Refinancing your car loan means replacing your existing auto loan with a new one, often through a different lender, with updated terms. The goal of refinancing is typically to secure a lower interest rate, reduce your monthly payments, or adjust the loan term to better fit your financial situation. With auto refinancing, you essentially pay off your original loan with the new one, and then make payments based on the new loan’s terms. This can be beneficial if you’ve improved your credit score, interest rates have dropped, or you need to modify your repayment schedule. However, it’s important to consider potential fees and the overall cost before refinancing. Read on to explore the pros and cons of refinancing, when to consider financing your auto loan, and how to refinance a loan with bad credit.
Refinancing might sound intimidating, but it’s actually easier than it seems. The application process is quick and easy in many cases. Plus, it usually doesn’t take much time for lenders to finalize your approval.
You may have heard that you can’t refinance your car if you have bad credit. Luckily, that’s not true! With a bit of research and patience, you can find a refinancing agreement that works for you, regardless of what your current credit score is.
Pros & Cons of Refinancing Your Auto Loan
Refinancing your car loan can offer several advantages, but it’s essential to consider both the benefits and potential drawbacks before making a decision.
Pros of Refinancing
- Lower Interest Rates: If your credit score has improved since you took out your original auto loan, refinancing could qualify you for a lower interest rate, reducing the total interest paid over the life of the loan.
- Reduced Monthly Payments: By extending the loan term through refinancing, you can lower your monthly payments, making them more manageable within your budget.
- Access to Equity: If your car’s value exceeds the remaining loan balance, refinancing might allow you to access this equity for other financial needs.
Cons of Refinancing
- Extended Loan Term: While extending the loan term can lower monthly payments, it may result in paying more interest over time.
- Fees and Penalties: Some lenders impose fees for refinancing or early loan payoff. It’s crucial to factor in these costs when considering refinancing.
- Potential for Negative Equity: Refinancing could lead to owing more than your car’s current value, especially if the vehicle depreciates faster than the loan balance decreases.
Before deciding to refinance, assess your financial situation, credit situation, and the terms of potential new loans to ensure that refinancing aligns with your financial goals.
When Should You Refinance Your Car Loan?
Refinancing your car might sound like a good idea, but is it right for you?
If you’ve been working to build up your credit and have made some substantial progress, it might be a good time to consider refinancing. An improvement in your credit can make it easier to get approved for a better interest rate.
On the other hand, if you’re having trouble affording your payments from month to month, refinancing may be a good option as well. You may be able to find a loan with a longer repayment term, which can lead to smaller monthly payments. Alternatively, you may be able to find a new loan with a lower interest rate, which will lower what you pay each month, and the total interest paid for the loan.
On that same note, if interest rates have lowered in general, then refinancing could benefit you. Interest rates can fluctuate based on the current conditions of the market, so there’s a chance that market rates may have changed since you initially took out your loan. If you’re refinancing at the right time, you could significantly change your payments for the better.
Finally, refinancing can be beneficial if your car has a high value. If your car’s value is high compared to the amount that you owe on your loan(equity), you could qualify for lower interest rates than what you’re currently paying. You can find multiple resources online that can tell you the value of your car such as Kelly Blue Book or Manheim Market Report
How to Refinance a Car Loan with Bad Credit
As we mentioned, the refinancing process is fairly simple. But before you get started, there are a few steps to take to help you get the best deal.
First, take a look at your current standings. Check your credit score and check for any inaccurate information before you apply to refinance. If you do find anything wrong, get in touch with the credit bureaus to get the errors taken care of. You could see an increase in your credit score or perhaps have a better chance to qualify for a new loan.
After you’ve checked your credit score, get in touch with your lender. If you’ve had a good relationship with your lender and have a history of on-time payments with them, then they may be willing to refinance your loan. This process would take less time than having to find a new lender to work with. However, some lenders don’t refinance their own loans, so be sure to ask.
If you want to (or have to) work with a new lender, it’s time to start shopping. Just make sure you shop around relatively quickly. Each lender will do a hard pull on your credit report, but if you have multiple inquiries within a 14-day period, the credit bureaus will view them all as a single inquiry, which reduces the impact that a hard credit pull can have on your credit score.
When you’re looking to refinance, ask your potential lenders about the loan terms and annual percentage rates they can offer you. It’s also important to ask about other fees you could incur during the course of your loan.
Working with FA Financing
Refinancing your car doesn’t have to be complicated, and you don’t have to do it alone. FA Financing is here to help you qualify for the best auto loan possible, regardless of your credit score or history.
FA Financing is happy to work with clients with multiple auto loans, multiple repossessions, recent bankruptcies, or trouble proving income. We’ll take a look at your entire situation and highlight the positive aspects of your loan application, helping your future lender see you as a person and not just a number.Getting started with FA Financing is easy. Just fill out our pre-approval application, submit a few documents, and get an instant decision. We have a huge network of lenders, providing plenty of options for you to choose from. Our team will even help you to narrow down your choices and decide on the loan that’s best for you. If you’re ready to refinance your car and get on the road with a little more money in your pocket, contact FA Financing today to get started!
Editor’s Note: This post was originally published in July 2022 and has been updated for comprehensiveness.
