The simple answer is yes! Refinancing does save you money on your car loan, depending on how you choose to refinance your car loan. Let’s learn how refinancing works and about all the must-knows regarding refinancing.
How refinancing saves you money
As refinancing can save you money on your car loan; the best part of the refinancing is that you can refinance in two methods:
- By increasing the loan term
- By decreasing the interest rate
You can also find a new lender for refinancing or stick to your previous one.
Refinancing is a process that allows you to replace your original loan with another one that offers terms that are ideal for current financial conditions. Your new lender pays off the previous loan balance on your behalf, and then you start to finance your vehicle.
If you increase the loan term, it will lower each month’s payment because you will pay for a longer time. But it would result in enhanced interest charges over the lifetime of your loan. On the other hand, if you decrease the interest rate, you lower the monthly payments.
Borrowers also have the option to refinance in both ways. But for this purpose, you have to fit the specific set of requirements as proposed by the lender.
Requirements for refinancing a car loan
Depending on each lender, the requirements vary. But most lenders have the same qualification criteria that need to be filled. Here are the most common set of requirements. You must be fulfilling these:
- You have a one-year-old car loan. Lenders are most likely to reject refinancing your loan if it’s less than a year old. The reason is that in such a short time, the payment history isn’t established.
- You are actively paying monthly payments. Lenders also don’t refinance the car loan if you have missed any monthly payment from the previous loan. Besides, not being up-to-date with monthly payments also leaves a rough impression on the lender.
- You have a good credit score. Having a good credit score is a must for refinancing. However, you can take out an original car loan with bad credit also. But if your credit score has progressed within the year, you may end up refinancing your loan.
- Your vehicle is fit. You must have a car with a mileage of fewer than 100 000 miles, and it should be less than 10 years old as well. Or else many lenders refuse to refinance.
- You have equity in your vehicle. Lenders will never refinance your car loan if the car has negative equity. It is being upside down on your car loan. However, the only way to fix it is by waiting and paying off the previous loan balance.
- Your loan balance is not too much. This factor largely depends on your lender’s preference. If they are willing to give out a large loan, then they may help you in refinancing. Most lenders have set a maximum and minimum limit for refinancing, so definitely check it out before proceeding.
If you fail to fit in these basic sets of requirements then sadly, you can’t refinance right now. Some ways would help increase your chances of qualifying for refinancing. They are: patient, improving your credit score, and paying monthly payments on time.
Once again, all lenders and conditions are changing. Take some work on the things mentioned above, and you’ll find the right lender for yourself real soon. In addition, rate shopping is time-consuming as well. However, if you wish to lower your monthly payment, consider talking with a bunch of lenders. They may be helpful and offer you suitable deals.
Can’t refinance? This is what you can
If your vehicle’s current situation doesn’t allow you to refinance right away, consider trading in your car. It would remove the problem of paying payments every month.
We have teamed with a skillful and reliable network of dealerships all around the nation. We, at CarLoanRefianncing, also work with subprime lenders, who actively help credit-challenged borrowers. With us, nothing can stop you from refinancing or trading in a car.