Can I refinance my car loan with the same lender or do I have to apply with another financing institution? Which option is more likely to get me approved?
Find out below as we will tell you everything you need to know about refinancing your existing car loan.
What Does It Mean To Refinance Your Car?
Refinancing your car refers to taking out a new loan with better conditions to make the previous loan payment easier. If you choose a refinance loan, you will be given a new predetermined monthly instalment plan that usually spans over a couple of years.
But is refinancing a car worth it? Most people opt for refinancing to gain access to the lower interest rate that a new lender may offer. In case you can’t find a loan with a lower rate, you can take out a loan with a longer repayment period. However, bear in mind that there’s a chance the interest rate could increase over time.
You might be interested in finding out how much you can borrow for a car loan.
Can I Refinance My Car With the Same Lender?
While most lenders allow for refinancing cars, it’s best to check with them directly before doing individual research. In most cases, if you have proved yourself to be a reliable borrower, there can be a window for negotiation. For some car owners, it may be convenient to consolidate all financial accounts at the same, trusted bank.
However, by researching new lenders, you can compare the terms of your existing car loan to the terms that a new lender would provide. In that way, you can take advantage of the lowest interest rate or access some useful loan features. Whatever your choice is, make sure to compare different offers and conditions.
How To Refinance a Car Loan
So, how does refinancing a car work? Before you submit your application, the following steps play a part in car refinancing.
Decide whether refinancing is the right decision
There are two reasons people choose to refinance, to get a better interest rate or to lower their repayments if they cannot meet them monthly. If your credit score has improved since you got an auto loan, lenders could give you a better interest rate, and you will save more money during the life of the loan. If you can’t meet the monthly payments, you can extend your loan term, but you will probably pay more in interest.
Review your current loan
Many lenders have a minimum amount they will lend, and if your payoff is lower than that minimum, you won’t be eligible to get a loan. That’s why it’s important to know your current interest rate, the monthly repayments, and the total cost of your loan term. Moreover, if your loan amount exceeds the car’s market value, you will probably not get new or better loan terms.
Check Your Credit Score
One of the deciding factors in whether your loan is going to be approved is your credit score. If you have a good credit score, which is typically considered anything over 700, you may be able to get a lower interest rate. Your credit score can improve if you make your repayments regularly and on time. That way, lenders will recognise you as a low-risk borrower that can be trusted with a new loan.
Know the value of your car
If your car is new with low mileage, and it will take you years to pay it off then refinancing can help to save money. However, if the car is older than eight years or with more than 100,000 miles, some lenders won’t give you an approval for refinancing. You’re towards the end of your loan term, it doesn’t make much sense to refinance because interest plays a small role in the rest of your repayments.
Search for the best refinancing rates
When you refinance, look at your current bank or credit union offer. Some of them have discounts on interest rates for loyal customers. You can compare the rate from your current lender with other lenders’ rates. When you’re ready to decide, get prequalified with more than three lenders, as it counts as one inquiry on your credit report during the first two weeks.
Consider Your Savings
Considering how much money you can save in the long run if you decide to take out a new loan is essential. That way, you’ll know what to expect and learn how to spread your finances. This is especially important if you opt for a loan with the same interest rate but a more extended repayment period. Consider whether the interest rate will grow over time and if that is something you can withstand.
Prepare Relevant Documentation
When applying for refinancing, you will be required to deliver necessary documentation like proof of insurance, proof of income, and your car paperwork. A copy of your original loan contract will be required as well. Be aware that if you go with a new lender, they might ask you about the interest rate, monthly payments, and vehicle information.
Apply
Once you shortlist your options and collect the documentation, you can begin the application process. Your lender will guide you through this phase and inform you of their final decision. However, if you decide to apply for several loans, submit your applications within 14 days to reduce the effect on your credit score.
Did you know that 20% of new cars are purchased using a car loan?
Should You Refinance Your Car?
Deciding on whether this is the right option greatly depends on the reason for refinancing cars. If you struggle to pay the instalments, stretching the repayment period can help lessen the budget strain. On the other hand, finding better interest rates can help you save money over time, especially if your credit score has improved since you’ve taken out your first loan.
Nevertheless, these benefits may not be accessible to you if:
- You have fallen back on your repayments;
- Your existing loan has a prepayment penalty;
- You have an old vehicle;
- Your car has low value.
The Benefits of Refinancing an Auto Loan
Refinancing an auto loan comes with great benefits, some of which are:
You can get a lower interest rate, especially if you have made regular payments in the last 12 months and your credit score has improved.
You can lower your monthly payment and save up money for other existing loans or in times of financial hardships.
You can pay off your loan earlier with a lower interest rate and shorter loan term.
You can use the equity of your car to borrow money with the cash-out auto refinance loan.
However, you should also be aware of the drawbacks that could potentially occur with refinancing an auto loan.
Your interest rate can go up if you refinance to a longer loan term.
You might have to pay application fees or re-registration and transfer of title fees.
You can end up being upside-down on your loan, which means that you can end up paying owing more than the value of your car.
Bottom Line
Refinancing cars with the same lender is typically possible if you have proved to be a reliable borrower in the past. While you can negotiate better terms and conditions, it might be a good idea to research other available offers. Once you have chosen the best option, consider your credit score, finances, and car’s worth.
1. When should I refinance my car?
You should postpone refinancing your car for at least six months to a year after taking out a car loan. This will allow for your credit score to recover and build a positive payment history.
2. What do I need to bring to refinance my car?
When submitting your application, bring your driver’s license, proof of insurance, pay stubs, or other proof of income, and your social security number. Don’t forget to bring a copy of the original loan contract if you’re applying for a loan from a new lender.
3. Can I refinance my existing car?
Lenders typically accept refinancing if the car you own is a relatively new vehicle in good condition. On the other hand, if your existing car isn’t worth much, refinancing isn’t a good choice, as you can end up spending more than you should.
