You’ve done your research and you’ve decided that it’s definitely time for you to refinance your vehicle. Maybe your expenses every month are becoming a bit too high, or your credit has significantly improved in the past year or two. Either way you’re sold; auto refinance is for you. So how do you make sure you can get the best car refinance rate?
Like so much with refinancing, the more you know the better off you will be. Some diligent research and proactive measures can help you secure the best refinance rates around.
If you’ve been looking around at car refinancing, you have probably come across the terms APR and interest rate. But what is the difference between APR and interest rate?
Interest rate is the cost you pay each year to borrow money, expressed as a percentage. The APR, which stands for Annual Percentage Rate, is the interest rate plus any other fees associated with the loan. This includes any loan fees or interest that accumulates before your first payment.
Your APR is actually a much better gauge of what a loan will cost, as opposed to an interest rate. All lenders are required by the federal Truth in Lending Act (TILA) to disclose what the APR. This is the number that you want to compare when looking for the best refinancing rates.
Interest rates, which combined with additional fees make up the APRs, are determined by both market factors and personal finance factors.
Refinance rates depend in part on how the economy is performing. Interest rates are set by the Federal Open Market Committee (FOMC). Lowering interest rates is intended to encourage spending if they decide that spending needs to be encouraged.
After an unprecedented 2020-2021 economic season, interest rates are currently at historic lows. This is not expected to last for too long however, and many economists think that as the months go on the interest rates may start to steadily increase.
When you apply for credit, lenders will look at what is called the four c’s of credit. These are the considerations they will take when deciding to approve or reject your loan. They will also help dictate what your APR should be. The four c’s of credit are capacity, character, collateral, and capital. Let’s explore these terms.
Your credit score is the most important factor in your refinance rate. While there is no magic credit score to refinance, the higher your score is, the better rate you will secure. To ensure you can secure the best rate possible, look at the following factors:
Contact one, or all three, of the credit bureaus (Equifax, Experian, and TransUnion) and get your free credit report. You can get your report from each agency for free once per year. Review your report thoroughly and look at the following:
If you notice any inconsistencies with your report, you can contest the information and report it. Bureaus have 30 days to respond, so it may take some time to get a correct and accurate report. It is important to follow through however as the impact can be drastic.
This is a simple way to lower your credit utilization ratio, which makes up 30% of your credit score. The highest credit scores often use less than 7% of their available credit. This will quickly improve your credit score and as soon as it is reported for the month, you will see the increase on your credit score.
Contact your credit cards and see if you are eligible for higher limits. This will also help lower your credit utilization ratio, ultimately increasing your credit score. This will help your score very quickly, as soon as it is reported to the credit agencies.
When trying to increase your credit score, it may be tempting to stop using credit cards altogether to avoid accumulating more debt. It is better for your score to keep using your credit cards to make small purchases that you can pay off. If you can consistently pay off your monthly balances, it will improve your credit and make you a more desirable loan candidate.
Keep making on time payments to keep your credit score in good standing. Missed payments can quickly ding your score.
This is a quick and easy way to increase your credit score, especially if you do not have a long credit history. If a relative or good friend has an account that is in good standing and has a high credit limit, adding yourself as an authorized user will increase your credit. You don’t even need to use their credit card, you simply benefit from their good credit.
A secured card is a type of credit card that is backed by cash deposits. This is especially helpful for people who do not have a long credit history but need to establish one. It is used like a normal credit card, and if you consistently make on time payments it will improve your credit score.
Doing your homework is incredibly important when it comes to securing the best refinancing rates. This is where Auto Approve can swoop in and help you compare. The best refinance loans will have competitive APRs and low minimum loan amounts. Looking for a lender with a history of high customer satisfaction rating that is transparent and reliable is also important.
Once you have a healthy credit score, Auto Approve can help you with the next steps of shopping around, applying, and comparing the rates and terms. We are currently finding rates as low as 2.25%, and we would love nothing more than to pass these savings right on to you! And don’t worry, we never tack on additional fees to your rates. Contact us today to see how we can help you refinance your vehicle!