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How Are Auto Refinance Rates Different From New Car Loans?

Finance | 11/04/2021 23:00
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Are refinance rates different from the rates on new car loans other people are getting? It's a worthy question.

Everywhere you turn, it seems like people are talking about interest rates. Terms like “historically low” and “all time low” are being tossed around like confetti, and you definitely don’t want to miss out on whatever party is happening (especially if that party is about saving you some cash, right?). 

But wait – you already have an auto loan, so how can you benefit from all of this? The answer, of course, is refinancing.

Let’s take a look at the benefits of vehicle refinancing.

When you refinance a car, you start over with a new loan, and your interest rate can change drastically.

Is the process of refinancing the same as the process of applying for a new auto loan?

Refinancing is simply paying off your existing loan with a new loan. You are essentially just replacing one financing option with another. 

The new loan will ideally have a better rate or some other favorable features that make it more desirable than the original loan. You will still have to apply for the new loan, you will still be bound to a loan payment schedule, and you will still offer your vehicle as collateral.

The Application Process is the Same

When refinancing your car, you will need to do research and apply to different lenders, just as before. You will have to provide the same documentation as you did the first time. These documents usually include the following:

  • Photo ID. This can be a passport, driver’s license, or other government issued photo identification.

  • Your vehicle’s information. This often includes the bill of sale, VIN number, the make, model, and year of your car.

  • Proof of income and financial history. Lenders want to see that you are actively earning income. The lender will specify what documents they wish to see, but this often includes pay stubs, banking information, credit history, and other financial account information. This will verify that you are a strong candidate for a new loan and that you will be reliable with your repayment.

  • Proof of residence. Lenders need to verify where you actually live. This can be a mortgage statement, lease agreement, or utility bill. PO boxes are not acceptable as proof of residence.

  • Proof of insurance. Lenders will want to know that there is state-required insurance on the vehicle.

Think of these papers as your resume or online dating profile. You want to look as desirable as possible to the lenders you are pursuing. The more desirable you are, the more worthwhile refinancing will be.

Just like with your original application, you want to compare the different offers and see who offers the best terms overall. At Auto Approve, we'll help you compare all of your offers to ensure that you are getting the best deal possible.

The Loan Terms May Differ

After refinancing, you will still have an auto loan that you will need to make regular, scheduled payments on. Your payment schedule may change, however. Your schedule may be shorter, so that you can pay off your car faster. Your schedule may lengthen, making your monthly payments lower. Or, your payment schedule may stay the same. And your vehicle will ultimately serve as collateral for your loan, as it did with your original loan.

The main benefit of vehicle refinancing? The interest rate.

If you are simply changing from one loan to another, why bother refinancing a car? Why bother with that whole lengthy application process, the approval, and the possibility of rejection? The biggest, most important reason of course – money. You can save a boatload of money by changing your interest rate. 

The lower your interest rate, the less you pay in interest (duh) and the more money in your pocket at the end of each month.

There are many reasons your interest rate can change when you choose to refinance your vehicle. These reasons have to do with your personal credit, income, and job status, as well as the economy in general.

Increasing your credit score can result in a lower interest rate

Your credit score is the single biggest factor in your refinance rate. If your credit score has increased since your original loan, you may be eligible for a lower rate. The following factors can help contribute to a higher credit score:

  • History of on time payments

  • Low balances on credit cards

  • Older credit accounts that are in good standing

  • Having a good mix of credit card and loan accounts

  • A small amount of new credit inquires

If you have a history of late payments or carry high credit balances, these can negatively affect your credit score. If you have made a lot of new credit inquiries recently, this can also lower your credit score, so you will be better off waiting a year or so to apply for car refinancing.

It is generally recommended that you pull your credit report ahead of time and review it for any inconsistencies. It is free to pull your credit report from the three major agencies once per year without it negatively affecting your credit score. These agencies are Equifax, Experian, and TransUnion. If you come across anything that is incorrect, you can dispute it with the credit bureau and petition to have it removed from your report. 

An increase to your income or change in job can result in a lower interest rate

If your income has increased since your original loan, lenders may view you as being more financially stable and therefore offer you a lower interest rate. But the number on your paycheck isn’t the only factor that matters. Having a stable, salaried position may secure you a better rate than being self-employed or working as a freelance employee. These will all help you become more attractive for a vehicle refinance

A decrease in your debts can result in a lower interest rate

If you have less debt than you did when you originally got your loan, lenders may view you as being more financially stable. Decreasing the amount of money you owe in general can lead to lower interest rates.

The current economy is offering lower interest rates

Refinance rates depend in part on how healthy the economy is in general. Big banks adjust their target interest rates to respond to the economic climate. If the economy is strong, they tend to increase interest rates. If the economy is a bit sluggish, they lower interest rates to encourage spending. 

After the tumultuous 2020-2021 economic season, interest rates are currently at historic lows. However, many economists think that as the months go on, the interest rates may start to steadily increase. 

So, if you are wondering, “When is a good time to refinance a car loan?”, the answer might be right now.

And that's everything you need to know about refinance vs. new car rates

As you can see, there are many complicated factors that make up the interest rates for refinancing. It can feel overwhelming when there are so many different lenders to consider, all of which have different rates and terms to offer. 

That’s why, at Auto Approve, we work as your advocates, approaching different lenders to help you find the best rate and best terms available. When you refinance with Auto Approve, you can put more money back in your pocket for the things that matter, and we make the process quick and hassle-free – and never mark up your rate.


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*APR and Fees Disclosure: Auto Approve works to find you the best Annual Percentage Rate (APR), which is based on factors like your credit history, vehicle and desired payment terms. Fees to complete your loan refinance vary by state and lender; they generally include admin fees, doc fees, DMV and title. Advertised 6.24% APR based on: 2019 model year or newer vehicle, 730 minimum FICO credit score, and loan term up to 72 months. All loans subject to credit and lender approval.
Auto Approve has an A+ rating with the BBB and is located at 2860 Vicksburg Lane North Plymouth, MN 55447. Auto Approve works to find its customers the best terms and APR, which are based on factors like credit history, vehicle, and desired payment terms. Loan amounts, costs, and fees vary by state and lender; they generally include admin fees, doc fees, DMV, and title fees, depending on the lender and period of repayment. There is no fee to obtain a quote and all refinancing-related costs are included in the amount financed so there are no out-of-pocket costs! For more information, please go to AutoApprove.com.