Thinking about refinancing a car loan, but not sure where to start? Whether your goal is to lower your monthly car payment and free up monthly cashflow or reduce your total interest cost and make sure you’re getting the best overall deal, our guide is here to help! We’ll explain how auto refinancing works, then show you how to refinance a car in four simple steps.
Refinancing your car loan means applying for a new auto loan with a lender, then using that loan to pay off your existing auto loan. You’ll make payments to the new lender until your loan is paid off, and the new lender’s name will appear on your car’s title.
Most people consider refinancing a car loan for one of two reasons. First, they may want to lower their car payment and free up monthly cashflow, which can be achieved by getting a longer term on your loan. Another reason is to save money on the total cost of your auto loan—if you can get a lower interest rate through refinancing, you’ll save on total interest and potentially lower your payments, as well. Try calculating your savings with our auto refinance calculator!
Should you refinance your car loan? You might benefit from refinancing if one or more of these situations applies to you:
It’s also important to assess your car’s approximate value. Check out Kelley Blue Book to see what your car is worth. To refinance your auto loan you can owe slightly more than the value of your car. But if you owe twice as much as the car’s value that is known as being upside-down or under water on the loan and refinancing can be difficult.
Check your rate at several car loan refinancing companies to find a competitive offer. A few tips:
An auto loan calculator can help you quickly determine how each refinancing offer could impact your situation. Be sure to look at total monthly payment savings and also on how much you are saving over the life of your loan. Be sure to account for any prepayment penalties (i.e. fees for paying off your loan early) on your current loan. While rare for auto loans, prepayment penalties can impact the refinancing equation.
Calculate how much you could save over the life of the loan, how much you could lower your monthly payment, and how quickly you could pay off the loan. With this knowledge in hand, you can confidently decide which refinancing offer will help you accomplish your financial goals. Here is an example of what current customers are saving through LendingClub.
Still deciding whether to lease vs. buy? Check out our blog post on all the important factors before you get your new car.
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