You want to refinance your auto loan to get a lower monthly payment or better interest rate. If you’ve already started shopping around, you’re well aware that there’s an abundance of lenders to choose from. And maybe you’re wondering which are worth considering.
This guide breaks it down to what to look for when evaluating auto refinance lenders. You’ll also discover a useful online platform that lets you explore refinance options from several lenders nationwide without impacting your credit score.
How Auto Refinancing Works
Auto refinancing entails getting a new auto loan in place of your current loan, preferably with different payment terms. The idea is to save money by getting a lower interest rate or shorter loan term. Some borrowers also opt for an extended loan term to reduce their car payments, which in turn frees up funds that can be used to improve their financial situation or meet other goals like getting out of debt.
The new lender will pay off your old loan when you’re approved for refinancing. Then, you’ll commence repayment on the new loan until it is paid in full.
What To Consider When Choosing An Auto Refinance Lender
Types Of Loans Offered
Contrary to popular belief, not all lenders offer to refinance even if auto loans are readily available. Be sure to inquire about refinance loans if an application for this loan option is not featured on the lender’s website.
Interest Rates
A low-interest rate means you’ll pay the lender less over the loan term. Ideally, you want to choose the lender with the most competitive financing terms to keep more of your hard-earned money in your pocket.
Loan Terms
Auto loan terms range from 12 to 84 months. Ask the lender what loan terms are available to consumers who refinance to determine if they’re adequate to meet your auto loan refinancing goals. For example, an extended loan term could be more desirable if you aim to lower your monthly payment. Plus, you’ll typically get a higher interest rate. But if you want to pay the loan off faster, a shorter loan term is best.
Credit Score Requirements
Most lenders have a minimum credit score threshold you must meet to be eligible for an auto loan. Be mindful that a higher credit score generally means you’ll get one of the lowest rates offered by the financial institution. Still, you could get approved for a loan with less than perfect credit, but you’ll likely get a higher interest rate.
Fees
Do the lender charge application, origination or processing fees? If so, are they comparable to what others in the industry charge? If possible, try to avoid lenders with excessive fees to get the best deal on auto loan refinances.
Prepayment Penalties
Many lenders have done away with prepayment penalties. However, some still charge borrowers if they decide to pay the loan off early, even through a refinance transaction.
LTV Requirements
The loan-to-value ratio could also impact the interest rate you receive. It’s calculated by dividing your outstanding auto loan balance by the value of your vehicle.
Vehicle Age Requirements
If your vehicle is older, it could be ineligible for refinancing. This is also the case for cars with high mileage, so check with the lenders you’re considering to learn more about age and mileage requirements before applying.
Industry Reputation
Is the lender accredited by the Better Business Bureau? If so, what is their rating? Has the lender received any industry-wide awards to date?
Customer Service
What are the hours of operation? What options are available to connect with a loan officer or representative once you get a new auto loan? The best lenders are easily accessible by phone or email. In addition, some have a chat function on their website that allows customers to connect with a knowledgeable representative in real time.
Ease Of Application Process
Does the lender offer a streamlined online application process? Can you submit the required documents electronically, or will you have to visit an online branch with a stack of papers in tow? Are you able to monitor your loan application status directly from the online dashboard?
Customer Reviews
What do past and current customers have to say about them? It’s a good idea to check out online reviews to learn more about the lender’s reputation.
Where to Refinance Your Auto Loan
Auto loan refinancing is readily available through traditional banks, credit unions and online lenders. Still, with so many options to choose from, it’s easy to get overwhelmed when doing your research to find a good deal.
