Refinancing a Car Loan: Important Things to Consider

Refinancing a Car Loan: Important Things to Consider 16.08.20194 Comments

The development of technology and the efforts of marketers have taught users to regularly update everything people have because new models become obsolete on the way to their owners.

Temptations cannot be avoided: those who do not like to go shopping, are going to be overtaken by enticing pictures and profitable promotions in social networks or when viewing news. They will immediately offer installment loans to give a person money to buy the desired thing right now.

The incentive to buy more and more things leads to an increase in the number of personal loans, car loans, and credit card use – a family having 3-4 loans is a quite common thing to happen.

If to speak specifically about refinancing a car loan which is the focus of this article, its programs differ for each bank in their conditions including interest rates, an interest calculation method, payment terms, and additional requirements, such as compulsory insurance, for example.​

Refinancing a vehicle loan is not a change in the terms of an existing loan agreement, as is the case, for example, of restructuring. In the case of refinancing, a new agreement is signed, according to which the purpose of the loan is to repay the debt to another financial institution.

First of all, it is worth checking the possibility of refinancing at the bank that issued the car loan. In the current conditions, the management of the financial institution is interested in retaining the client.

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Therefore, it can offer more favorable credit conditions. However, such cases are quite rare. Basically, refinancing programs work for car loans taken from other banks.


Refinancing Of a Vehicle Loan is Especially Effective In Such Situations:

  • The interest rates of the proposed loan agreement are at least 2% lower than the existing one. For example, even a few percent can significantly reduce the number of monthly payments or speed up the payout period.
  • In case a borrower wants to increase the credit period. This can be especially important during periods of financial difficulty associated with the job loss, a significant reduction in income or the birth of a child which is accompanied by huge expenses.
  • Large loans are issued for a long period, during which the life situation and profit margins could change. Re-lending helps to reduce monthly payments as much as possible by extending the term of the agreement by several years.
  • The financial situation is changing, and over time, banks may offer loans with better interest. In this case, one can take advantage of the situation and get a car loan refinancing at a lower rate.
Refinance car loan

Disadvantages of Car Loans Refinancing

Additional costs

Refinancing a car loan may entail additional costs that will be reimbursed at the expense of the client. First of all, these are bank commissions. Typically, borrowers only take into account the percentage difference between old and new debt. But it is advisable to calculate the exact amount of costs and compare it with the benefits that the client will receive when applying for a vehicle loan to refinance.

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The poor financial situation of a borrower lessens options

The need for refinancing may arise due to some objective circumstances, for example, the birth of a child, illness, change in the salary amount. In this case, the client immediately assesses the difficulty of his situation and turns to the services of his or a third-party bank for refinancing. The lender will certainly check the credit history of the potential borrower. In the event of delinquencies in the current loan, he will most likely be refused. The credit institution will not take on the risk of default on the amount of debt.

Also, there are other situations when the borrower does not repay the loan, his debt grows and it becomes increasingly difficult to pay it off. In this case, he tries to find the help of a credit institution. However, counting on refinancing, in this case, is useless.

Interest tricks

Refinancing will be most profitable if the loan was recently issued and most of the loan has not yet been repaid. After half of the loan is paid off, re-lending loses its meaning.

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As a rule, the client repays the debt in equal monthly installments. At the same time, if you pay attention to the schedule, it becomes obvious that, in the first place, the bank wants to return interest.

