More often than not, if you ask anyone about “refinancing”, they associate it with their home mortgage, a lot of paperwork and expensive fees. What consumers have not clearly been aware of is that by refinancing their car loan, they can possibly save money on the interest they are paying, reduce their payment or total cost of the loan, and can actually improve their credit score in the process.
Popular misconceptions about auto loan refinancing are that only people with bad credit should do it and that there is a ton of paperwork and time involved. Surprisingly, this is not true. Even buyers who were approved for a car loan with excellent credit can also benefit by doing an auto refinance to get an even better rate – it’s all about when they originally applied and what the rates were many months ago. It is a moving target as you know.
“Many times auto shoppers pay more than they have to pay because they need a car,” says Heather Dietel, Director of Business Development at myAutoloan.com, a licensed auto loan refinancing lender. “If the individual had to have transportation and purchased a car with higher rates at the time, and they’ve been working to rebuild their credit, they will absolutely be surprised to see how much money they can save by refinancing.”
Who Should Refinance?
There are several different situations when refinancing an auto loan is beneficial, says Heather. You should refinance if you had a poor credit score when you bought your car and signed a loan with a high interest rate, if you reviewed your home budget and need to trim outgoing cash and reduce fixed expenses or if you’ve experienced a medical or other type of emergency and need to reduce cash outflow.
“Basically, refinancing is just not something that has been a priority with auto finance customers in the past,” Heather says. “Not until the current economic crisis has it really become a great option for many people who are trying to reduce their costs.”
If you signed your car loan with a high APR, like 15 to 20% and higher, you’re NOT stuck with that high interest payment. Even if you bought your car a year ago with a high credit score and an APR of 7.5%, you can still refinance to get an even lower rate, Heather says.
“Even if you had excellent credit when you bought your car, the dealer can still mark up your interest rate,” she explains. “Not everyone knows that the dealerships can mark up rates but it happens all the time. Also, the Fed rate has gone down, so it’s cheaper to loan money. You can lower that 7.5% rate to a 5.5% rate and save money. Right now, the rates can’t get any lower.” If you have good or bad credit or a low or high interest rate, it’s always a good idea to try and get a lower rate by refinancing, Heather says.
Because there are a lot of sub-prime lenders that refinance auto loans, you don’t have to have a credit score of 650 or higher to be considered, she says. “Basically, a FICO score above 560 is where to start,” Heather says. “As your credit score increases, the greater your chances are of getting multiple approvals and competitive rates. It’s easier to get approved for refinancing than to get a car loan.”
Tomorrow we will discuss “When” and “How” to go about getting an auto refinance loan and detail some of the things you need to know or have so that you can apply online, whenever you want to and from the comfort of your home. See you then.