So you bought a new car and aren’t happy with the finance rate you had to pay? Why not consider refinancing? It’s not as difficult as you might think, but first, here’s what you should know about car refinancing.
In essence, you keep your car. You’re just going to be trading in your lender. How novel is that? Of course, first you have to qualify to refinance. But if you bought a 2008 car late that year for about $30,000 and have current payments of about $600 on a 72-month loan, refinancing can possibly save you some $200 per month.
- Did you purchase a new or used car in the last 12 to 16 months? If so, you could save money by refinancing at today’s lower rates—especially if your credit rating has improved since you first bought your car.
- Do you plan on keeping your vehicle for three or more years? If so, refinancing may help you reduce your monthly payments while you continue to enjoy your car.
- Is cash-flow more important now? If so, refinancing at today’s lower rates (than what you bought at) may put more extra cash in your wallet for other necessities you need each month. If you’re comfortable paying more in the long-run—extending how long you own your vehicle and, thus, paying on a refinance—then refinancing may be the right option for you.
- How do you know if your car will qualify for refinancing? As long as your vehicle isn’t a specialty collectible car and it has less than 100,000 miles on it, and is no older than eight years old (no earlier than a 2005 model), it is possible that it will qualify for refinancing.
- What about your chances for qualifying, in terms of your credit? As long as you’ve been making your payments on time, consistently and never late—with your car and all other credit or loan payments—you’ve got a good chance of getting approved for refinancing your vehicle. Of course, there are exceptions, but, in general, if you’ve kept up your payments, you should be okay.
- What about your existing car loan? Here the answer is that it has to be at least $10,000, since many lenders won’t look at refinancing loans of less than $10,000. Keep in mind that the larger your loan balance, the more potential savings you could realize with a refinance. On the other hand, the smaller your balance is, the less you may save in refinancing.
- How do you know if you would save by refinancing? Look at the terms of your existing loan to find out if you could be saving by lowering the interest rate, reducing monthly payment or term.
It’s also important to note that if you think you can get a better interest rate, you probably can. You may need to do some shopping to find it, but the savings may be well worth it. And being able to shop for refinancing online is a lot less arduous for a car than a house.
Before you apply for any refinancing of your car, be sure you have all your paperwork in order. This includes your ID, proof of insurance, proof of income, and details about your car (VIN, miles on the odometer, etc.).
One final point is you should probably wait at least 90 days after the purchase of a car before trying to refinance at a lower rate, monthly payment or term. That’s because it takes time for the title to be registered with your state’s DMV, which can take up to three months.