What is an auto refinance, and why would you want one, anyway? As with a home loan refinance, refinancing an auto loan means paying off your existing car loan with a new auto loan. If you are close to paying off your car loan, refinancing it may not be beneficial, but if you're short of cash and you have another couple of years to go before your car is paid off, an a refinance auto loan may help. Potential benefits of refinancing a vehicle loan include:
- Lower your auto loan interest rate and payments: It's worthwhile to check your auto loan rate against current rates; it may be possible to lower your interest rate and monthly payments. This can help you free up cash for other purposes such as paying off high cost consumer debt or easing your budget. Remember to deduct the cost of auto loan refinancing from potential savings gained by reducing the interest rate you currently pay.
- Improved credit scores: Sometimes things go wrong all at once. If you bought your vehicle when you were going through hard times, your credit rating may have improved enough so that you can qualify for a lower auto loan refinance rate. If a serious credit problem such as a bankruptcy or foreclosure has dropped off of your credit reports since you bought your vehicle, you may be pleasantly surprised current rates for refinancing your ride.
- Auto refinancing can help you keep your car: If you're having trouble making car payments, you can reduce the risk of vehicle repossession by refinancing your auto loan. Look into vehicle refinance rates before you miss any payments as past-due payments can limit your chances of qualifying for auto loan refinancing.
Before you start shopping for an auto loan refinance, there are a few things to keep in mind.
Things to Know Before You Refinance a Car Loan
- Beware of prepayment penalties: Check the terms of your existing auto loan to see if it carries a prepayment penalty. This is an additional amount that must be paid if you pay off your vehicle loan before the end of its term. Prepayment penalties can reduce or eliminate any benefits of an auto loan refinance.
- Considering a co-signer? Read this first: If you're having financial problems, auto refinance lenders may require a co-signer, who could ultimately be held liable if you fail to make payments on your auto refinance loan. The Consumer Financial Protection Bureau recommends careful consideration of the pros and cons of using a co-signer. While a parent, relative or close friend may be willing to co-sign on your vehicle refinance loan, it's important to consider what would happen to your relationship if you couldn't make payments. A co-signer may allow your lender to provide more favorable refinance terms and a lower rate.
- Auto refinance loans and auto title loans are two different products: Payday lenders and cash advance stores may offer "auto title loans." These are short-term loans secured by the title to your car. Short-term loans are given for a period of weeks or months as opposed to an auto refinance loan that may be offered for a period of years. Interest rates and fees are typically lower for refinancing an auto loan than for an auto title loan.
- Shop (lenders) until you drop: The Federal Trade Commission advises consumers to shop several lenders when financing a vehicle. Our network of auto finance lenders can help you find the right auto refinance loan for your needs.
Compare car refinance quotes and contact prospective lenders with questions. Don't be afraid to negotiate for better loan terms.