Refinancing an automobile loan is actually one of the easier things that you can do financially. The process is typically quite easy with the company refinancing the vehicle doing most of the work. You might have to submit a few documents but besides signing the new loan, everything else will be handled. They will pay off your old loan and become the new lien holder on your title without you doing much at all. So, is it time to refinance? Here are some reasons that you might consider doing so.
Lower Your Interest Rate
This is, of course, the biggest reason that people refinance their vehicle. They want to take advantage of a lower interest rate to both lower their interest paid and lower their monthly payment. You might be able to get a lower interest rate if any of the following conditions is true.
- You used the dealer finance department.
Dealerships secretly make money on the vehicles that they finance, taking a percentage of the loan interest that you pay. You might have been given a 7% interest rate when you really qualified for a 5% one. It is just one of the many ways that dealerships profit off of you. If you accepted the dealership financing, even if you haggled the rate down a bit, you can probably get a better deal on the open market.
- Your credit has improved.
Obviously, if your credit has improved, you should be able to qualify for a better interest rate and you would benefit from refinancing. Now, going from a 650 to a 660 is not going to get you very far but if you went from a 650 to a 710, you should see quite a difference.
- You have paid enough to improve the LTV.
If you have made enough payments to sufficiently pay down the Loan To Value rating of the loan, you might be able to get a better interest rate. When you bought that new car, you started off behind right away because of the immediate depreciation. This made the loan riskier for the lender. If you have paid down the loan enough that it is not that big of a difference anymore, you have lowered the risk for a lender. Lower risk means lower interest rates.
Lower Your Payment
Has your budget changed and you can no longer afford that big vehicle payment? Just want to cut expenses to give yourself more of a buffer? Refinancing can do just that. If you get a rate that is a few points lower, you could shave an easy $50 off of your monthly payment, depending on the amount of the loan.
Even if you do not qualify for a lower interest rate, you could lower your payment by stretching your term. Let’s say your original loan was at 5% for 60 months and you have paid on it for 6 or 7 months. Refinance it with another 5% for 60 month loan and your payment could lower nicely. As much as $100 depending on how long you have paid on it. This can help your budget quite a bit.
Skip A Monthly Payment
Do you have a big expense coming up that you need to pay for. This could be a medical expense or perhaps holiday shopping. Maybe you even just want to buy yourself something nice. Refinancing can get you the money that you need by skipping a payment. It is not something that you would want to do all the time but it really costs you nothing except maybe a bit of extra interest. There are no fees charged by lenders to refinance, you will just skip a month o making payments as the vehicle transfers to the new lender.
Escape A Bad Lender
Let’s face it, sometimes a lender is just annoying. They might have bad habits of marketing to you too much or maybe their billing process is flawed. If the idea of putting up with your current lender for four more years is making you cranky you might want to just refinance. Refinancing will allow you to get out from under your bad lender with a fresh start. Just be sure to check out the reviews of your new lender before signing. You wouldn’t want to jump out of the pot and into the fire.
You Want To Pull Money Out
If you owe less for your car than it is worth, you might be able to pull money out. Many lenders will allow you to pull money out when you refinance. You could end up with the same or even a lower payment and cash in hand. Use the money to pay off higher interest debt like credit cards or to go on a vacation.
You Need To Get A CoBorrower Removed
If you had a co-borrower and you now need to get them removed, this is the way to do it. You might need to do this in the case of a divorce or if perhaps you originally needed a cosigner at the time of purchase. Getting the other borrower off the loan is easy if you qualify for the refinance by yourself. Your lender will be able to provide you with the proper forms to have them removed from the loan and the vehicle title. The other borrower or cosigner will simply need to sign off on the deal, perhaps in front of a notary. Ask you r new lender for details.
There are a lot of reasons to refinance a vehicle. Luckily, this is one of the simplest financial transactions, for you at least, that you can do. All of the work will be handled by somebody else and you simply need to apply and then sign the final contract. On rare occasions, you might need to supply some financial documentation but for those with good credit, little verification is often needed.