How Auto Loan Refinancing Works
Initial loans can often eat up your hard-earned cash. If you’re trying to pay off your auto loan faster, refinancing may be the answer.
Refinancing an auto loan means taking out a new loan with a lower interest rate to pay off your existing loan. This can save you money in the end, which you can put towards your savings, household expenses or even a vacation fund.
How Do I Refinance My Auto Loan?
You can refinance your auto loan with these steps:
- Shop around at financial institutions: Inquire at your current lender, or call other institutions to see which ones can offer you the lowest interest rate with the best terms.
- Submit a loan application: Just like with previous loans, you’ll submit some personal, vehicle and financial information. The lender will pull your credit report and provide you with an offer.
- Review the loan terms: Read the fine print of the loan you’re being offered, including the timeframe of the loan and interest rate. Ensure your information is accurate and that the loan works for your budget.
- Finalize the loan paperwork: Once you sign off on the paperwork, your lender will pay off your existing loan. Now you’re refinanced with lower interest rates!
What Are the Benefits of Refinancing My Auto Loan?
Going through the process of an auto loan application takes time and effort on your part. Is it worth it? Here are some reasons refinancing might appeal to you:
- Improve your interest rate: If your credit score has improved, you’ll likely get a better interest rate. Less interest means more cash savings and the chance to pay off your loan faster.
- Lower your monthly payments: If you’re scraping by and struggling to make your monthly payments, you can lengthen the timeframe of your loan. You’ll pay for a longer time period but will have more financial wiggle room each month.
- Boost your cash flow: Your car may be worth more than your loan, which means you can get some cash in your pocket. Let’s say the current value of your vehicle is $10,000, and you still have $6,000 left on your loan. You decide to refinance and take out an $8,000 loan to pay off your current $6,000 loan. That leaves you with $2,000 to put towards other expenses.
Is Refinancing My Auto Loan Right For Me?
Refinancing isn’t for everybody. Here are some reasons why you shouldn’t refinance:
- Your credit score hasn’t improved: If your credit score has decreased, then refinancing won’t lower your interest rate and will put a bigger dent in your credit score.
- You’re close to paying off your current loan: If you’re on track to pay off your current auto loan in 2 years or less, refinancing will only extend your payments. In this case, stick with it and continue to pay off your current loan.
- The length of the new loan will cost you more: Getting a lower interest rate could cost you more in the long run. It all depends on the length of your new loan, so do some calculations. You can use an auto budget calculator to figure out your costs.
Do You Have Refinancing Questions? Contact UTF for Answers.
You don’t have to navigate refinancing options by yourself. Our caring experts at UTF are available to answer your questions and guide you through your financial circumstances. Connect with us by calling 866-462-5532 or send us a message today.