Car refinancing may seem simple. After all, you are just replacing one loan with another, right? Despite how simple it may seem, there are a lot of ways that it can actually go wrong. So today we are talking about the most common mistakes people make when refinancing their car loan and how you can avoid them.
Here are the top car loan refinancing mistakes and how you can avoid them.
What is car loan refinancing?
Car loan refinancing is when you replace your existing car loan with a new car loan, ideally one that has better terms and a better car loan APR. When you refinance, you apply for a loan as you did with your initial financing. When you secure your new loan, your new lender will pay off the old loan and you will no longer owe your original loan. You will be responsible for the remaining balance on the loan as well as whatever fees are outlined in your loan agreement.
There are many reasons why people choose to refinance their car loans. But the primary reason is that you can save a lot of money by doing so. Refinancing is popular for the following reasons:
- You can save money by refinancing to a lower APR.
- You can cut your monthly payments by refinance to a longer repayment period.
- You can save money over the life of your loan by shortening your repayment period.
- You can add a cosigner to help them build credit.
- You can add a cosigner and get a better APR due to their good credit history.
- You can remove a cosigner.
Refinancing your car loan can be incredibly beneficial, but it’s important to be prepared before applying for car loan refinance. Mistakes with car loan refinancing can cost you money, time, and can give you one big headache.
What are the most common mistakes people make when refinancing their car loan?
They don’t check the refinancing requirements first.
Before you apply for a car loan refinance you should be aware of the requirements (and if you qualify). Each lender will have different requirements about the age, condition, and mileage of the car, the balance remaining on your car loan, and the time remaining on your car loan. Be sure that you qualify before you waste your time applying.
They accept the first offer they receive.
A big mistake that many people make is accepting the first offer they receive. Just like with a lot of things in life, it’s important to shop around when you are refinancing your loan. You should aim to apply with 3-5 lenders when you refinance. This gives you wiggle room and allows you to compare rates and terms. You should consider applying with traditional banks, online lenders, and credit unions. When you apply, you should be sure to compare all of the following terms:
- The interest rate
- The prepayment penalties
- The repayment period
- The customer satisfaction ratings.
All of these factors are important when determining which car loan refinance is the best for you. Comparing your different offers is much easier when you use a company that specializes in car loan refinance, as they can help you apply and compare.
They refinance a car that is too expensive.
When refinancing a car loan you want to be sure that the car isn’t too expensive. You should know what the market value of your car is before you refinance, and compare that to the balance you have left on your loan. If you owe more on your car than your car is worth, your loan is considered underwater. This commonly happens if you did not put enough money as a down payment or have overextended yourself and are having trouble making monthly payments.
They do not check their credit score first.
Your credit score is the most important factor in the car loan APR you will be offered (at least the most important factor that you have control over). Before you consider refinancing your car loan you should check on your credit score and see how you are faring. Do you have excellent credit or great credit? You will most likely be approved and be offered a decent APR. But if your score is less than stellar you will most likely have a harder time getting approved and will be offered a higher APR than if you had excellent credit.
Before you apply, request a copy of your credit report. You can do this for free once per year at each of the major credit bureaus. When you get a copy, review it thoroughly for errors and determine if there are steps you can take to increase your score. Do you have a tendency of making late payments? Do you have a few accounts with high credit utilization ratios? Looking through your report can teach you where you should be working to improve. Then see what steps you can take to improve your score before you apply for refinancing. Can you request higher credit limits? Can you prioritize which debts you pay down first? Preparing your credit score for refining will make a world of difference and help you to secure the best car refinance possible.
They give up if their application is denied.
There are quite a few reasons why people may be denied the first time they apply for a car loan refinance. These reasons include:
- There were errors in the application
- You had a poor credit score
- You had a lot of debt
- You didn’t have a long credit history
While some of these may take more time to correct than others, they don’t mean that you should give up on your refinancing entirely. Lenders are required to tell you why you were rejected, so you will be able to take action and fix whatever the problem is.
A very common reason people are denied a car loan is that there were errors in the application. If you forget to fill out a section or fill out a section incorrectly you may be automatically denied a car loan. And while it can be discouraging, it’s always best to hunker down and redo your application, paying extra attention to every section.
If you were rejected due to a poor credit score or a lot of debt, try to improve these parts of your finances and reapply in a few months. It may take time, but it will be worth it.
If you were denied due to not having a long credit history, you have two options. You can wait and try to build more credit and get a longer credit history length, or you can ask a loved one to cosign. A cosigner can help get you qualify for a refinance and can help you secure a lower car interest rate. Make sure your cosigner is someone who you trust who has a good credit history.
How can I get the best car loan refinance?
If you are considering refinancing your car loan, here are our top tips for getting the best refinance possible.
- Do your research. Research which lenders you want to apply for refinancing with and what their requirements are.
- Prepare your finances. Get a copy of your credit report and determine how you can get your score in the best shape possible before applying for refinance. Fixing errors, paying down debts strategically, and requesting higher credit limits may all help to give your score the boost it needs.
- Consider a company that specializes in refinance. Using a company that specializes in car loan refinance can save you a lot of time, hassle, and stress. Refinancing companies like Auto Approve know how to shop around and compare to get you the best car loan refinance possible.
- Know what your current loan looks like. It’s a great idea to review your current loan thoroughly before you apply for refinance. You should know what your APR is, the balance that is remaining, and what prepayment penalties and/or fees there might be. This will help you determine what your refinance loan should look like.
- Gather your information ahead of time. It can save you a big headache if you gather your information ahead of time. You will need identification, pay stubs, proof of insurance, proof of residency, and your loan information to apply with most lenders.
Preparing yourself and your finances for car loan refinancing will help ensure that you get the best deal possible.
Those are the biggest car refinancing mistakes people make and how you can avoid them.
Mistakes happen, but when mistakes happen in your car loan refinancing it can cost you.
Car refinancing is simple when you use a company that specializes in refinancing. At Auto Approve, it’s what we do. We have relationships with lenders across the country so we can get you the most competitive deals and rates. We can also help guide you through the process of refinancing so that it’s as easy as can be.
So don’t wait to save. Contact Auto Approve today to get started!