The lower your credit score the more difficulty you will find in refinancing your car loan for better terms. It’s important to determine if your credit situation has improved or declined since taking out the original auto loan.
If your credit score has improved, it might be a good bet to refinance the auto loan with the existing lender. The alternative is to start shopping around for rates and terms. Call up your bank or credit union and see what promotions they have for car refinances.
Lenders use different score tiers to determine interest rates on many loans. It’s a good habit to shop around before committing to an interest rate. For instance, one lender may see 700 as very good for their best rate while another lender may want to see a 760 or above credit score.
Tips to consider before applying for a car refinance
What can you do to prepare? Pull your credit report and review the information to make sure everything is accurate. Fix any inaccurate information before refinancing. Get your free credit report through AnnualCreditReport.com.
Have low credit scores? Begin to repair your credit and improve your score by getting any delinquent loans up to date, increase your available credit, and pay off collection accounts.
Qualifying for an auto loan with low credit scores can prove to be quite difficult. Even if you are approved you might find yourself having a larger monthly payment due to an extremely high-interest rate. Plan a way to fix your credit report and increase your credit score.
Now, applying for a car refinance is a bit different because many lenders will factor in your car payment history in determining whether or not to refinance the vehicle. Understand the purpose of refinancing your car is to lower your monthly payment and pay off the car faster.
Speak with your lender. Ask your current auto loan holder if a refinancing option is available to lower your monthly payment. If you have on-time payments, they may be able to reduce your rate or refinance your loan.
Don’t end up paying more for the car. Make sure you know the amount of time left to pay off your auto loan. Sometimes, you might think of refinancing an auto loan when you have 15 months left. Basically, you’ve already paid all the interest up front and each payment you make goes directly to the principal. Refinancing may cause you to pay more through additional financing charges.