Have you ever wanted your car payments to be a bit lower? Refinancing might be the key. According to the 2020 study, the average savings for car owners who used refinancing amounted to $990 a year, $83 a month.
If you find a good deal with lower rates, it can be a perfect way to save money on your car payments.
Auto Loan Refinancing — What Is It?
Refinancing your auto loan basically means taking another loan to pay off the existing one with the lower interest so that you can save some money. Refinancing an auto loan is similar to applying for other types of loans, so make sure you have a good standing credit score and shop around to find the best deal.
There are a number of misconceptions about auto refinancing, but knowing what to expect and understanding how it works will help you save money in the long run.
Misconception 1: Getting an appraisal for refinancing will take long.
If you plan to refinance your car, it is important that the value of your vehicle has been assessed before getting any further with this process. Besides, it’s impossible to get a new loan without getting your car appraised first.
But don’t worry, today, appraisals rarely take long and are usually done online. In most cases, your lender can take care of the process and assess all the quality aspects of your vehicle, including its history, age, condition, and mileage.
Misconception 2: Refinancing is a pain in the neck.
Sure, it might take some time and effort to get the best deal when refinancing your car loan, but this is another aspect your lender can help you with. For example, the lender can cover the “going to DMV” part for you, so you don’t bother with making appointments and preparing the documents.
When you refinance your car loan, there are a few simple steps to take. You can expect that refinancing will involve:
- Pre-qualification — checking if it is possible for you based on current rates and availability. This step doesn’t influence your credit score;
- Credit application — submitting the full application and making an official request which will be posted on your credit report;
- Finalization — submitting all the documents, which might vary depending on the state you’re in.
Misconception 3: There are too many fees involved.
The whole point of getting your loan refinanced is to save money, so don’t expect any high fees. There can be lien holder and state re-registration costs, which you may not have to pay if your lender handles them for you during the process.
One important thing before deciding if it's worth taking out another loan, though: check whether there's an early pay-off penalty fee from your current lender, i.e., the fee you’re obliged to pay if you pay off the loan earlier than it was agreed in the initial terms.
Misconception 4: You need to wait before you can refinance.
There’s a common misconception that you can't refinance your car loan immediately after purchasing it. However, this isn't true — you can refinance your car loan immediately after buying it! The vital thing to remember is that you should be in a better position with lower interest rates and not add any more money towards the cost of your vehicle.
However, if your credit score is poor, waiting at least six months or one year before refinancing will allow it to improve, so think about it before closing the deal. Generally, the time frame doesn’t matter as long as your car meets the following criteria (might vary depending on the lender):
- The vehicle is less than 10 years old
- The mileage is less than 120,000
- The vehicle is insured as a personal car
Misconception 5: Refinancing spoils your credit score.
While it’s true a hard credit pull can have an impact on your score, keep in mind that this is usually temporary. Hard inquiries are typically limited to about two years and won't negatively affect future scores over time if you maintain good behaviour with lenders.
All in all, refinancing can be a real way to save money, as long as you take your time to select a good lender with the best interest rate.
This is not legal, financial, or professional advice. Please consult a legal, financial, or professional advisor for your specific situation.
