The short answer is yes—you can refinance your car loan. If interest rates have dropped since you took out your car loan or you now have a better credit score, then you can refinance to a lower rate. This will not only lower your monthly car payment but also reduce the amount you pay in interest over the life of the loan.
Full Answer
Should I refinance my auto loan at a lower rate?
You need lower monthly payments. In some cases, refinancing a car loan may be your ticket to a more affordable payment, with or without a lower interest rate. If your budget is tight and you need to reduce your car payment, you could refinance your loan to a longer term. But while your monthly payment will be lower, expect to pay more in interest.
Should you ever refinance a car loan?
When to Refinance Your Car Loan
- Your credit score has improved dramatically since you bought the car. ...
- Interest rates have fallen since you originally financed the vehicle. Your credit score may be roughly the same as it was several years ago. ...
- You want to pay off your car fast. ...
- You need a more affordable monthly payment. ...
How can auto loan refinancing save you money?
How to refinance a car loan in 5 steps
- Decide if refinancing makes sense for you. Refinancing your auto loan should reduce your monthly payment or lower the overall amount you pay in interest.
- Check your credit. Lenders rely heavily on your credit report and credit score when approving a loan and determining an interest rate.
- Gather relevant documents. ...
- Ask the right questions. ...
When should you refinance your auto loan?
• When you have less than two years left on the life of your loan. Refinancing your auto loan makes the most sense when you have two or more years left on your original loan. This is because auto loans are often structured so that more interest is paid in the beginning years of a loan, reducing the amount you’d save from a refinance.
Is refinancing a car worth it?
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
When should you refinance your car loan?
While technically you could refinance your car as soon as you buy it, it's best to wait at least six months to a year to give your credit score time to recover after taking out the first car loan, build up a payment history and catch up on any depreciation that occurred when you purchased.
Does refinancing a car hurt your credit?
Refinancing a car can save you money on interest or give you a lower payment and some breathing room in your budget. When you refinance a car loan, it could temporarily ding your credit score, but it's unlikely to hurt your credit in the long run.
Is it better to refinance a car or pay it off early?
In general, you should pay off your car loan early if you don't have other high-interest debt or pressing expenses to worry about. However, if that money could be better spent elsewhere, paying off your car loan early may not be the best choice.
What are the disadvantages of refinancing a car loan?
The downsides to auto loan refinancing can include fees, additional interest if you extend the term or cash out equity, and the risk of owing more than the car is worth.
What is a good interest rate for a car?
The average auto loan rate is 4.07% for new cars and 8.62% for used cars, but shop around to get the best deal....Average car loan interest rates.Credit scoreAverage APR, new carAverage APR, used carPrime: 661-780.3.56%.5.58%.Nonprime: 601-660.6.70%.10.48%.Subprime: 501-600.10.87%.17.29%.3 more rows
How much will refinancing my car drop my credit?
about 5-10 pointsRefinancing affects your credit score is because the lender conducts a hard inquiry on your credit report, which will decrease credit score about 5-10 points.
What happens to my old car loan when I refinance?
In most states, your current lender gets to keep your car's title while you're paying off the loan. So, since you're transferring lenders, you'll also need to make sure the title gets transferred over too. Again, many lenders or lending platforms will do this automatically for you, including Upstart.
Does refinancing a car add years?
Refinancing might allow you to extend the duration of your loan, thereby lowering your monthly payments. 3 For instance, if you owe two more years on your current loan, it may be possible to refinance and extend the term to four years.
Can you pay off a 72 month car loan early?
Some lenders charge a penalty for paying off a car loan early. The lender makes money from the interest you pay on your loan each month. Repaying a loan early usually means you won't pay any more interest, but there could be an early prepayment fee.
How does refinancing work on a car?
Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly.
Can I refinance my car with the same lender?
You may be wondering, “Can I refinance my car with the same lender?” For many lenders, the answer is yes. However, you must make sure that you review your refinancing options to ensure that you get the best loan terms for you.
How can I lower my car payments without refinancing?
3 ways to lower your car payment without refinancingRequest a loan modification. Contact the lender to explain that you are struggling to stay afloat financially and risk falling behind on your auto loan payments. ... Trade it in for a less expensive car. ... Sell privately and buy a less expensive car. ... Learn more.
