What is Auto Loan Refinance?

Did you know refinancing your auto loan could save you hundreds, if not thousands, of dollars over time? Imagine having an extra $50 - $100 in your pocket every month—sounds pretty great, right? Refinancing is one way to make that happen, but what exactly is it, and how does it work? 

If you’re new to the concept of auto loan refinancing, don’t worry. By the end of this article, you’ll know the basics and be ready to explore whether it’s the right move for you.

here's a quick look at what we'll cover 

what is auto loan refinance?

Auto loan refinancing is the process of replacing your current car loan with a new one.  The goal of an auto loan refinance is to replace the loan you have with a better rate or monthly payment.

If you already have an auto loan, you can refinance with your current lender or with a new one.  Here's what you can expect.

How does refinancing work?

When you refinance your auto loan, the new lender or your current one will first evaluate your credit, vehicle, and loan history. Once approved, the new loan will cover the balance of your existing loan, and you'll begin repaying the refinanced loan under the new terms. Depending on the terms you choose, this could result in lower monthly payments, a reduced interest rate, or a shorter repayment period.

Once refinanced,  you can repay your auto loan under the new loan agreement until it’s completely paid and full. Next, you’ll have complete ownership of your car. Woo hoo!!

does refinancing hurt my credit score?

When you apply for any loan, lenders conduct a credit check, which can cause a slight drop in your credit score. The same goes for refinancing your auto loan—the initial inquiry might temporarily lower your score by a few points. However, don't worry; your credit score should recover within a few weeks.

do i need to pre-qualify to refinance an auto loan? 

Many lenders don’t have an official prequalification or preapproval process for consumers looking to refinance their auto loan, but you can get an idea of what option works best for you (or if it’s an option at all) by asking. At Skyla, we can review your pay stubs to give an idea of how your ratios look and verify if you can repay the new auto loan. Also, we can give you an idea of the interest rate you’ll receive if you refinance with us.  

When comparing refinance offers, make sure to pay attention to:

• New Loan Amount
• Loan Term
• New Interest Rate 

Here’s an example of some refinancing offers and how to best compare them before deciding to refinance:

• Notice how this refinance option offers the same loan amount and the same loan term but the interest rate is lower. More than likely, your credit score would have improved to receive a lower interest rate. 
• This option would mean you'd pay $38 more in monthly payments but you'd pocket  $2,771 in total savings compared to the original loan amount.

Refinance Option #2

Here you’ll see a similar auto refinancing option with the same loan amount but the loan term is shorter. The interest rate is still lower than the original interest rate at 6.75% APR*.

Although you would be paying more in monthly payments, choosing this option means you'll save $2,334 in total costs and your auto loan will be completely paid off sooner.

which refinancing offer would you choose: option 1 OR 2?

Whether you already have an answer or you're still thinking - let's reach deeper and discuss when's the best time to refinance, pros and cons, and other ways you can get cashback into your pocket when refinancing your car. 

pros and cons of refinancing  

the pros:

• It's an Opportunity to Reduce Your Interest Rate: Better interest rates may be available to you since you first financed your car or your credit score may have improved. A better credit score allows you to score a better loan term that could reduce your monthly payment.
• Lower Monthly Payments: If you’re looking for an immediate save when refinancing, you can do so by lowering your monthly payments. A high credit score can help achieve this, as well as extending the life of your loan can lower your monthly payments. When extending the loan term, you could be paying an increased total loan amount. Before making any quick decisions, your lender should ensure first if refinancing is a beneficial decision for you first. 
  

Notice when refinancing, the monthly payment is lower when you extend the loan term to 72 months. Your credit score and the interest rate are the same but the loan interest is $2,337.64 more than when you first financed.

Here your monthly payments are lower when you refinance with an increased credit score and lower interest rate.

• You Can Get Cashback: Cashback is an option if you’ve paid your car loan for some time or if you’ve been paying ahead of time - this means you’ve built good equity into your car and can use the cash for something else.    
  
• You Want to Shorten the Term: Shortening your loan term means you can repay the total cost of your loan faster. Shorter loan terms also mean a higher monthly payment, but you’ll be closer to obtaining the title of your car and having complete ownership of your vehicle. Yay! 
  

Notice the monthly payment has increased, but you’ll repay the full amount of your auto loan in four years(48 months) instead of the original financed six years (72 months).

The Cons: 

• You Could End Up Paying More Money: As mentioned above, you can pay more money in the long run when extending the loan term or lowering your monthly payments with the same interest rate and total loan amount. In addition, some lenders charge a variety of fees when you're refinancing, including transfer fees, prepayment penalty fees, and more.  

can i refinance my auto loan with skyla? 

Of course!  If you already have the perfect car and are financed with another lender, you can refinance with us where we can beat your current lender’s interest rate up to 1% APR¹ reduction for loans up to $24,999 and up to 1.5% APR¹ reduction for loans above $25,000!

here's what's next:

Refinancing an auto loan may be an easy option to opt into when you just received an auto loan that's you're making high monthly or overall total payments for. If you're still struggling with your decision to refinance, contact us. We'll be happy to help!

By exploring refinancing options, you could save over $300 on your monthly payments or pay off your loan faster than expected. It’s worth checking what offers you qualify for.  Ready to take the next step? Discover when refinancing is right for you. 

If you need help with some auto loan terms or need ideas with some auto loan questions to ask a lender or dealer you can also grab the free Auto Loan 101 Guide

Need additional help refinancing? 

Our Customer Service Representatives are here for you and ready to assist! You can send an email or give us a call at 704.375.0183.