Save money by refinancing your auto loan
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Caribou (formerly MotoRefi) had the lowest average APR on closed auto refinance loans for prime and midprime credit borrowers (FICO 620+) on the LendingTree platform. Caribou matches borrowers with a network of regional and national lenders, including many credit unions, and accepts FICO Scores in the 500s, but the lowest rates tend to go to those with the strongest credit.
There are a couple of downsides: For one, Caribou charges a $399 fee, which can be rolled into your new refinance car loan. In addition, its loans are not available to borrowers in Massachusetts, Maryland, Mississippi, Nebraska, Nevada, Wisconsin and West Virginia.
Starting APR:
2.32%
Terms:
24 – 84 months
Amounts:
$10,000 – $100,000
iLending offered the lowest average auto loan refinance APR for borrowers with subprime credit (FICO 619-). Its lowest starting rate is competitive, too, at 2.14% APR. When you apply, a personal consultant is assigned to you and will guide you through the auto refinance process, going over all of your options and assisting you with the paperwork. Here are more lenders that specialize in bad credit car loans, if you’re curious.
Starting APR:
2.14%
Terms:
36 – 84 months
Amounts:
$7,500+
While Auto Approve does not have the lowest starting rate, it offered the lowest average APR on closed loans overall, making it the most popular choice for car refinance in the first half of 2021 on the LendingTree platform. The company performs a soft credit pull when you apply to show potential refinance offers from lenders. Once you choose an offer, that lender will do a hard credit pull to provide an official offer for your approval.
Auto Approve doesn’t charge an application fee and you could refinance a motorcycle, boat, RV or ATV with Auto Approve, in addition to passenger vehicles.
Starting APR:
2.94%
Terms:
12 – 120 months
Amounts:
$8,000 – $150,000+
RefiJet consistently offered some of the lowest average APR for borrowers on the LendingTree platform. Its minimum credit requirement is a FICO Score of 500 and it charges a $395 fee. Like others on this list, RefiJet matches borrowers with lenders in its network. The first step to refinance your car loan with them is to talk with a loan consultant, who guides you through the auto refinance process. RefiJet has won a few awards from LendingTree for customer satisfaction. It also offers prequalification and the possibility of no payments for the first two months of your refinance loan.
Starting APR:
2.49%
Terms:
24 – 84 months
Amounts:
Starting at $5,000+
While other lenders often put limits on the age and mileage of a vehicle they’re willing to refinance, LightStream does not. That’s because LightStream’s auto loans are unsecured personal loans, which means its loans are more flexible, but also require borrowers to have strong credit. LightStream is the online lending arm of Truist, the bank that emerged when BB&T and SunTrust Bank combined in 2019.
*Payment example: Monthly payments for a $10,000 loan at 3.99% APR with a term of 3 years would result in 36 monthly payments of $295.20.
Starting APR:
5.99% (with AutoPay)
Terms:
24 – 84 months*
Amounts:
$5,000 – $100,000
When you refinance an auto loan, you’re taking out a new loan and using it to pay off your existing loan. In other words, you want to make sure that the new loan is a better deal than the one you have now. When comparing offers from various auto refinance companies, as well as those from your own bank, credit union or online lender, focus on how much you’ll end up paying throughout the life of the loan. It’s not enough to look at just the monthly payment, as that may not be not the best indicator of your best deal. Sure, an auto refinance company may offer you a low monthly payment — but you may not get your best deal if its interest rate is higher and it charges other types of fees. Here’s what to look for in an auto refinance loan:
The APR, or annual percentage rate, is what it costs you each year to borrow money. This includes the interest rate and any fees. The lower the APR, the less you’ll pay over the duration of the loan. In order to get your best deal on your refinance loan, you’ll want to find a company that offers a lower APR than the one you currently have.
You may need to pay fees to the lender so you can refinance your loan. These fees can include state registration fees, vehicle title fees and document preparation fees. Fees set by your local or state government are nonnegotiable, but ones set by the lender might be. When comparing lenders, you’ll want to find one that charges the fewest fees, as these can add to the overall cost of your loan. Even if you find a lender that offers a low interest rate but has high fees, it may not make sense to refinance with them.
