Auto Loans

Can I Refinance My Car Loan?

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Can I Refinance a Car Loan?There are two main reasons why people refinance auto loans: 1) To lower the interest rate they are paying and 2) to reduce their monthly payment. You may be able to do both when you refinance, and save hundreds or thousands of dollars in the process.

As you look into refinancing, keep in mind that lenders may have minimum standards they require. For example, your remaining balance on your current loan may have to be at least $7,500 and your current mileage may not be more than 75,000 miles. Since each lender has its own standards, don’t be discouraged if the first lender you talk with can’t help you. Do, however, be sure to ask about minimum requirements before you apply so you don’t waste time applying for loans you can’t get.

[Related Article: The First Thing to Do Before Buying a Car]

If you want a lower interest rate…

The new interest rate you’ll get is based at least in part on your credit score, so check your credit score online before you apply. You can pull your full credit report at AnnualCreditReport.com or try our free Credit Report Card for a monthly credit score update. Keep in mind the score the lender requests and the one you view may be different since there are many different credit score models available.

Even if your credit scores haven’t changed since you got the loan, you may still find that you can get a better rate. This is especially true if you obtained your financing through the dealer, since dealers may “mark up” loans to a higher interest rate in order to make more money for themselves.

If you want a lower monthly payment…

Aside from reducing your interest rate, an auto loan refinance can reduce your monthly payment. This may extend your loan term, or the number of months you have to repay the loan, though. That’s not ideal because you may pay a lot more in the long run. Since car values depreciate so much, you may find you owe money on a vehicle that’s not worth that much anymore. But there’s an easy way to solve that problem; pay more on your loan each month to pay it off faster.

Refinancing a vehicle loan can be a good option if you can free up some cash and alleviate a financial burden. Just be sure to weigh the pros and cons, including the costs involved in refinancing.

Image: iStockphoto

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  • Travis

    This is more of question, but recently had a disturbing situation occur with my auto loan and just wanted to hear others thoughts. My loan was through TD Auto finance, the final payment was due in Oct. 23, 2012. I logged on to their website, just as I had every other payment, and payed the bill. Somehow a glitch or something happened that caused the payment to not process but I just thought everything was good and I would be receiving the title in the mail. I had no reason to check there site again. So come January I get a notice that we still owe the final payment plus interest. I turned around and payed it as soon as I could (Jan 15). Come to find out they had already charged off the account. I had not received a phone call, email or anything. Obviously this has been detrimental to my wife’s and my credit (wentdown nearly 100 points).

  • Dave Hodgson

    I’d like to warn consumers about another arbitrary rule invented by Auto Loan providers that’s NOT mentioned in this article or in ads. My credit has substantially improved during the past couple of years so I was persuaded that I could refinance and get a lower interest rate. However, on applying I was told that I don’t qualify for the lowest rate because I “don’t yet have 2 years of payments on record”. If I’d been told about that restriction in advance I could have waited a few more months before applying, until I did have 2 years of payments! As a result my credit has been dinged with inquiries for offers that are little better than the loan that I already have. Very annoying!

    • Gerri Detweiler

      Dave – Very interesting! Was it a new lender from whom you are trying to get the loan that requires a 2-year payment history? Or was it your current lender that is offering to refinance you into a lower rate? I wonder if a different lender will refinance you without that requirement.

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