Initially, a significant proportion of the payment goes specifically to pay them off. Gradually the ratio changes. Thus, by the middle of the term, most of the interest was paid, but the amount of the main debt remained virtually unchanged. Refinancing, in this case, is disadvantageous. The client does not win anything, but, having issued a new loan, he will need to repay the interest on it first once again.​

Important Things To Find Out Before Car Loan Refinance Application

  1. Before even thinking of refinancing, firstly, one has to be aware that financial institutions provide car loan refinance not to all applicants. For example, if a car is much older than 10 years and has already done about 150,000 miles – an owner, most likely, won’t be approved for the deal.
  2. Refinancing is worth it, only if a credit rating of a person has much improved since the actual car loan deal. If it is in the same condition, there is a possibility that another bank won’t suggest anything better than one has already been having.
  3. One has to coordinate with the creditor bank the possibility of early repayment of the loan: in some cases, there may be restrictions according to the current agreement up to a complete ban.
  4. A future applicant has to keep in mind that there can be additional charges for re-registering of an auto and the title transfer after the deal is accomplished. So, it won’t harm to inquire if there are any fees of this kind in your county/state and their amount.
  5. A great resource Kelley Blue Book can be incredibly useful for the people who think of their car loan refinancing. It helps get to know the value of used cars. Why is it important? Because a creditor might not agree to refinance the car lending if the remaining amount to pay off exceeds the value of a used vehicle at the present moment. For example, one still has to pay $6,000 and the cost of a car that he/she has been using is equal to $3,000 right now, a lender can decline the application for refinancing of their auto loan.
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Step-by-step Instructions For Obtaining Car Loan Refinancing

1.   Collect all the necessary documents

Here are the options which you will need for sure:

  • Personal data. This information may include one’s Social Security number, amounts in which a person is paying monthly on other loan agreements(mortgage, payments for a rent, personal loans, etc.).
  • An income proof. Lenders do not give money in vain. They want to check if potential borrowers can give them back the issued funds. That is why a paycheck stub won’t be unnecessary.
  • Proof of current employment. This option is the continuation of the previous point. Lenders would like to know the place of the current employment, as a rule, because of the mentioned above reason.
  • Important information about a vehicle. These data, naturally, include the make, model, mileage and the year of car manufacture. Also, a significant point is VIN. One has to be sure to know it well.
  • A driver’s license. A lender might want to check the validity of a person’s driver’s license.
  • The auto insurance. Many creditors require car insurance evidence. That is why to have a vehicle insurance card at hand won’t hurt.
  • A current loan agreement. This is an important document and it is highly demanded, mostly. Also, applicants themselves have to know well their current interest rates and the amount of the sum which is still to repay to choose the most profitable car loan to refinance conditions for themselves
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2. Get your Free Credit Score

Monitoring credit is an essential step towards the car lending refinancing. Because this verifying will give a borrower an actual answer and certain predictions about possible conditions of a future deal.

If an applicant’s credit score is near 700, this will help him qualify for the best loan offers. Otherwise, a lower than 600, most likely, won’t give much better lending options.

One needn’t be worried about credit rating inquiry because since he does this for himself it won’t have any impact on the scores. To accomplish this task, a person can go to or

3. Take your time and shop around

As has been mentioned above, there is a possibility your present bank would like to keep to work with you and offer options to better your current auto credit. That is why, firstly, one has to inquire about the information on refinancing his bank. If they do not look in that way, you can begin to search for lenders that can help you, questioning a current lender about prepayment penalties if any, it is important.

Looking for the best option one has to pay attention to the interest rates, the amount of a monthly due, the length of a loan, and the actual sum of borrowing possible. Shopping around it has the sense to consider various lenders and compare their conditions, evaluating the benefit for you. Also, you may check if a lender provides an autopay discount.

Autopay option helps persons obtain lower interest rates opportunities and never worry about late payment fines since the funds go to the financial organization automatically each month.

4. Apply for the car loan refinancing program that suits your case from those offered by banks or online lenders

When you’ve chosen the best, in your opinion, options of vehicle lending refinancing, you can proceed to apply. It is strongly recommended to fulfill all the inquiries within a period of 14 days.

Because, if quotes are committed within this time, all of them are treated as only one. This will help you not lose too many FICO scores, just about 5 points.

When you are actually qualifying, here come all the necessary legit papers you’ve managed to collect. Because the application form will definitely demand if not all of them then some, for sure.

