Can you refinance a car loan?
Most of the time, the answer is yes, but there are specific requirements for the loan that allow it to happen. Without those requirements being met, a refinance is not possible.
Car loans are a unique type of loan. They have different requirements than home loans or student loans. To refinance a car loan, it needs to make financial sense and help you reach your financial goals.
In this article, you’ll learn what exactly is loan refinancing, how to decide if it’s a good idea and the steps to refinance your car.
What Is Loan Refinancing?
What happens when you refinance a car?
In basic terms, refinancing is when you take an existing loan and you exchange it for a new loan with different terms. Perhaps your credit was not ideal when you got your vehicle so you wound up with a higher interest rate. Now that you have made lots of payments on time, you know that your credit score has gone up, and that means you can get better loan deals.
But, can you refinance a car loan to save some of that interest? Yes, you can. Try researching other loans and find out if you can access better interest rates and terms. Even if you only have one or two more payments, you can save several percentage points in interest and save some money.
Is it a good idea to refinance a car loan?
As we have seen, refinancing your car loan involves taking on a new loan to pay off the balance of your existing car loan. If your new loan has a lower interest rate, it can definitely be a good idea. Your monthly payments will be lower and you’ll have some extra cash available.
When Can You Refinance a Car Loan?
If your bills are getting too high, you should consider refinancing your car loan. It makes the most sense to do so when there are lower payment options available out there. Refinancing a loan often allows people to save money from one place and use that money elsewhere.
There are several opportunities to refinance a car loan and many more reasons why it can be a great idea.
It can be done as soon as you have started paying on your original loan, but if you have poor credit or no credit, doing it too early could result in you not getting any financial benefit and harming your credit in the process.
Here are some of the most common reasons that people choose to refinance their auto loans:
- Perhaps the best reason to consider a refinance is simply to pay less in interest over the life of the loan.
- Paying off the loan sooner while maintaining the current payment amount is another great reason to refinance a car loan.
- Rates may rise, so if you have access to a low rate now, it could be a very lucrative idea to take advantage of the rates.
- Change the interest on the loan from variable to fixed, keeping the same payment throughout the life of the loan. However, variable auto loans are quite rare.
- Shorten the number of months you owe on your vehicle.
- Refinancing the loan to remove a co-signer who was necessary at the time the vehicle was purchased.
- You can also refinance your auto loan if you now have more money to pay off your existing loan and want to cut down on the number of months it would take to pay it off.
When to refinance a car loan:
- You do not need to wait a minimum amount of time to refinance your car loan.
- You can refinance immediately after buying, even before you make your first monthly payment.
- In some cases, you may be unable to refinance until you have documentation from your state’s Division of Motor Vehicles (DMV).
- Simply make sure you meet all the requirements for the new loan.
- For refinancing to be effective, your new loan should be a better deal.
When Should You Not Refinance a Car Loan?
It’s not always the best idea to refinance a car loan. Sometimes it would be a mistake.
Here are times when car refinancing should not be an option:
- When the interest rate would be similar or higher than the original loan.
- When the term would be extended significantly, meaning that you would wind up paying more for the loan than your current loan costs.
- If you wind up owing more on the vehicle than it would even be worth, especially if you do not have full coverage.
- It is not a good idea to ever refinance the loan if it comes with prepayment penalties. These are fees you must pay if you want to pay off the loan before the final payment is due.
- It can also be a very bad idea to try and refinance your car loan if you recently missed one or more of your car payments. Even during the refinance process, you want to make sure you keep making your car payments on time.
Can You Refinance a Car Loan Without Documentation?
Unfortunately, you need to have documentation to refinance a car loan. What you will need depends on the financial institution that is providing the new loan on the vehicle.
Some of the most common documentation includes:
- Identification with your name and a photograph.
- Documents that show all of the details of the loan you already have.
- Documentation that shows how the refinanced loan would be a better financial option than your current loan.
- Papers that show that you can financially repay the loan, like pay stubs, bank statements, or tax returns.
How Can You Refinance a Car Loan
A refinanced car loan has, basically, the same process as any other type of loan. Here are the basic steps that go into getting a refinancing loan:
- Look at what your current loan’s terms are. Pay attention to how many payments you have left and your current interest rate.
- Gather all the documents that you will need to apply for the refinance loan.
- Check your credit to ensure that you do not have any obvious errors on it that would make applying for a refinance loan more difficult.
- Go through the application process if your credit history is solid enough.
- Compare the numbers you get on the refinance loan offer to those of your current loan. Make sure the payments are close in number, or less with the refinanced loan. Plus, make sure you go down enough in interest to make refinancing worth the effort.
- If the refinance makes sense, then complete the loan with the new loan provider.
What Not to Do When Refinancing a Car Loan
The most important thing to remember when refinancing a car loan is that you want to avoid doing anything that sets you back further than you are now.
Paying more throughout the loan is not an option unless your financial situation fell to where you can no longer afford the payments you once made.
Also, you do not want to skim over the financial documents and sign on the dotted line blindly. This could cost you more in the long run, and is never a good idea. Some companies out there will make a deal sound great, but hit you with tons of fees, penalties, or interest changes over a certain period.
Make sure you always read through everything before agreeing to the new loan.
Can you refinance a car loan with the same bank?
It depends. If you’ve kept up with your payments and are in good standing, your current bank may consider refinancing your car loan.
However, your current bank or lender isn’t always the only option. If your credit has considerably improved since you originally took out your auto loan, or interest rates have dropped in the market, it’s a good idea to check what other lenders have to offer.
Can You Refinance a Car Loan With a Different Type of Loan?
One thing that many people often forget is that an auto loan is not always the only type of loan you can get for a car.
If you use your vehicle as a business car, for example, you may be able to refinance your car into a business loan. Why? Because a business car counts as business equipment.
How much does it cost to refinance a car loan?
If you refinance your car loan with your existing lender, the only fees associated with an auto refinance loan are standard transfer fees (usually $5 to $10). Consider also the state re-registration fees ($5 to $75). These estimated fees may vary by lender and state.
If you opt for a new lender, check if your existing lender has any pre-payment fees, as well as the closing fees of your new lender.
Is it Time to Refinance Your Car Loan?
Can you refinance a car loan?
Yes, you can refinance your car loan.
Is refinancing your car loan always the best idea?
It depends on your situation. What you need to do is to make sure that you know where you currently stand and where a new loan would place you. That way, you can see obvious benefits to the refinance process.
Here at Camino Financial, we can send you a free quote on a business loan that could include your vehicle as business equipment. We understand how important keeping your business going is.
We can help with your business needs. No Business Left Behind is more than a motto to us. It is a way of treating people!