What are the real benefits of refinancing my auto loan?

Some borrowers may not feel the need to refinance their auto loan, but it can provide you with many benefits, especially if your credit was not perfect when you took out the loan.

Refinancing Can Save You Money

The biggest and brightest advantage of refinancing is that it can save you money every month by lowering your monthly payment. Refinancing can also give you the option of lowering your interest rate if you qualify. If you started your loan with a high interest rate due to bad credit, but your credit score is better now, you may be able to qualify for a lower rate.

Since most auto loans are simple interest, a lower interest rate means savings over the life of your auto loan as well as a lower monthly payment as your interest charges add up daily.

Here’s a quick example of how your interest rate affects your car loan and your wallet:

Car credit A:

  • $ 15,000 in capital
  • Loan term of 60 months
  • 13% interest rate

Monthly payment: $ 341.30

Total interest charges: $ 5,478

Auto loan B:

  • $ 15,000 in capital
  • Loan term of 60 months
  • 7% interest rate

Monthly payment: $ 297.02

Total interest charges: $ 2,821

This is a difference of $ 2,657 in the interest charges of alone change the interest rate on that loan and nothing else. Interest can add thousands of dollars to the total cost of auto financing. Therefore, if you qualify for a double-digit interest rate due to a lower credit rating, refinancing could save you a lot of money.

Keep in mind that you may only qualify for an extended loan, which won’t save you money if you don’t lower your interest rate at the same time. Extending the term of your loan reduces your monthly payment, but it does not benefit your portfolio in the long run.

How to qualify for refinancing

Refinancing works by paying off your current loan and replacing it with another on the same vehicle. To refinance your car, you must apply and qualify. You don’t have to stick with your current lending institution if you qualify elsewhere. Many borrowers look for another lender to refinance with while shopping for rates.

One of the requirements for refinancing a car is that your credit score is better than it was when you started your loan. Another common requirement is that you stay up to date on your payments. No missed payments and a better credit score are essential to increase your chances of approval.

The length of your loan is also important, as is the condition of your vehicle. Here are other requirements you may need to meet:

  • The car is less than 10 years old with less than 100,000 miles
  • You have had your loan for about a year
  • You don’t owe too much or too little (varies depending on the lender)
  • Your loan is not too close to being completed

Strategically and financially, it makes sense to apply for refinancing after about a year of having your auto loan. Some lenders are reluctant to approve a car loan for refinancing that is less than a year old or to approve loans that are nearing completion. You can also save the more money the sooner you refinance and get a lower interest rate since your interest charges add up daily.

Refinancing Isn’t the Right Way?

Refinancing your vehicle may not work for your situation. Whether you need something more affordable, are looking to jump into something new, or are trying to get a loan on better terms, swapping your car for something else can be your answer.

Many borrowers struggle to find auto financing due to their credit rating. Traditional auto lenders tend to prefer borrowers with good credit, and if your credit isn’t up to par, qualifying for a car loan is difficult. But here at Auto Express Credit, we want to help you get the connections you need for your credit situation.

We have built a nationwide network of dealerships that help borrowers with credit problems. Get started on your way to an auto loan by filling out our free auto loan application form, and we’ll find a dealership in your area with bad credit resources.

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