Summer is a great time to recharge and refresh with vacations, trips to the beach, and relaxing afternoons at home enjoying the beautiful weather. But it can also be a great time to check in with our finances and get a restart before the hustle and bustle of fall comes our way. If you have a car that is financed, you may be wondering if a car loan refinance will help you save some cash.
Car loan refinancing is when you get a new car loan that will replace your existing loan. Refinancing a loan will help you to get a better interest rate, change your repayment period, and change who is or is not a cosigner on the loan.
When you refinance your loan you will go through the same process as you did during your initial financing. You will research lenders, apply for a loan, and select the loan that has the best terms, conditions, and car loan interest rate. And that’s it! It’s incredibly simple, and there are companies out there like Auto Approve who can help you navigate the world of refinance and help you through the application process. When you select a loan that is right for you, your new lender will pay off your old loan directly and you will begin making payments to your new lender. And voila–your loan is refinanced and you can start saving money immediately.
There are a number of signs that the time is right to refinance your car loan. You should know the terms and conditions of your existing loan before you seek refinance, as this will help ensure that the new loan you get will be better.
The car loan APR that you are offered is very dependent on your credit score. In fact your credit score is the biggest factor that you have control over when it comes to securing a loan. The rate that you are offered will be based on what credit tier you are in. Your credit score will fall into one the following categories:
800 to 850: Excellent
740 to 799: Very good
670 to 739: Good
580 to 669: Fair
300 to 579: Poor
In general you will be offered a good car loan interest rate if your credit score is in the very good and excellent range. As your score decreases, the interest rate that you will be offered will increase.
Your credit score is based on five key factors in your personal finance: your payment history, credit utilization, length of credit history, credit mix, and new credit accounts. There are many reasons why your credit may have increased since your initial financing:
You paid off some debt.
You have been making consistent on time payments.
Your available credit increased.
You had a negative event expire.
And more.
Any improvement to your credit score can help save you a lot of money in interest, especially if it bumps you into a different category. But in general if there has been an increase to your credit score it is a good idea to think about car loan refinancing.
Another benefit of refinancing is that you can change your repayment period. There are two ways that this can help you: it can either save you money or it can buy you some breathing room in your monthly finances. If you shorten your repayment period you will be paying off your loan quicker and you will therefore spend less money overall on interest. This will make your monthly payments higher, but you will save money in the long run.
On the other hand, if you are having trouble making your payments every month, lengthening your repayment period will allow you to greatly reduce your monthly payments. Since you will be paying the loan off over a longer period, the principal will stretch out and easily cut your payment by hundreds per month. You should note that you will be paying more interest over the life of the loan, but this may be worth it if it can make your monthly budget work for you.
The refinance rate that you will be offered will be based in part on the current market rates. If the current rates are lower than they were when you initially financed your car, you may be offered a lower car loan refinance rate.
Sometimes we end up in bad relationships. Maybe you don’t like the customer service and have had a few too many bad interactions. Maybe they have hit you with fees and penalties that you do not find fair. Maybe they have been unresponsive and unhelpful. Whatever the reason is, refinancing your car loan can help you get out of a bad spot with your current lender.
If you want to add or remove a cosigner from your current loan, refinancing your loan is going to be your best option.
In order to refinance your loan you will need to have the following documents:
Proof of employment or income (a paycheck stub or tax return)
Proof of car insurance.
A valid driver’s license.
Proof of residence. This is required if your driver’s license and credit report address don’t match. A utility bill is usually sufficient for this.
Your car’s registration.
Your vehicle’s information: model, make, year and vehicle identification number (VIN)
Your current lender’s information and loan information, including the payoff amount.
A photo of your car’s odometer
Some lenders may require more information or paperwork, but these are the standard documents that most lenders will want.
So is now a good time for car loan refinance? It really depends on your situation. The current market rates are not particularly low right now, but that might not matter for you. The rates might still be lower than when you originally financed, and if your credit score increased then you might be eligible for a much better interest rate. If you are looking for some breathing room, refinancing to a longer repayment period can really help you out of a tight spot. The best thing you can do is to look at your finances and determine if you could benefit from car loan refinance.
Contact Auto Approve to find out how much money you could be saving!