Most people know that they can refinance their homes, but did you also know that you can refinance your car? Refinancing their auto loans may be a good idea for many people who have high-interest subprime car loans. How do you know when it might be a good idea to refinance your bad credit auto loan? And once you've decided to refinance, how should you do it so that your loan situation gets better?
When you refinance your auto loan, the old loan is paid off in full and is replaced by a new loan, just like when you refinance your home loan. If your credit score when you bought your car was below 620, the interest rate on your auto loan may be much higher than the rate you can get today. If you refinance your car loan with bad credit, your monthly payment may go down by a lot. Also, you might not have to pay as much in interest over the life of the loan.
You might be able to refinance your car loan if
If you have had your car loan for at least a year, it is "seasoned."
You have been on time with your payments.
The amount you still owe on your car is less than what it's worth.
If you agree with all of the above, it might be time to look into refinancing your car.
First, make sure you know everything there is to know about your credit report and credit score. You can easily find both of these online. Every year, you can get one free credit report. For a small fee, you should also be able to get your current FICO score.
Find out how much your car is worth. You don't have to get your car appraised to refinance your auto loan, but you should know what it's worth. Most companies that refinance auto loans want you to owe at least $7,500, so your car must be worth at least that much. There are many books and websites that can help you figure out how much your car is worth. The Kelley Blue Book and Edmunds Buyer Guides are two of the most used sources. When you look at the condition of your car, be sure to be honest, because your lender will too.
Third, look into the lenders who can help you. Your current lender might be willing to let you refinance your car. But you should look around for the bank with the lowest interest rate and try to refinance as little as possible. When these two things are true, you'll also get the lowest possible monthly payment.
As with any loan, you should put all offers in writing. Read the fine print and compare the different proposals.
It may take some time and work to find a lender who will refinance your auto loan if you have bad credit. But the money you save each month and over the life of the loan can easily make up for the time and effort.
