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 providing you with interactive financial calculators and tools as well as publishing reliable and original content. This allows you to conduct your own research and evaluate information for no cost – so that you can make informed financial decisions. Bankrate has agreements with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website are provided by companies that pay us. This compensation can affect the way and when products are featured on this site, including for instance, the sequence in which they appear in the listing categories in the event that they are not permitted by law for our mortgage, home equity, and other home loan products. This compensation, however, does have no impact on the information we provide, or the reviews you see on this site. We do not contain the universe of companies or financial deals that might be available 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 specializes in assisting readers in navigating the ins and outs of securely borrowing money to buy a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances with concise, well-researched and informative information that breaks down complicated topics into bite-sized pieces. The Bankrate guarantee
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You can find refinancing requirements on lender’s websites or Bankrate’s .
2. Don’t contact your current lender first . While your current lender may not offer the most competitive rates, it is still the best place to start. Before you look into refinancing options that aren’t offered by the current lender, it is wise to reach out and explain your situation to determine if they are able to assist. Some lenders offer this, which changes the terms, the due date for payments or interest rate , to help borrowers get financial relief. Tip from Bankrate
If you do go through with refinancing the loan, it is possible that they will offer a better deal than a new lender might.
3. Extending the loan term too much Refinancing aims to cut costs, but should you extend your loan excessively it could cost you more over the loan’s life. While it could mean the payment will be lower, you will also pay more interest. Tips from Bankrate
Prior to term adjustment Take advantage of an auto refinance to make sure you are saving money.
4. Do not take your credit into consideration Like most situations with financing, your credit serves as the main factor for approval. Therefore, you must improve your credit and prior to you refinance your loan. You’ll be more likely to get the loan you want and get an improved loan overall. If your credit score is 670 or higher generally qualifies borrowers to the highest interest rates. Bankrate tip
Check your credit ahead of loan applications by using AnnualCreditReport.com.
5. Only shopping with one lender Just as you would when you are shopping for your first auto loan, we recommend comparing at least three lenders. Therefore, even though signing on the first loan offer might be appealing, not all loans are all created to be equal. Ultimately, the lower your interest rate the lower your car loan. It is important to make sure you’re getting the best offer out there. Bankrate tip
Compare the current rates offered by a range of lenders. Pay attention to eligibility requirements, repayment options and how they compare to the current loan.
6. Insolvency on your loan Prior to refinancing, you should determine what equity in your car is with the help of . Equity is the sum by which the value of the car is higher than the amount that you owe to the car loan. If you have debt that is greater than what your car is worth, or hold negative equity refinancing your loan is probably not the best choice. Tips from Bankrate
Don’t make a deal to refinance a vehicle that you’re not able to pay for. Examine the areas where you might be overextending and calculate expected expenses prior to signing an additional loan.
7. Giving up after your first rejection Auto loan refinancing requirements vary from lender to lender Therefore, even if you’ve been rejected by one 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 inquire with the lender under the (ECOA). They must tell you why the application was rejected. Bankrate tip
Knowing why you were denied will improve your chances of getting approval in the future. For example, if your credit score is low, you can work towards improving it before applying again.
The bottom line is that refinancing your car loan is not without risk It is an excellent way to lower your monthly cost and continue financing your vehicle. Keep these common mistakes in mind, and keep up-to-date with current information so that you can walk away with the best loan for your requirements.
This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers to navigate the details of borrowing money to purchase cars. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to manage their finances with clear, well-researched details that cut complex subjects into bite-sized pieces.
Auto loans editor
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