This can determine whether you’re eligible for a refinance loan. For example, if you owe $4,500 on your car but the refinance lender has a minimum loan requirement of $5,000, the deal is a no-go. Some lenders may also set a cap on your vehicle’s value or its condition. For example, they may require that your vehicle is seven years old or newer.
“Upside down” loans, where you owe more than what the car is worth, may be reason enough for disqualification, too. If this is the case, you’ll want to find a lender that is willing to loan you more than the value of your car.
Many of the best auto refinance companies will offer a variety of loan repayment terms. This can help you either pay off the loan more quickly or give you some breathing room in your budget, depending on your refinance goals. If you’re looking to save as much money as you can, you could refinance your current loan for a shorter term. If you need a lower monthly payment, you could instead extend the term. You may pay more interest in the long run this way, but if you can find a company with a lower APR, it’s possible to still save money overall.
Finding a reputable company is crucial, as you don’t want to be caught in a tough situation. If a lender isn’t truthful, you could find yourself paying more than you bargained for with your auto refinance. A reputable company will make sure to explain exactly what you’re getting into, including how much interest (or applicable fees) you’ll need to pay, and what happens if you fall behind on your payments.
The Truth in Lending Act states that lenders need to give you a written disclosure of all important terms of your loan agreement. A reputable lender will take the time to walk you through the document. If a lender isn’t willing to answer your questions, it could be a sign they’re not the best one for you.
Be wary of companies that try to pressure you into a signing for a loan or any extra products such as credit insurance. Remember, once you sign your name on the dotted line, you’re legally obligated to follow the terms of that loan.
Record-high loan amounts in 2020 led to record-high payments, according to Experian. Nearly 5% of auto loans are more than 90 days delinquent, per the Federal Reserve, with delinquency rates on the rise since 2013.
If you’re having a hard time keeping up with your car payments, you might have considered refinancing your auto loan. In most cases, people refinance their auto loans for a few common reasons:
Refinancing a car isn’t the best choice for everyone, so you’ll need to carefully consider your current situation and whether a refinance can benefit you.
Before refinancing your auto loan, look through the benefits to see if a refi might benefit you:
You could save money over time
If you can get approved for a lower interest rate with shorter terms, it could help you save a significant amount of money. For example, you were stuck with a high-interest loan because your credit was mediocre before. If your credit score has improved, you may be able to find a better deal now. Even if you keep the same repayment term, you could find yourself paying a lot less interest throughout your loan.
You could lower your payment
Refinancing for a longer term can help you lower your monthly payment, freeing up much needed cash for other things. However, the downside is that you’ll pay more in interest over time by dragging out your payments. For that reason, try to negotiate a lower APR if you can.
Interest rates have dropped
If interest rates in general have gone down since you took out your original loan, refinancing could be worth considering.If you can get better rates
If your credit score has improved or your DTI (debt-to-income) ratio has decreased, you may qualify for better terms on a refinance.You didn’t get a good deal on your current loan
If you had to settle for a less than favorable APR the first time, it might be worth looking around, even if your financial situation hasn’t changed. For example, the local car dealer bumped up your rate and you didn’t find out until you signed the loan papers.You’re struggling with paying the bills
Rather than risk defaulting on your loan, try to negotiate your current loan or refinance to a new one. Your monthly payments could be lower, giving you some breathing room.Your car is too old or has a lot of miles on it
Many lenders won't refinance an auto loan if your car is too old or has too many miles. For example, some lenders won’t even look at your loan application if your car is more than 10 years old or has 100,000 miles on the odometer. In this case, you may be stuck with your current loan.You’re almost done paying off your loan
The longer you wait to refinance your loan, the less likely you’ll be able to save on interest. That’s because you pay off more interest at the beginning of your loan. By the end of your loan, you’re mostly paying principal.You’ll pay more in fees
Your current loan may have penalties for early payoffs. There also may be fees associated with your new loan, plus state fees. While individually they may not be a lot, all of this could add up. Calculate how much you’ll save in interest and compare it to any prepayment penalties to see if it’s worth it to refinance.*Starting rates may include autopay discount