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.
|
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.
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.
[faq2]
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!!
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.
Psst… Don’t rush into applying for credit cards or other lines of credit immediately after refinancing. Opening up numerous loans in a short time can hurt your credit score tremendously and may take more time to increase your score back. |
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:
Here’s an example of some refinancing offers and how to best compare them before deciding to refinance:
[table1]
Refinance Option #1
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.
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.
Psst… you’ll notice a lower monthly payment if you extend your auto refinance by 1-2 years. |
[table2]
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.
[table3]
Here your monthly payments are lower when you refinance with an increased credit score and lower interest rate.
Psst...Before shortening your loan term, make sure you can handle a higher monthly payment and make sure to consider your other expenses. It’s a bad idea to take on a loan that you can't handle! |
[table4]
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).
QUICK TIP: review your loan agreement or contact your lender to ensure there are no surprises when you’re ready to refinance. |
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!
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
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.
[faq1]