Common car refinancing mistakes to avoid Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by offering interactive tools and financial calculators as well as publishing reliable and original content. This allows users to conduct research and compare data for free – so that you can make financial decisions with confidence. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that appear on this site come from companies that compensate us. This compensation may impact how and where products are displayed on this website, for example such things as the order in which they may appear within the listing categories and other categories, unless prohibited by law. This applies to our loan products, such as mortgages and home equity and other home loan products. This compensation, however, does affect the information we publish, or the reviews that you read on this site. We do not contain the entire universe of businesses or financial offers that may be open to you. Tom Werner/Getty Images
3 minutes read. Published 24 February 2023
Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the ways and pitfalls of borrowing money to buy a car. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to control their finances through providing concise, well-researched and informative information that breaks down otherwise complicated subjects into digestible pieces. The Bankrate guarantee
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There are specific refinancing requirements from lenders’ websites or Bankrate’s .
2. Don’t contact your current lender first While your current lender might not offer the lowest rates, it’s the best place to start. Before looking into refinancing alternatives outside your current lender It is recommended to contact them and tell them about your situation and see if they could assist. Some lenders offer , which alters the conditions, the payment due date or the interest rate to help borrowers get financial relief. Tips from Bankrate
Even if you still follow through with refinancing the loan, it is possible that they’ll offer more than the new lender could.
3. Extending the loan time too much. Refinancing is a way to reduce costs, however when you extend the term of your loan to a large extent it could cost you more money over its lifetime. While a will mean the payment will be lower, you will also pay more interest. Bankrate tip
Before adjusting your term, take advantage of auto refinances to make sure you are saving money.
4. Do not take your credit into consideration In most cases of finance, credit is used as the primary factor in approval. Thus, improve it prior to refinancing your loan. You’ll have a better chance to get the loan you want and get a better loan overall. A credit score of 670 or higher typically qualifies borrowers for the most favorable interest rates. Tips from Bankrate
Check your credit ahead of loan applications by using AnnualCreditReport.com.
5. Only shopping with one lender Just as you would when shopping for your initial auto loan We suggest comparing at least three lenders. Therefore, even though signing on the first loan offer might be appealing, not all loans are all created equal. The lower the interest rate, the more you’ll save on your car payment. It is important to make sure you’re getting the most competitive rate available. Tips for Bankrate
Compare the rates currently provided by a variety of lenders. Pay attention to conditions for approval, the repayment options, and how it stacks up against your current loan.
6. Becoming upside down on your loan Prior to refinancing, you should determine what equity in your vehicle lies with the help of . Equity is the amount by which the vehicle’s value exceeds the amount you have to pay for the loan. If you owe more than your car is worth, or hold negative equity refinancing is not a good idea. Tips from Bankrate
Do not refinance a car you’re not able to pay for. Check where your may be overextending and calculate expected costs prior to signing the new loan.
7. Don’t give up after the first rejection Auto loan refinancing requirements vary from lender to lender So the fact that you’ve been rejected by one lender doesn’t mean you’ll be rejected by all. If you’re thinking, «Why can’t I refinance my car?» you have the right to question your lender to explain the reasons under the (ECOA). They must explain to you the reason your application was denied. Bankrate tip
Knowing why you were denied can help you improve your chances of getting approval in the future. For example, if your credit score is low it is possible to work on improving it before you apply again.
The bottom line While refinancing your vehicle loan can come with risks, it is a great way to lower your monthly cost and continue affording your vehicle. Be aware of these mistakes common to all in mind and be up-to-date with current information for you to be sure you leave with the most suitable loan for your requirements.
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Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers in navigating the ins and outs of securely borrowing money to buy a car. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to control their finances with precise, well-researched and well-informed facts that break down otherwise complex topics into manageable bites.
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