Others want to reduce their interest rates or adjust their loan term lengths. Still, others have more personal reasons to refinance, such as removing co-signers from their loans. Not all car loan refinance deals are the same, but customers who chose to refinance often seek one of the following outcomes this list is not exhaustive. Most of the time, people seek car loan refinancing to lower their monthly payments.
Auto Refinance Loans
However, your monthly payment should not be your only consideration when refinancing as the sections below describe. You have two ways to lower your car loan monthly payments. You can get a lower interest rate, you can extend your loan term, or you can do both.
Usually, the best way to lower your car loan payments dramatically is to extend the number of months over which you pay for your car. However, when you extend your loan term, you may end up paying more for your car in total than you would without extending it. Still, if your lender allows you to extend your loan term and gives you a lower interest rate, you may both lower your monthly payments and pay less in total for your car. The example below will illustrate how this outcome can occur.
While it is interrelated with the goal of lowering monthly payments, some refinance customers prioritize lowering the interest rates on their loans.
How Refinancing a Car Loan Works
Want to see how much refinancing may save you? Try our auto loan refinancing calculator. Sometimes refinance customers seek refinancing with an aim to change their loan term lengths. For various personal reasons, sometimes car loan borrowers want to refinance to remove someone from or add someone to their car loans. Refinancing is an easy way to take someone off of your car loan because the refinance process gives you a new loan with a new contract. Now, 12 months later, you decide to look for refinancing, because you would like to reduce your monthly payments.
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Effectively, by refinancing with this loan term, you will be paying for this car for 60 months, because you already made 12 monthly payments and you are signing up to pay for your new loan for another 48 months. Your first payment on your new loan occurs in what would have been the month of your 13 th car payment on your old loan.
The graph below depicts how you would pay down your car loan s in this example with and without refinancing. Notice how the car loan balance with refinancing line in orange falls at a slower pace over the loan term than the car loan line without refinancing in blue. Because, in this example you extended your loan term, you pay less of your principal each month and have more time to accumulate interest charges.
As a result, you pay off your loan at a slower pace than before refinancing. Please note, you should always make your car loan payments as scheduled even if you are in the middle of the refinancing process.
Refinance | Auto Loans | PSECU - PSECU
Moreover, just because in this example you make your last payment on your old loan in month 12 and make your first payment on your new loan the next month does not mean that the car loan refinancing process can always be completed in the time span between car loan payments. When and if you choose to refinance, you may or may not change the length of your loan, and your interest rate does not necessarily have to change — although most of the time it will.
Ultimately, every car refinancing deal is different and every refinance customer has personal motivations for refinancing. Not sure if you should refinance? Learn more here. APR vs.
https://volunteerparks.org/wp-content/hipowal/268.php Interest Rate for Car Loans. For this to happen, you typically need to have a better credit score than the first time around. That said, refinancing may not be in your best interest if doing so extends your repayment term. While this can potentially lower your monthly payment, you'll end up paying more in interest over the life of your new loan. Also, think twice about refinancing if there's a prepayment penalty on your current loan or you owe more than your car is worth.
If there's a prepayment penalty, it could neutralize any savings you realize from getting a lower interest rate. And if you're underwater on your current loan, you'll need to make a lump-sum payment for the difference between what you owe and the amount a refinance lender is willing to finance. Some lenders may not be willing to refinance that kind of loan at all. Also, keep in mind that even if you want to refinance, it may not be possible. Some lenders, for instance, will not offer a refinance loan for vehicles that are older than five to eight years, depending on the make and model.
Each lender may have different limits on how old a car they will consider refinancing can be and may require that the payoff amount of your current auto loan fall between certain amounts to even be considered. How Refinancing a Car Loan May Affect Your Credit Applying for a refinance car loan can temporarily reduce your credit score because of the hard inquiry the new lender makes on your credit report. You'll typically see your score fall by just a handful of points, and with continuing positive payment history, you'll likely see it bounce back relatively quickly.
Don't worry about getting multiple hits when you shop around, though. As long as you submit your applications in a short period—typically 14 to 45 days—the credit scoring models will combine all of the hard inquiries into one when calculating your credit score. Next Steps Refinancing your car loan could potentially save you money each year and over the lifetime of your new loan.
As you learn more about how the advantages and disadvantages of refinancing apply to your situation, take some time to consider whether it's the right step or if you should continue on with your current loan for the time being.
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