Auto Refinance: A Guide to Lowering Your Car Loan Payments
March 15 2023
Car loan payments can be overwhelming for many people, especially in this current economic climate. The average monthly car payment on a used vehicle is over $520, while new car payments average $716. That’s a financial burden many people don’t know how to overcome. One way is by refinancing your vehicle loan. Auto refinancing can help you significantly lower your monthly payments, making it easier to manage your finances.
How Does Auto Refinance Work?
Auto refinancing involves replacing your existing car loan with a new one from a different lender. The new loan typically comes with a lower interest rate and an extended loan term, which can significantly reduce your monthly payments.
Refinancing involves applying for a new loan with a different lender, who then pays off your existing loan, effectively transferring the debt. You'll then start making payments to the new lender under the terms and conditions of the new loan.
Is It a Good Idea To Refinance Your Car?
Whether you have a loan for a used car or a new one, refinancing can be a good idea for several reasons.
Lower Interest Rates
If interest rates have dropped since you took out your original loan or your credit score has improved, you may be able to secure a lower interest rate through refinancing. This could save you money in interest payments over the life of the loan.
Reduced Monthly Payments
Auto refinancing saves people an average of $1,158 per year, which is nearly $100 per month. The extra cash you save each month can provide you with the financial flexibility you’re looking for.
However, refinancing might not be suitable for everyone. If your loan has a prepayment penalty or the cost of refinancing exceeds the potential savings, it might not be the best option for you long-term.
Does Refinancing a Car Hurt Your Credit?
Refinancing a car loan can have a temporary impact on your credit score. When you apply for a new loan, the lender will perform a hard inquiry on your credit report, which may lower your score by a few points. However, this impact is usually minimal and temporary. Over time, consistent on-time payments and a lower debt-to-income ratio can help improve your credit score.
Which Banks Are Best for Refinancing Cars?
Several banks offer competitive rates and terms for auto refinancing. Some of the top banks for refinancing cars include:
- Bank of America
- Wells Fargo
- Capital One
It's essential to shop around and compare interest rates, loan terms, and fees from multiple lenders to find the best deal for your situation.
How Can You Refinance a Car Loan Through a Credit Union?
Credit unions can also be an excellent option for refinancing your auto loan. They often provide lower interest rates and more personalized customer service than traditional banks. To refinance a car loan through a credit union, follow these steps.
Become a Member
Most credit unions require you to become a member before you can apply for a loan. This typically involves opening a savings or checking account and depositing a small amount of money.
Apply for a Loan
Collect the necessary documents for refinancing, including proof of income, your current loan information, and details about your vehicle, including its make, model, and VIN.
Fill out the credit union's loan application online or in person, and submit the required documentation.
Wait for Approval
The credit union will review your application and perform a credit check. If approved, they will provide you with a loan offer, including the interest rate, loan term, and monthly payment amount.
If you accept the loan offer, the credit union will pay off your existing loan, and you'll begin making payments to the credit union under the new terms.
How Can NerdWallet Help Car Refinance?
NerdWallet is a popular financial website that can help simplify the auto refinancing process by providing valuable information, resources, and tools. Their articles and guides provide expert advice on when to refinance, how to improve your credit score, and how to avoid common refinancing mistakes.
Here's how NerdWallet can assist with car refinancing.
NerdWallet offers a comprehensive comparison of various banks, credit unions, and online lenders, helping you find the best refinancing options based on your credit score, loan term, and vehicle type.
NerdWallet's auto refinance calculator can use your current loan balance, interest rate, and remaining term to help you estimate potential savings from refinancing.
Reading reviews of different lenders is essential before refinancing your car. NerdWallet features in-depth reviews of different lenders, allowing you to make an informed decision based on other users' experiences.
Save Money Through Auto Refinancing
Refinancing your car loan can be a powerful strategy to save money and improve your financial situation. By securing a lower interest rate, reducing your monthly payments, or shortening your loan term, you can free up valuable resources and put yourself on the path to greater financial freedom.
If you want to trade in your vehicle and buy a new car with a lower payment, Allcreditautos.com can guide you through the process. They are experts at helping you find the best dealership and obtaining an attractive rate on a new car so you can drive toward a brighter financial future.