Your credit score determines the auto loan interest rate. In some situations having a low credit score will price you out or make you ineligible for refinance. It might not make sense since you own the car but many financial institutions don’t want to take on the risk of future potential default.
We know that lowering your interest rates will save you money and thus keep you on track of paying it off. Financial companies however look at this purely through statistics and risk base modeling.
So, how can you lower your auto loan payments? Do the following to increase the likelihood you’ll get approved for a used auto loan refinance with a lower rate and more favorable terms.
Check your credit report. Pull your credit report at least 3 months before you plan to refinance. Review the report to make sure information is accurate and dispute and remove negative information. Use free credit score apps to get your credit score and monitor the changes.
Check the value of your car. Go on KBB or NADA to see how much your car is worth. Cars depreciate in value significantly. You might have an auto loan of $20,000 for a car valued at $17,000. In order to qualify for a refinance, you’ll need to have an additional downpayment to cover the difference.
Shop around for rates. Ask the current auto loan provider if you could qualify for a reduced auto loan interest rate especially if you’ve made on-time payments for the last 6-12 months. Find a credit union and ask about refinancing options. Many credit unions have competitive used auto loan rates.
If you are worried about the number of credit inquiries impacting your credit score, don’t worry too much. The scoring algorithms, primarily FICO, aggregates all loan applications for cars as one during a 30 day period. It understands you are shopping for the best rate so you will not be penalized. “FICO Scores ignore mortgage, auto, and student loan inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping.”