Should I Refinance my Car Loan?
Maybe you experienced some financial setbacks. This resulted in your credit score being poor. Still, when you went to purchase a car, you were able to get a loan. However, the interest rate was set at 21%. You discover after a year that most auto loans are being financed from 4% to 8%.
You know that you can refinance a home loan, but can you refinance a car loan?
The answer is yes.
Your credit score has more of an impact on your life than you might think—especially regarding auto loans. If the score is poor (below 600), it can cause you to pay much higher interest rates and insurance premiums. In fact, you might not even be able to get an auto loan at all.
So, whatever you do, work to reestablish your credit score. When you do, it may be time to refinance your auto loan.
Requirements to Refinance a Car Loan
Contrary to the belief of many people, an appraisal is not required to refinance an auto loan. It is not like a home loan where the equity is used as a basis for a refinancing. With a car, the main determining factor in a refinancing decision is how much money is necessary to pay off the loan. It is not the value of the car.
Your credit score will have to be more than 600 and you will need to provide proof of income.
The Difference a Car Refinance Could Make
If you borrowed $16,500 for 60 months for a new car one year ago, the monthly payments would be about $446 per month. The total interest you pay will be about $10,283.
If you refinance the car with another lender (most lenders will not refinance their own loans) at 7%, your monthly payment would shrink to about $331. The amount of interest you would have to pay back will be in the neighborhood of $3,300 instead of over $10,000!
So, it makes all the sense in the world to look into car refinancing if you are saddled with a high interest rate car loan.