After the approvement of the refinancing and signing an agreement on new terms, a lender will provide you with the contract. There, all the conditions and obligations of each side of the deal will be specified, including the lending term, a monthly payment amount, interest rates, and possible fines. One has to keep this agreement carefully since it contains legal information. Further transfer of credit funds, as well as solving other organizational issues, usually, occurs directly between financial entities. Still, it won’t hurt to contact the previous lender and ask about closing the loan, just to be safe and calm. After this, a person can focus on the new loan repayment. Regular prompt paying off the amounts will assist in boosting the credit rating.

In most cases, banks want to re-ensure themselves and issue funds to repay those loans for which regular payments have been made for at least six months. Refinancing is not charitable assistance to short-sighted customers, but one of the ways the bank makes money. Before making a decision, it is necessary to check with the employees of the financial institution the possible costs, which may be included: a fee for issuing and servicing a debt; expenses for re-registration of the title.

Best Car Refinance Lenders in May, 2020​

In May, 2020, the best organizations for refinancing car loans are:
Company APR Min. Credit Score Min. Loan Amount Max Car Age Mileage
3.99 - 8.34%
Not specified
Not specified
Capital One
4.10 - 24.99%
Not specified
Lending Club
3.99 - 24.99%
2.99 - 17.99%
2.49 - 29.4%
7.99 - 21.9%
3.49 - 25.87%
1.99 - 17.99%
OpenRoad Lending
1.9 - 24.9%
3.64 - 10.25%

FAQ about Car Loans Refinance

 – How does car lending refinancing work?

The process doesn’t imply any special difficulties. In fact, everything is very simple: one takes out a loan and if the conditions do not satisfy him anymore he applies for another one which covers the costs of the previous loan.

All the transactions commits the financial institution which has agreed to refinance the funds in debt.

Refinance car loan

– What are the distinctive features of vehicle credit refinance?

  • The car loan refinancing has a targeted nature. The bank knows exactly what its money will be spent on and carefully studies all the documentation provided by the client.
  • A person will receive money only if they have been concerned about on-time payments and never allowed delays in the current (refinanced) loan.
  • One can choose a loan period that is convenient for them (for example, make it longer to reduce the monthly payment, or vice versa – shorter, to pay off the debts as soon as possible).
  • A bank providing a refinancing loan will act as an intermediary in the relations with the credit institution whose loan a person intends to repay. It will transfer money to their current loan account by bank transfer and supply them with a new one to repay.

– What is a car lending refinance calculator?

This online calculator is designed to help people:

  • estimate the possible value of a car loan refinancing;
  • compare existing interest rates with probable ones;
  • evaluate the possible benefit of refinancing comparing to current loan conditions.

– How fast my car loan will be refinanced?

Typically, a lender sends the notification of approval or not approval in the longest 1 hour. When the application is accepted and all the papers are signed, the funds are transferred within one business day. In rare cases, a borrower has to wait up to 2-3 days.

Final Thoughts

The decision to refinance a current car loan has to be incredibly well-thought. A person should be totally sure about it having done thorough research to evaluate the possible risks and profit.

Like any financial product, it can bring benefit or cause harm to the applicant. One ought to be attentive and scrupulous about the conditions of the deal. Read the feedbacks about lenders before signing any papers.

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Andrei Shilkov

Blog author. I am well versed in Finance and Digital Marketing. I have two bachelors degrees in Finance. Born in Russia, but later moved to the USA, to western Pennsylvania, the city of Pittsburgh. I have a Certified Public Finance Officer (CPFO) certificate. I also worked at IRS and Microsoft.

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  1. I was looking for refinancing a car loan? But I don’t know what things will be consider while refinancing. Thanks for sharing information that will be useful for me.

  2. Excellent post.I want to thank you for this informative auto loan refinancing read;I really appreciate sharing this great post.Keep up your work.I think you made some good points in this post.

  3. Good post and a different perspective. I really liked your blog about Refinancing a Car Loan: Important Things to Consider.

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