What credit score is needed to refinance a car with Capital One?
Applicants with a credit score of at least 540 and up to 850 may be eligible for Capital One Auto Refinance. The minimum age to be eligible is 18 or the state minimum, whichever is higher. To qualify for auto loan refinancing with Capital One Auto Refinance, applicants need a minimum annual income of $18,000 or higher.
How can I lower my interest rate on my car loan?
Other Ways to Reduce Your Auto Loan Interest RateMake a larger down payment. The more you borrow from a lender, the more it stands to lose if you default on your payments. ... Reduce the sales price. Again, the less money you borrow, the less of a risk you pose to lenders. ... Opt for a shorter repayment term. ... Get a cosigner.
How does refinancing work on a car?
Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly.
Why refinance a car loan?
People generally refinance their auto loans to save money, as refinancing could score you a lower interest rate. As a result, it could decrease your monthly payments and free up cash for other financial obligations.
How do I determine my auto loan rate?
Lenders can use a number of factors to decide your auto loan rate, including your credit scores and debt-to-income (DTI) ratio, which is calculated by dividing your monthly income by your monthly debt payments.
When should you hold off on refinancing?
Refinancing a car can save you money, but it’s not always the best option. You may want to hold off on refinancing if any of these scenarios apply to you.
How much will interest rate drop after taking out auto loan?
Interest rates change regularly, so there’s a possibility that rates have fallen since you took out your original auto loan. Even a drop of 2 or 3 percentage points may result in significant savings over the life of your loan.
What fees are included in a refinance?
You’re also likely to incur refinance fees. These can include lien holder and state re-registration fees. While they’re not enormously expensive, it might be a good idea to see if you can afford these fees before you refinance.
What does it mean when interest is front loaded?
Interest is often front-loaded, meaning you pay more of it off in the beginning. The longer you wait to refinance, the less you may be able to save on interest.
Does refinancing a car loan help?
Refinancing a car loan could help you save money in the long run. Give it extra-serious thought if your financial situation has improved or interest rates have dropped since you took out your current loan. Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions.
What are the benefits of refinancing a car?
The benefits of refinancing your car loan can include lowering your monthly car payment, reducing the interest you pay or shortening your loan term.
Can you refinance a car upside down?
Refinancing to extend your term or taking cash out of your equity could leave you owing more than what your car is worth, referred to as being upside-down on your loan. If you decide to sell or trade in your car, you would have to pay the lender the difference, which could amount to thousands of dollars.
Does refinancing a car reduce your monthly payments?
Refinancing can reduce a monthly car payment that’s too large for your budget. A lower payment can free up funds to pay off other, higher-rate debt. It can also help you through times of financial difficulty, like a sudden drop in income.
Do refinancing loans pay interest?
Most borrowers who refinance will pay less in interest, pay no fees and get out of debt more quickly — but those results aren’t guaranteed.
Does refinancing lower your interest rate?
Refinancing to a lower interest rate will lower your payment some, and can help you avoid falling behind on payments. But to see a significant payment reduction, you will need to extend the term of your loan, which will probably mean paying more in interest over the life of the loan.
When is auto loan refinancing not worth it?
If you have an older vehicle and are pretty far along in the payments, auto loan refinancing may not be the best option for you. You may have already paid off most of your original loan, which means it may not make financial sense, because most interest is front-loaded. When you get down to your later payments, you are working more on principle.
Why refinance a car loan?
One of the best reasons to refinance a car loan is to lower your interest rate and save on the total interest paid. The interest rate can also make a big difference in the amount of your monthly payment. Lowering your interest rate by a small amount can mean significant savings over the life of the auto loan. It may also mean a lower monthly payment if you keep the term as-is.
How to find a low interest rate on a car loan?
Shop around to compare rates and find a lender you trust that offers a low-interest auto loan rate. Be sure to check out Choice One Community Credit Union or your local credit union. Choice One Community Credit Union always offers low loan rates and flexible terms for auto loan refinancing. Lock in a rate quote with the lenders you shop. In addition to APR, compare term, payment amounts, fees, and penalties. Don’t forget to ask about fees. Some lenders may have them, some may not. You won’t know until you ask. Use Choice One Community Credit Union’s handy auto loan calculator for rate comparison between lenders. When comparison shopping, you may find your original auto loan financing wasn’t such a great deal.
