What You Need to Know About Refinancing a Car Loan
Car loan payments got you down? Here’s advice on how to refinance your car loan and save thousands.
Is it Time to Refinance Your Car Loan?
It's no secret that interest rates are at historic lows. Homeowners from coast to coast are refinancing their mortgages and saving hundreds of dollars a month, and you may be wondering if you can do the same thing with your car loan.
And yes-when done right, refinancing your car loan could save you thousands of dollars over the life of the loan. Here is what you need to know to get the best deal on a refinanced car loan.
1. Research Current Car Loan Interest Rates
Before you refinance any car loan, you will need to know where current interest rates stand. If the rate on your current loan is similar to what you could get today, there is probably not much to be gained in a refinancing deal.
If interest rates are significantly lower now than they were when you bought your car, refinancing probably does make sense. You can start by checking auto loan rates at your bank or credit union and comparing them to what you are paying now.
2. Know Your Credit Score
If you have a stellar credit score, you will probably qualify for the lowest possible rate when refinancing your car. Before you apply for any loan refinancing, you need to check your credit file and credit score.
You will have a harder time refinancing your car loan if you have poor credit or no credit. That does not mean you cannot refinance the loan-but you can expect to pay a higher rate than a driver with perfect credit.
3. Check With Your Current Lender First
Refinancing your car could save you thousands of dollars-and you may not have to do a thing to save that cash. Before you go shopping elsewhere for a refinancing deal, talk to your current lender and see if they can lower your rate to current levels.
If interest rates have fallen sharply since you bought your car, you may be able to get a lower rate with your current lender. It never hurts to ask, and refinancing your car with the current lender will save you a lot of time and hassle.
4. Make Sure You're Not Subject to a Pre-payment Penalty
Car loans sometimes come with "gotchas" to make pre-paying and refinancing difficult. You'll want to check the terms of your loan to make sure you are not subject to a pre-payment penalty. If you are, refinancing probably does not make sense, since the money you save on interest will be eaten up by the penalty.
Assuming there is no pre-payment penalty, you can move on with the refinancing deal. If your current lender is not interested in lowering your rate, you should shop around at local banks and credit unions, compare rates, and choose the loan that will save you the most over the long run.