Financing options can be tricky when you are looking to buy a car. Oftentimes, dealerships will offer you great deals, but only if you agree to their less-than-stellar financing. Or maybe you were cajoled into bad terms because your credit at the time wasn’t great, and you didn’t have another option. If you have found yourself in this situation, now might be the time to refinance.
If you don't have a great car loan interest rate, now might be a great time to refinance your car loan.
Reasons for Bad Financing Terms
There are many reasons you might not have a great interest rate on your new or used vehicle. Let’s review some of the reasons below.
A very common reason for bad financing terms is dealership financing. If you bought your car through a dealership, they almost certainly tried to convince you that dealer financing was a good choice. And why wouldn’t they? Dealerships are indirect lenders, which means they usually act as an inbetween for you and a bank or credit union. The financial institution handles the actual financing, while the dealership tacks on financing fees. They make money by coordinating and convincing you to participate in their financing. This is money coming directly out of your pocket.
If this happened to you, you should be able to refinance and get out of the agreement you are currently in. Now might be the best time to refinance your car. Many who have refinanced out of dealership loans save as much as $80 a month.
If you had so-so credit during your initial purchase and financing, you may have been subjected to a bad interest rate. When determining interest rates, lenders look at the 4 c’s of credit:
- Capacity- your ability to repay the loan
- Collateral- what you have that can repay the loan
- Capital- how much you are worth
- Credit- your credit score and payment history
Your credit score is affected by a combination of payment history, amounts owed, credit history length, credit mix, and new credit. If there have been changes to any of these categories, you may be eligible for a better rate. Check your credit score and see if it has improved since your initial loan.
Did you need to buy a car when the interest rates in the US were high across the board? As much as we try to prepare, we cannot control the external factors that affect our finances. If the interest rates were high when you originally purchased your car, now might be the best time to refinance your car.
Does refinancing a car hurt you?
There are a few ways that refinancing can hurt your credit or hurt your pocketbook. It is always a good idea to do the math and see how much refinancing will cost vs. how much it will save you. Here are some reasons that you should hold off on refinancing.
Look at your current loan and determine if there are prepayment penalties. Prepayment penalties are put in place by lenders to discourage paying the loans off early, as early payment results in less accrued interest, which results in the lenders making less money. The penalties will be listed in your loan agreement, but you can also call the lender to clarify.
It is important to hit a sweet spot in the timing of your car refinance. Experts suggest waiting six months to a year before refinancing, as it will take this amount of time for your credit score to rebound. But you also want to make sure that you refinance when there is at least two years left on your existing loan. Because auto loans are front-loaded interest bearing loans, you pay more interest the earlier it is in the loan. If you wait until there is only a year left on your loan, you won't be saving a lot in interest payments, as most of your money will go to the principle payments.
Your Car Isn’t in Great Condition
If your car has a lot of miles on it, or is worth less than what you owe on it, you probably won’t have luck refinancing right now.
Why Now Might Be the Right Time to Refinance
Many experts agree that right now might be the best time for many people to refinance their car loans. Here are some of the top reasons you should consider refinancing your car now.
It’s Time to Save
According to a SpendMeNot survey, 69% of adults have less than $1000 in savings. Moreover, a recent Credit Karma survey showed that most Americans don’t have even $400 in savings for an emergency. Small savings here and there can help many to start building their emergency funds.
The Rates are Great
The automotive website Edmunds is reporting the lowest interest rates in recent years, with some financial institutions offering rates of 2 to 3%. A Credit Karma study revealed that people who refinanced through them saved an average of $3,000, which meant people were saving about $55 per month. With the unpredictability of today’s economy, you should think about refinancing before the interest rates increase.
It’s Easier Than You Think
Car refinance sounds like a big undertaking. It seems to be a complicated, mysterious process with a lot of options to weigh. But it is actually much easier than you may think. Refinancing a car is much simpler than refinancing a mortgage, and can usually be done in a few hours. And if you use Auto Approve, we make this process seamlessly easy. All you need to do is fill out some basic information and we will shop around and get the best quotes for you to compare. We even handle the DMV!
With a 4.7 out of 5 rating on Trustpilot, our clients can testify to the ease and effectiveness of refinancing. One client noted “I was worried about refinancing because I have never been through the process. It was so seamless and I got a great outcome out of it all.” Some users report cutting their interest rates by as much as 6 points. At Auto Approve, we aim to make this process easy and save you money. Those are our two main goals, and our clients testimonials show that we get results.
With today’s low interest rates and Auto Approve’s easy application process, right now might be the best time for you to refinance your auto loan.
So what are you waiting for? Contact Auto Approve today to get started!