How to Find an Auto Refinancing Company
Have you been wondering whether refinancing is the right option for you? After negotiating the best price on a vehicle, consumers are sometimes left with loans that have unfavorable terms and high interest rates. If that’s you, it may be time to learn how to find an auto refinancing company that’s right for you.
Even if you’ve decided that refinancing is worth exploring, you may not be familiar with the steps involved. In this guide, you’ll learn more about your auto refinancing options and how the process works. You’ll also discover practical tips for going into the process more prepared and knowledgeable.
Choosing the best auto refinancing company is a matter of personal choice. Having the most current information and comparisons available can make a world of difference to your financial outcome.
Types of Auto Refinancing Options
Auto loan refinancing is the process of taking out a new car loan to pay off the balance of an existing car loan.
Refinancing an existing car loan is helpful for customers who want to:
- Lower the current interest rate
- Lower monthly payments by extending the loan repayment term
- Leverage a good credit score to secure better terms
Refinancing is also beneficial when the buyer won’t be penalized for paying off a current loan early. Occasionally, financial institutions have early repayment fees and penalties. In this case, the benefits of the refinancing agreement should outweigh the consequences of ending the previous loan.
Many different types of auto refinancing options exist. These can include:
- Refinancing terms for customers with excellent credit scores
- Refinancing options for borrowers with poor credit history
- New loans from small, niche lending institutions and online lenders
- Loans from large, nationally recognized banks and credit unions
- Special options for veterans and other public servants
The type of refinancing offer you are eligible largely depends on credit history and your personal situation.
How Does Auto Refinancing Work?
Auto refinancing works by replacing an existing car loan with a new one. Sometimes, buyers feel trapped in the original loan that they received through a car dealership at the time of purchase. When the interest rate is high or the terms are not favorable, customers may want to refinance at a later date.
The general refinancing process follows a simple format. This includes:
- Finding a new auto loan provider or refinancing company
- Applying and providing essential information during the application process
- Reviewing the approved terms and conditions
- Signing the new loan contract
Auto loan refinancing can be more simple and straightforward than the process to refinance a house. While it still signifies a major financial decision, the principal amount of each loan is often substantially less. This results in a faster and more efficient process that can usually be accomplished online.
What to Do Before You Refinance Your Vehicle
Before you refinance your vehicle, it’s important to take a few proactive steps. Refinancing is not the only viable financial option, nor is it the best for every situation.
Before you jump head first into refinancing, take these proactive measures:
Decide if it’s best for you. Refinancing is a good route for borrowers who have made consistent payments, have strong credit history, and wish to secure better terms. Has anything changed in your recent financial situation? Remember that refinancing triggers an entirely new loan process, which may ding your credit.
Prepare the necessary paperwork for applying. During the application process, you’ll need to provide personal documents, employment history, loan statements, and even proof of insurance. When you have these on hand, you can help ensure a faster application process.
Shop around to compare top picks. Not all refinancing companies are created equal. Don’t rush into an application process without conducting thorough research on your options. Make sure you know how a company ranks in terms of customer satisfaction and support, interest rate, and loan repayment terms.
If you’re still not sure whether refinancing is the best route for you, try using an auto loan refinancing calculator. These tools allow you to plug in personal and specific financial information to help you weigh costs and benefits. A calculator can also help you visualize how a lower interest rate could affect your personal monthly payments.
How to Pick the Best Auto Refinancing Company
As you compare auto loan refinancing companies, it’s wise to get both a high level view of the company and an in-depth look at financial benefits. Choosing the best auto refinancing company is less about preference and more about specific information or terms that set one company apart from the next.
Here are a few characteristics of top auto loan refinancing companies:
- Easy, streamlined, and fast application process
- Ability to work with several types of applicants with varying financial backgrounds
- Competitive interest rates
- Favorable loan repayment terms and lower monthly payments
- High rates of customer satisfaction and support
- Transparency around any relevant fees or penalties
Advantages to Auto Refinancing:
Refinancing an existing auto loan can offer many positives. For the right borrowers, refinancing can provide peace of mind and greater financial security. Several advantages are listed below.
- Borrowers can qualify for a lower interest rate based on history and credit score.
- Refinancing can decrease the monthly car payment, which allows for more room in a family’s budget for other necessary expenses.
- Refinancing can improve cash flow in situations where the amount owed on a loan is worth more than the current value of the car. You can check the current value of your car by using services such as Kelley Blue Book.
- In some situations, refinancing can help borrowers who are in a tight spot financially; these individuals may not be able to afford to sell a car completely. While this is not true for every circumstance, sometimes refinancing provides a helpful solution.
Disadvantages to Auto Refinancing:
While refinancing might open the door for better financial options, it’s not always the solution. There are a few disadvantages to auto loan refinancings that borrowers should know before proceeding. These disadvantages are listed below.
- Going through the refinancing application process could ding your credit report.
- Applying for a new loan can sometimes be costly, both in time and money.
- Submitting a refinancing application does not necessarily guarantee a better interest rate. If a borrower’s credit score is the same or worse, refinancing may not be helpful.
Learn Your Loan Eligibility
The Credit Review offers a wide library of resources to help borrowers and customers learn about different types of personal loans. In Everything You Need to Know about Loans, you’ll start with the basics and discover how to compare loan products.
Whether you have poor credit and still need options, or if you’re looking to use the loan process to build your credit score from scratch, The Credit Review has the resources to equip and enable you to make the best decisions possible.
Frequently Asked Questions
When should I refinance an existing car loan?
Typically, borrowers can refinance a current loan after some time has passed after purchasing a car. You may be eligible to to refinance when you can meet the requirements of a new loan and when the benefits outweigh the cost.
How can I compare rates from different auto refinancing companies?
To compare refinancing rates, you can go directly to a lender’s website and start researching. Be mindful that lenders often advertise their lowest possible rates, which are usually reserved for individuals with excellent credit. Sources like The Credit Review can provide comprehensive, third-party reviews that help you see companies side by side.
What credit score should I have to refinance an auto loan?
Some refinancing companies work with borrowers who have scores as low as 500. However, that’s often the lowest score a borrower can have to be considered. If you have a very low credit score, it may be best to improve it in other ways before taking out new loans.
What are common reasons for refinancing auto loans?
- High interest rate when the vehicle was originally purchased
- Consumer's credit score has improved since the purchase
- Consumer has financial needs, such as a large, unexpected expense and needs to free up some monthly cash flow
Are there certain auto loan companies to stay away from?
While there are many reputable auto loan and refinancing companies, there are also several scams that consumers should be aware of. Look out for loan companies that make bold guarantees, require a long list of fees, or make modifications to loans after the terms are set. To avoid falling for a scam, check out customer testimonials or reviews from the Better Business Bureau.
What should I do if I get declined in the refinancing process?
If you get declined during the refinancing process, the most important thing to do is stay calm. Continue making your traditional loan payments on time. Use the additional window of time to research options and explore which factors may have led to not being approved.