Refinancing your auto loan can help you save money by reducing the interest rate, monthly payments, and total interest. It’s also a great way to pay off your loan faster, and improve your cash flow, especially if your credit score is higher than when you applied for the original loan.
Before approving the new loan, lenders consider factors such as your credit score, current loan term, interest rate, the vehicle’s conditions, and the amount you’re requesting.
Read on to find out the ten best auto loan refinancing lenders, how auto loan refinancing works, and the best time to refinance your auto loan.
Summary of Best Auto Loan Refinancing Lenders of March 2022
|Lender||Best For||Est. APR||Loan Range||Min. Credit Score|
|Lightstream Auto Loan||Best for excellent credit||2.49% – 9.24%||$5,000 to $100,000||660|
|Clearlane by Ally Bank Auto Loan||Best for Applying directly with a lender||3.74 – 16.49%||$10,000 to $80,000||520|
|RateGenius – Refinance loan||Best Marketplace
for Comparing offers
|1.99 – 16.00%||$12,000 to $100,000||550|
|Autopay – Refinance loan||Best for Variety of Refinance Options||1.99 – 17.99%||$2,500 to $100,000||600|
|Capital One- Refinance loan||Best for bad credit||2.99% and above||Minimum $4,000||500|
|PenFed Credit Union- Refinance loan||Best for Low Auto Refinance Rates||0.99% and above||$500 to $100,000||610|
|Consumers Credit Union – Refinance loan||Best for Applying directly with a lender||2.69 – 21.24%||$5,000 to $75,000||620|
|MyAutoloan – Refinance loan||Best for Fair Credit||2.05 – 29.40%||$5,000 to $99,000||575|
|RefiJet – Refinance loan||Best Marketplace
for Comparing offers
|2.45 – 17.99%||$7,500 to $150,000||500|
|Tresl – Refinance loan||Best Marketplace
for Comparing offers
|1.99 – 17.99%||$5,000 to $100,000||580|
How Does Auto Loan Refinancing Work?
Refinancing your auto loan means swapping your current auto loan for a new one with different features. The new loan repays the old one, leaving you with a new interest rate, monthly payments, and a new loan term from a different lender.
When Should You Refinance Your Car Loan?
In general, you can refinance an auto loan one year after taking out the original loan. Most lenders have a condition that you must make timely payments on the original loan for at least six to twelve months to get approved for refinancing.
You should consider refinancing if:
Your Current Monthly Payments Are Expensive
If your existing loan has high-interest rates, you can refinance it for friendlier rates. You can also reduce the monthly payments by selecting a longer-term on the new loan.
Although longer terms have higher total interest, it’s better than missing payments which hurts your credit score.
You’d Like to Consolidate Your Debt
Consolidating all your debt with one lender can positively impact your credit score.
Your Credit Score Is Better
Your credit score plays a significant role in determining the new interest rate. Improving your credit score by even 50 points could make a big difference in the loan’s total interest.
For instance, the auto loan interest rate with an 825 credit score can be as low as 2%, but for a 712 credit score, auto loan interest rates range from 4.68%.
You’d Like Better Loan Terms
If your current loan is financially restrictive, you can refinance it with a different lender to get better terms.
A Dealership Financed Your Current Loan
Dealerships don’t always have the best rates compared to other lenders. If you accepted dealer financing without negotiating the interest rates, consider refinancing the loan for the remaining term.
You Want to Remove Co-Signers on Your Auto Loan
You can refinance your auto loan to eliminate a co-signer from your loan. Ensure you know how this move will affect your finances in the long run.
Pros & Cons of Refinancing an Auto Loan
|Lower interest rates||Higher total interest|
|Lower monthly payments||Additional fees|
|Better cash flow||Risk of an upside-down loan|
|Possibility of early repayment|
Will I Be Able to Refinance at a Lower Interest Rate?
Your new interest may be lower if your credit score has improved and all your monthly payments were on time. The higher your credit score, the better the rates you’ll qualify for.
I Have Bad Credit. Can I Still Refinance My Car Loan?
It’s often challenging to refinance an auto loan with bad credit. The lenders may not offer better terms, especially if your credit score is lower than when you got the original loan.
However, if your existing loan is a bad credit auto loan, you can refinance it even if your credit score is still poor but better, and if your payments for the last year or so we’re on time.
Start your search with local credit unions as they are more flexible and considerate than larger banks or lenders.
Which Lender Should I Refinance With?
The best lender to refinance your auto loan with should have competitive rates and flexible terms. To ensure you’re getting better interest rates, send your application to several lenders and compare which offer has the lowest rate. The chart above should give you a good place to start.
What Happens if I Extend My Loan Term?
If you extend your loan term, your monthly payment amount will reduce. However, it’s not always the best move if you want to save, as you’ll pay higher total interest on the loan.
There is also the risk of your loan becoming upside-down. This means that the outstanding balance on your loan will be more than the value of your car. In such a case, if your car gets damaged in an accident, your insurance provider may fail to cover the amount that you owe.
Additionally, if you sell the car, the amount you’ll receive will not be sufficient to cover the loan.
While there is much to consider, remember to use all of the above tips to find the best auto loan refinancing lenders.
Frequently Asked Questions
Is It Possible to Refinance an Auto Loan with the Existing Lender?
Yes, it is possible, but it will depend on the lender. Some institutions don’t have this option, but others do. In most cases, it’s best to use a different lender as you’ll get a better deal.
Does the Length of the New Loan Matter?
Yes, it does. Longer terms have lower monthly payments, but if the duration is longer than 60 months, you may end up paying more than the car’s value, generally due to the depreciating nature of vehicles.
Does Refinancing Auto Loan Affect Your Credit Score?
Refinancing your auto loan can cause your credit score to drop slightly. Although most lenders conduct a soft credit check to estimate your rates, some lenders perform a hard credit check. Soft credit checks will not affect your credit score, but hard credit checks will.
It’s best to submit your applications within 14 days to avoid significant damage to your credit score.
Will Refinancing My Auto Loan Help My Credit?
Initially, refinancing an auto loan will temporarily reduce your credit score. Once you make consistent, timely payments for a few months, your credit will go back up or slightly increase.
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