Dos and Don'ts To Refinance A Car Loan
There’s a lot of information out there when it comes to refinance. Car loan refinancing doesn’t have to be complicated though! Today we are talking all about the dos and don’ts of refinancing and answering all of your questions.
How To Prepare For An Auto Refinance
Before you commit to auto refinance, there are a few things you should do to prepare, and a few things you shouldn’t do. So let’s talk about the dos and the don’t of auto refinancing!
Do: Wait at Least 6 Months
Refinancing your car is all about timing. Experts recommend waiting 6 months to a year before refinancing your loan. This will give you the chance to make consistent, on time payments to your lender, which will make your future lender more confident in your repayment ability. This will help your credit score. It will also give your credit score a chance to bounce back after the initial hard inquiry of your first financing request.
Don’t: Wait Until There’s Less than a Year Left On Your Loan
You don’t want to wait too long however to refinance your car loan. Car loans are front loaded amortized loans. This means that in the beginning of your loan, most of your payment is being applied to the interest of the loan. As your repayment period progresses, you will pay more and more towards your principal. By the last year of your repayment, most of your monthly payments are applied to the principal.
When you refinance, the goal is to save money by reducing the amount of interest. So the earlier you refinance your car, the more money you will be able to save in overall interest. So don’t wait until your loan is nearing its end to refinance your car loan.
Do: Make Sure Your Car is Eligible
Before you get too deep into researching your car loan refinance, make sure your car is eligible. If your car is older than ten years, or has more than 100,000 miles on it, it may not be eligible to refinance.
Don’t: Apply to Refinance if Your Loan is Underwater
Unfortunately, if your current loan is underwater (meaning that you owe more on your car than your car is worth) you will have a very difficult time trying to refinance. If your loan is underwater, check out our tips here on how to get out of your current loan.
Do: Check Your Credit Score and Credit Report
Before you apply to refinance your car, you want to make sure your credit score is looking good. Check your score and get a copy of your credit report. You can get a copy of your credit report for free three times per year (once from each of the major credit bureaus). Look for any discrepancies in your report – this could include missing payments, inaccurate credit amounts, or mistakes in your personal information. If you notice any problems, contact the credit bureau immediately to dispute.
If your score could use a boost, check out our tips on increasing your credit score.
Don’t: Spread Out Your Applications
When you apply for financing, it will trigger an inquiry on your credit report. This inquiry counts against you on your credit report, but only for about a year. But multiple hard inquiries can add up and drag your score down. The credit bureaus know that this can make it difficult to apply to different lenders, so they allow a window of fourteen days where all hits will count as one hard credit inquiry. So don’t spread out your applications over a span of a month or two – better yet, use a company that specializes in auto refinance, like Auto Approve. They will apply to different lenders in a short period of time so you can compare quotes easily.
Do: Keep an Eye on Market Rates
The interest rate that you are offered will depend somewhat on the market rates. Right now, market rates are still low. It is a great time to think about refinancing your car loan before the rates increase (and the Federal Reserve has already announced that rates will be increasing this year). If your car loan is a few years old, chances are you can get a better interest rate now than you got initially.
Don’t: Wait
Refinancing is about striking when the iron is hot. And right now, the iron is red hot. Don’t wait and put off refinancing if you believe that rates will get lower in the near future. There’s more than a good chance that they will not. Instead, get your ducks in a row and apply for refinancing sooner rather than later.
Do: Read Your Current Contract Carefully for Penalties
Be sure to read the fine print in your current loan agreement. Are there penalties for paying off your loan early? Sometimes these fees can add up to a lot of money.
Don’t: Skip the Math
If there are prepayment penalties, it’s important to sit down and do the math. Will refinancing be worth it? Calculate how much you can save with a lower interest rate or shorter payment schedule (or both!) and see if the savings will outweigh the penalties.
Do: Shop Around for the Best Rates
Like everything else in life, it pays to shop around. The only catch is that you will often need to formally apply for refinancing to get offers to compare. Look around online for different credit unions, traditional banks, and online lenders. Look through average rate offers and customer satisfaction ratings to pick 3-5 lenders. Then apply to all of those lenders (within fourteen days) and compare the offers that come back.
Don’t: Rush into a Deal
Don’t simply accept the first offer that rolls in. Make sure you get all of your offers together and find the deal that is right for you. Be sure to think about the following when making your decision:
- What is the interest rate being offered?
- What is the repayment period?
- Are there prepayment penalties? (Remember: there is no limit to the amount of times that you can refinance, so make sure you don’t agree to prepayment terms that you may regret in the future.)
- Does the lender have good customer reviews?
You want to take your time and compare all of these factors before signing any dotted lines.
Refinance Your Auto Loan The Right Way
Following our tips above will help ensure that you refinance your auto loan the right way. But how do you know the time is right to refinance? Auto loan should be considered if any of the following applies to you:
- Your credit score has improved. If your credit score has improved, you will most likely be eligible for a better car loan interest rate, which can save you a lot of money in the long run.
- The market rates have improved. If your loan is a few years old, there’s a good chance the market rates have decreased since your initial loan. This can get you a lower car loan interest rate and, again, save you a lot of money in the long run.
- You need more breathing room in your monthly budget. If your monthly budget is a little tight, refinancing your car loan can allow you to change your repayment period. By lengthening your repayment period, you can reduce your monthly payments significantly and get you some extra breathing room every month.
- You need to add or remove a cosigner. The only way to add or remove a cosigner from your existing loan is to refinance.
If any of the above apply to you, refinancing your auto loan is probably a good idea. After all, the sooner you get your loan refinanced, the sooner you will start saving money. Auto Approve knows how important timing is when it comes to refinancing, which is why we make the refinancing process as quick and easy as possible (we even handle all of the paperwork!)
Find The Best Auto Loan Refinance For You
There’s a lot to think about when choosing a refinancing company. Believe us, we know how overwhelming it can be, not to mention time consuming. So how do you find the best auto loan refinance companies?
The answer is easy. Use a company that specializes in auto refinance! At Auto Approve, auto refinance is our passion. We know the ins and outs of the application processes and we know what lenders want to see to make the best offers possible. We have relationships with some of the most trusted lenders in the business, and we use those relationships to secure you the best loan terms possible.
But don’t just take our word for it. We have nearly 2,000 five star reviews on TrustPilot (and more reviews are rolling in every day!) and an A+ rating with the Better Business Bureau.
And those are the dos and don’ts of refinancing your car loan.
So what are you waiting for? Get a free, instant quote from Auto Approve today to get started on your auto loan refinance!