to repay their loan. A good credit score tells them that you are a good candidate who pays their bills and pays them on time.
Your credit score depends on the following categories:
- Payment History (35%)
- Accounts Owed (30%)
- Length of Credit History (15%)
- Credit Mix (10%)
- New Credit (10%)
If you have been more consistent with on time, full payments, your credit score may have increased since your initial financing. If you have paid down some of your debts and lowered your credit utilization ratio, this also may have increased your credit score significantly.
The interest rates are low
If market interest rates are low (like they are right now), you might be able to qualify for a lower car loan APR, even if your credit score hasn’t changed. Today’s market rates are down significantly from a few years ago, so if you initially financed a few years ago, you may find much better rates now.
You need help with monthly payments
If your monthly budget is a bit tight lately, refinancing your car loan can help you free up some money every month. Refinancing can help in a few ways. First off, if you can get a lower interest rate, you will pay less in interest every month and ultimately have lower monthly loan payments.
But even if you don’t qualify for a lower car loan APR, refinancing your car loan gives you the chance to change your repayment terms. And by lengthening your repayment period, you can change the amount you pay per month drastically. You may ultimately spend a bit more overall since you will be paying interest over a longer time period, but this might be worth it depending on your current cash flow situation.
You want to add or remove a co-borrower
There is no way to add or remove a co-borrower to an existing loan, so if you want to change who is listed on the loan, you will need to refinance your car loan. This is because every loan decision is made by looking specifically at each borrower’s financial situation, and changing who is listed as a co-borrower may affect their decision to loan the money.
There are a few fees that you may have to pay when you refinance your car loan, but it is usually greatly outweighed by the amount of money you can save.
While there are a few fees, they will depend on the terms of your current loan and the terms of your new loan. There might be application fees, registration fees, and penalty fees. But in general they are not much compared to the amount of money car refinancing can save you.
Refinancing a car loan doesn’t have to be complicated. Get started with Auto Approve today to discover just how much money you could be saving.