Pros and Cons of Refinancing a Car
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The Pros of Refinancing a Car Loan
The Cons of Refinancing a Car Loan
Your vehicle is more than 10 years old You owe less than $7,500 on your current loan You owe or more than $100,000 on your current loan Your car has more than 100,00 miles on it You drive for Lyft or Uber as your primary source of income or otherwise use your car for commercial purposes
4 Tips When You’re Refinancing an Auto Loan
Don’t be in a hurry as you shop around for a loan. Dig deep when looking for lenders and include online auto loan lenders in your search. Avoid any lender or company that charges a fee to refinance your loan—that cost could erase any savings from the new loan. And as you assess lenders, remember it’s not only fees that are worth looking at, but also what kind of interest rates they offer and customer service. Consider applying for prequalification. This will give you a sense of what type of offers you might be able to snag. What’s involved? For starters, the lender will look at your credit and the type of vehicle you own. Typically, prequalification is a soft credit inquiry, so it won’t hurt your credit score. And while prequalification is not a guarantee, it's a good indicator of what you can expect in terms of loan approval. Remember the loan-related details. If you purchased a GAP waiver policy (which pays the difference between what you owe on your car and what it’s worth at the time of an accident) with your original loan, it will not automatically carry over into a new loan. If you still want GAP coverage, explore your options for a new policy with your new loan. Plan your timing. Be mindful too, if in the not-too-distant future you will begin shopping for a mortgage. You might want to delay going for a car refinance so that your credit scores are as high as they can be, upping your chances of approval, to say nothing of getting the best rates and terms.
Will Refinancing Impact My Credit Score?
When to Refinance
A refi could make sense if you lost your job, or a spouse is working less and you need to cut your monthly budget. A refi might be a good idea if you can qualify for a better interest rate or better terms than you got on your old loan. It could be that when you got your car loan your credit score was pretty shabby, so you didn’t get a great rate. However now that your score has improved, you’re likely eligible for a much better rate. Lowering your payment by a percentage point or two can make a difference and save you money. Refinancing might also align with your goals. For example, if you’re on a mission to pay down debt, applying the monthly savings from refinancing can help you get there. If you’re close to paying off your original car loan, getting a new loan may not make sense. If your credit stinks, you may be turned down. If you are offered a loan, you may not qualify for the best rates, making the deal decidedly less sweet and perhaps not worth pursuing. If the balance on your existing loan is higher than the value of the car, you’re upside down on your auto loan, and getting the green light from a new lender might prove to be difficult, so you might want to stay where you are.
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