Do you already have an auto loan to finance your car? Are you looking to take advantage of lower interest rates to save money on your current loan? If so, refinancing your loan can save you money in the long run and ease your financial burden.
If you want to save more money in the new year, you may want to consider refinancing your current auto loan with a loan at a lower interest rate. Let’s take a look at auto loan refinancing to see if it would be a good solution for you.
How does auto loan refinancing work?
Refinancing an auto loan involves taking out a new loan to pay off the balance on your existing auto loan. Like your original auto loan, refinancing is secured by your vehicle and repaid in regular installments over a period of time until the amount is paid off. Your replacement loan will have new terms and a new interest rate, which should be lower than what you are currently paying.
Is auto loan refinancing accessible to everyone?
Before applying to refinance your car loan, it is important that you understand the requirements of such an arrangement, which generally include the following:
Age of your vehicle – Over time, cars decrease in value, which starts the moment they drive off the dealership floor. Older vehicles past a certain age may not qualify for refinancing, for obvious reasons. Lenders don’t want to use an old vehicle as collateral if it doesn’t have much life left (this page has some good information on vehicle title loans ). The maximum age requirement varies from lender to lender, but it is generally between 7 and 10 years old.
Vehicle Type – Certain types of vehicles may not qualify for auto loan refinancing, such as commercial vehicles or recreational vehicles
Mileage – Similar to the age of the vehicle, a vehicle with certain mileage may not qualify for an auto loan refinance. Lenders may have their own maximum on this, but this is generally around 150,000 km.
Vehicle Value – Depending on the value of the vehicle compared to what you still owe on your current car loan, you may not qualify for refinancing. Specifically, if the car is worth less than you still owe, you’ll likely have a harder time finding a lender who will offer you a refinance.
Loan Amount – Typically, lenders have a minimum loan requirement when refinancing a car loan. You will therefore need to find out what this amount is when you apply.
What you need to refinance an auto loan
Before you decide to refinance your auto loan, consider why you’re considering taking this route. Here are some good reasons why refinancing your current auto loan might be the right option:
To get a lower interest rate – If rates have fallen since you took out your car loan, you may want to consider refinancing to get a lower rate and save money over time of the loan. This is one of the top reasons consumers refinance because they can potentially save thousands of dollars in the long run. Even a 1% drop could result in substantial savings.
When should you avoid refinancing your auto loan?
While refinancing a car loan has its benefits, it may not always be the right option for you. Here are some situations where refinancing should probably be avoided:
Most of your current loan is paid off – If you are about to pay off the entire loan amount of your current auto loan, then why refinance? Interest is usually charged at the beginning of the loan, which means you pay more at the beginning of your loan. Waiting too long to refinance your loan means less savings on interest.