Lower Payments by Refinancing an Auto Loan
How Can a Car Loan Refinance Save Money?
© John Wu
Aug 26, 2009
During these hard times, interest rates have dropped significantly on all credit products, including auto loans. Many consumers have car loans with interest rates that are much higher than today's low rates. Or a borrower may have improved his FICO score significantly since the original loan was signed and thus qualifies for better terms on a new loan. An auto refinance loan can replace a higher interest rate loan with a lower one.
Rebates offered by auto dealers were contingent on the use of the manufacturer's auto financing arm, which sometimes do not offer the best auto rates offered by banks or credit unions. Or the dealer may have increased the interest rate in order to make up for the low price negotiated on a car. In either case, the higher interest auto loan financed by the dealer can be replaced with a lower interest loan.
Those who need lower monthly car payments may also benefit from refinancing. If the borrower chooses to extend the term, the monthly payment can be lowered. A few lenders even offer auto cash out refinance loans, which help borrowers get extra cash from the equity in their cars.
Qualifying for a Car Loan Refinance
Although refinancing a car loan is typically simple, consumers still need to maintain or improve creditworthiness. Borrowers should check their credit report to make sure they qualify for a refinance. Some of the typical requirements of an auto loan refinance are:
- Car is not too old, typically 7-10 model years old or less.
- Meet the lender's minimum monthly income requirements, usually around $2000 gross per month
- Meet the lender's minimum FICO score requirement, usually a score of 600-650.
- Possess the car's current state DMV registration.
- No bankruptcy, judgments, or liens in the last 3 years.
Those with bad credit but own their automobile free and clear should consider an auto title loan as a way to cash out the equity in their car.
Finding an Auto Refinance Lender
Look at nearby banks and credit unions to see if they offer auto refinance loans and find out the interest rates and any fees required for a refinance. For borrowers who need extra cash every month, ask lenders if they offer cash out refinance loans.
Once a suitable lender has been found, the borrower should go ahead and apply. After the auto refinance loan has been approved, the proceeds of the new loan are typically sent directly to the original lender to pay off the original auto loan.
References:
Reed, Philip. "Refinancing Your Car Loan." Edmunds.com.
Lendingtree.com. "Auto Refinance Q&A"
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