How to lower car payment?
If you’re looking to lower your payment, finding a lower interest rate is the first step. If it’s a significant monthly saving you’re after, you may be able to extend the term out longer than your current loan. This will help with lowering your monthly payment even more. Keep in mind that extending your term may actually increase the total interest on the loan and you may eventually end up owing more than the car is actually worth. This happens as the vehicle depreciates in value. It’s referred to as being underwater on your loan. The best-case scenario is that you find a low enough interest rate that enables you to lower your term a bit and in-turn still lower your payment. This will save you even more on total interest.
Does credit score affect auto refinancing?
Your credit score will also have a determining factor in the auto loan refinance rate for which you are approved. If your credit score has improved since applying for your existing loan, you may be eligible for a lower rate. Pre-payment penalties are another consideration when determining whether or not auto loan refinancing is worth it. There may be an early payoff penalty or termination fee on your existing loan. Check to see if refinancing will cost you and figure it into your overall savings determination.
How much is a 20,000 car loan?
A $20,000, 6-year car loan at a 10.4% rate equals monthly payments of about $375. After two years, the balance on the loan would be $14,657; but the consumer would still be facing $18,000 worth of payments ($375 for the next 48 months).
Why are subprime loans longer?
Longer loans mean lower monthly payments, of course, but also higher borrowing costs. Because subprime loan rates often come with double-digit interest rates , the financing costs can really add up. Seven years is a long time to be paying that much to borrow money.
How long is a subprime loan?
Also, the old 5-year, 60-month auto loan standard is so 20th Century. Ford recently joined several of its competitors in offering an 84-month loan to dealers around the country. In fact, loans lasting 73-84 months now make up 29% of the market. (Experian reports that the average subprime new car loan lasts 72 months. )
Why are cars so popular in 2015?
This is partly because borrowing money to buy cars keeps getting easier. Longer terms, lower credit score requirements, and persistently low interest rates keep enticing Americans to buy new wheels.
How much is a 7% drop in interest?
Roughing out the subprime-to-prime example above: a 7% drop is worth $35 (times 1.5 because the balance is about $15,000) and there would be a bit more than $50 in monthly savings. But if the drop is from a 4% rate to a 3% rate, the savings probably wouldn’t be more than enough to buy you an extra tank of gas each year (depending on gas prices, of course).
Does Google auto refinance include a fee?
Call the bank where you have your checking account; the bank will probably have a simple auto loan refinancing offer, which may not even include a fee.
Is it better to refinance a car loan or refinance a mortgage?
In fact, getting a better deal on your old car loan is a lot easier than refinancing a mortgage. While it may not be worth the trouble for consumers with good credit who got decent financing when they bought their car, other drivers could see big savings by refinancing.
When should you consider refinancing your car?
Refinancing a car isn't for everyone and deciding when to refinance can be challenging. The benefits of refinancing might be limited or non-existent in certain instances. For example, if you have a poor payment history on your current loan or are close to paying it off, it may not be to your advantage to refinance.
What does refinancing a car mean?
Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly. Still, there are things to consider before taking the plunge.
What happens if you refinance a car with a low credit score?
If you financed your car with a low credit score, refinancing your car could get you a better interest rate or even reduce your monthly payment
Is it a good idea to refinance a car?
Refinancing can be a great way to put a little money back in your pocket if you find the right lender. If you want to learn how to refinance your car or if a new loan is right for you, Chase Auto offers the tips and advice you need to get started.
Does a higher credit score mean lower interest rates?
A higher credit score typically translates into lower interest rates . Keep an eye on your credit, as it may have improved over time.
Can you owe more than your car is worth?
You owe more than your car is worth : Securing favorable loan terms could prove problematic if the balance on your loan is greater than the value of your vehicle .
Does Chase offer refinancing?
Although Chase doesn't offer refinancing, we'll cover the steps below so you can see if it's the right choice for you.
