If auto loan refinance has been on your mind, you are probably wondering about all the pros and cons. While you have heard that refinancing your car loan can save you a lot of money in the long run, what about the upfront costs? Does it cost money to get an auto loan refinance? And if so, is it worth it to refinance your car loan?
In this article, we'll take a closer look at refinancing and what you need to know to decide if refinancing your vehicle loan is right for you.
Is It a Good Idea To Apply For A Car Refinance?
Auto refinancing has a lot of benefits, but like everything, you should do your research and make sure it is the right decision for you. Let’s talk about the pros and cons of refinance (car, truck, SUV or motorcycle)
The Pros of Refinancing
There are a lot of pros to refinancing your car loan. The biggest of course is that it can save you a lot of money. By refinancing your car loan to a lower APR, you can save hundreds if not thousands of dollars over the life of your loan. You may qualify for a lower APR if your credit score has increased or if the market rates have decreased (market rates have dropped almost 2% in the past two years, so chances are the market rates are lower now than at your initial financing).
The Cons of Refinancing
While you can save a lot of money through auto refinance, you will be required to pay some upfront costs. 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 costs that you may be responsible for:
- Prepayment fee. Some lenders charge a fee for paying off your loan early. This should be outlined in your contract, and will vary greatly from deal to deal.
- Processing Fee. Both your current lender and new lender may charge you a processing fee.
- Registration Fee. You may be required to re-register your car when you refinance your car loan. This will depend on the state you live in.
- Title Transfer Fee. Some states may charge a title transfer fee, even though the title is just moving from one lender to another.
It’s hard to say exactly how much the upfront costs of car refinancing are. But refinancing a car loan can save you a lot of money in the long run, so it’s worth doing the math to see how much money you can save with an auto loan refinance.
When does it make sense to refinance your car?
If any of the following apply to you, it might be the perfect time to refinance your car.
- If your credit score has increased since your initial financing, you may qualify for a lower car loan APR.
- If your income has increased since your initial financing you may qualify for a lower car loan APR.
- If you got talked into a bad deal in the first place, you may find better terms.
- If the interest rates in general have dropped since you first took out the loan on your vehicle, you may find a lower car loan APR.
- If you want to add or remove a borrower to your policy you will need to refinance your car loan.
- If you need some extra cash every month, refinancing your car loan to a lower APR or lengthening your repayment period (or both) can reduce your monthly payments.
When does it not make sense to refinance your car?
If any of the following apply to you, it might not be the time to refinance your car.
- If your credit score has decreased, you might not qualify for a lower APR.
- If you have an old vehicle or a vehicle with high mileage, it might not qualify.
- If you owe more on your car than it is worth, you might not qualify.
- If you have less than a year left on your loan, you might not qualify.
If any of the above apply to you, it might make sense to wait to refinance.
Does Refinancing a Car Lower Your Credit Score?
There will be some upfront fees associated with your car refinance, but are there any other downsides to refinancing your car? The only other slight downside to refinancing is the slight ding that your credit score will take. But this ding is only temporary, and the benefits of refinancing will most likely far outweigh this. In fact, refinancing your car loan to a lower APR can help your credit in the long run if it helps you to manage your monthly payments more efficiently.
Car refinance will affect two main categories on your credit report: your history length and your new credit. Opening a new account will shorten your credit history length. It will also count as a new credit and the hard inquiries will be noted in your credit report.
Because of this, your credit score will most likely take a slight dip when you refinance, but car loan refinancing may still increase your credit score in the long run by making your payments more manageable. Adding in a car loan can also be beneficial to the credit mix category on your credit report.
What are the Best Car Refinance Companies?
So what should you take into consideration when looking at car refinance companies? As always, we recommend doing your research before jumping into any financial decisions. There are a lot of places where you can refinance your auto loan, including traditional banks, credit unions, online lenders, and dealerships. When looking into any of these options, take into consideration the following factors:
- Customer reviews/ customer satisfaction
- Average rates being offered
- Average fees that are charged
A great option for many people is to use a company that specializes in auto refinance, like Auto Approve. Since we know the refinance industry better than anyone else, we are equipped to guide you through the auto refinance process and answer any questions you may have along the way. We have relationships with lenders across the country, so we can get you the best deals and make the application process seamless. And when the offers start coming in, Auto Approve can help answer any questions and help you to make the best decision.
While it may cost money to refinance your car loan, it is probably still worth doing so.
We hope this answered your questions about auto refinance. To get more information on refinancing, or to find out just how much money you can save, get in touch with Auto Approve today!