Category: Auto refinance

What Credit Score Is Needed to Refinance a Car?

Posted on by Choncé Maddox

If your car payment is high or you just want to take advantage of a better interest rate, the thought of refinancing your auto loan might have crossed your mind. When your credit score is less than perfect, refinancing might seem out of reach, but this is not always the case. 

Your credit score is important when refinancing your auto loan, but it’s not the only factor. Lenders look at other aspects which could improve your chances of getting approved.

How Credit Scores Affect a Car Loan

Although credit isn’t the only factor that impacts your ability to get an auto loan, it still carries a lot of weight. Lenders use your credit score to determine the likelihood that you’ll repay the loan with no issues. Your credit score is a three-digit number used to quickly communicate whether you’d be a risky borrower to lend money to. 

The higher your score, this demonstrates that you’d paid off debt in the past and continue to pay your other current bills on time. Meanwhile, a lower credit score can tell just the opposite. Credit scores typically range from 300 to 850, and according to Equifax, anything above 670 is considered “good” and a 740 to 799 credit score is “excellent.” 

Even if your credit score is lower than 670, you could still be approved for an auto loan. The lender might just charge you a higher interest rate since you’d be considered a more risky borrower. 

Both your FICO® score and VantageScore are based on a range of factors including:

  • The total amount of debt you owe
  • Payment history
  • Length of credit history
  • New credit you apply for (hard credit inquiries)
  • Type of credit accounts you currently have (account mix)

All of these factors hold some weight when the credit bureaus calculate your score, which gives lenders a good idea of if and how they should offer a loan. From a borrower’s standpoint, a lower credit score means you might not be approved for the loan terms you want, or you might pay more in total loan costs.

What Is the Minimum Score Needed to Refinance a Car?

There are hundreds of lenders that offer auto loans and auto refinancing. The list ranges from banks and credit unions to online lenders, dealerships, and more. Each lender has its own guidelines including the minimum credit score they accept. 

This is why there’s no universal minimum credit score requirement to refinance an auto loan. Some lenders even focus on working with subprime borrowers who have a 600 credit score or lower. Meanwhile, a local credit union might not offer an auto loan or auto refinance to someone with a score that’s less than 660.

The good news is that there will likely be a lender who will be willing to offer you a loan no matter what your credit score is. Still, this doesn’t mean you should accept the loan – especially if the terms are not good or helpful to your situation. 

According to RateGenius’ 2022 State of Auto Refinance Report, the average credit score of auto refinance borrowers the previous year was 670. However, this doesn’t mean borrowers who had a credit score below 670 weren’t approved to refinance.

Although credit scores are one concern, it’s also important to make sure that refinancing your auto loan makes sense for you financially. And even with an excellent credit score, there is no guarantee you’ll be approved to refinance your auto loan since lenders look at other factors as well. 

Aside From Credit, What Else Do Lenders Look At?

Lenders look at more than just your credit score to determine if you qualify for a loan or not. Here are a few other important factors to be mindful of.

Debt-to-income (DTI) ratio (DTI)

Your DTI is a simple calculation that determines how much of your income is going toward current debt payments. DTI is expressed as a percentage and the formula is your total minimum monthly debt payments divided by your gross monthly income (before taxes). 

Total debt includes all minimum payments for current loans and credit accounts such as student loans, personal loans, auto loans, mortgages, credit cards and so on. So, if you add up all your minimum debt payments and they total $1,000 for the month and your income is $5,000, your DTI calculation would be:

$1,000 / $5,000 = 0.20 = 20%

The lower your debt-to-income ratio, the better because it tells lenders you can afford to pay for your auto loan along with other current debt. Most lenders prefer to see a DTI below 36% but some mortgage lenders will allow up to 43% to 45%. 

Loan-to-value (LTV) ratio

Your LTV ratio is used to evaluate the value of your vehicle. This is done during the application process by comparing the amount of your existing auto loan balance to the value of the vehicle. Since cars depreciate over time, the value of your vehicle will change and likely decrease as the years go by.

Since auto loans are secured, meaning a lender can repossess the vehicle due to nonpayment, your LTV ratio lets lenders know if they can cover the loss should they have to sell your vehicle to pay back the loan. 

This means, lenders prefer cars that are newer and have a higher value than the loan amount. There is no set LTV since different lenders have their own guidelines. 

Income

Your income is part of your DTI, but in addition to credit, lenders will evaluate your income to make sure you can financially afford to pay back your auto loan. 

When you apply to refinance your auto loan, you’ll need to provide proof of employment, including check stubs or even a tax return if you’re self-employed. You can submit proof for all forms of monthly income you receive including salary and tips, social security, or rental income. 

Ideally, you’ll want a higher income with less debt to maintain a low debt-to-income ratio. 

Your current vehicle’s details

When you apply for an auto loan or auto loan refinance, you’ll need to provide certain details about your vehicle including the year and model, along with the mileage and current auto loan balance. 

Lenders set their own maximum age and mileage requirements for auto loans, and this information will also help determine your LTV.

If your vehicle is older or has a lot of miles, a lender could deny you an auto loan refinance. However, you might notice the recurring theme that not all lenders are the same and another one might approve you with the same vehicle age and mileage. So don’t let the fact that you don’t have a new car keep you from applying for a refinance.

As you can see, a good credit score does not guarantee approval for an auto loan just as a lower credit score doesn’t guarantee a denied application. Weaknesses in any area discussed above can impact your approval and the auto loan rates you’ll get. 

How to Increase Your Chances of Getting Approved to Refinance an Auto Loan

If you’re nervous about getting approved for an auto refinance loan, don’t worry. There are plenty of things you can do to strengthen your financial profile and reduce the risk to a lender. Remember that you don’t need a perfect financial situation to get approved, but making some of these improvements can help.

Improve your credit score

A higher credit score could help you save money on your auto loan if you can lock in a lower interest rate. To increase your credit score, start by reviewing your credit report to pinpoint areas for improvement. Make sure you’re paying bills on time and limit your hard inquiries. If you have credit cards with low or no balance, keep them open to extend your credit history length. 

You can also use tools like Experian Boost to increase your score since it includes reporting for your phone and utility bills. Applying with a cosigner who has good credit can also give you a boost and improve your chances of getting approved. 

Lower outstanding debt

Lowering your debt before applying for an auto loan has so many benefits. It can help increase your credit score, lower your DTI, and provide more peace of mind and cash flow. Choose one debt to focus on at a time and consider starting with the one that has the highest interest rate. 

Add debt payments to your budget and set up autopay. Then, put any extra money toward the account to chip away at it faster.

Make a larger down payment

Making a larger down payment will lower your loan amount and total loan costs. When applying for an auto refinance loan, you can also choose to make a down payment which can help lower your LTV ratio. 

Even if you’re upside down on your car loan (meaning you owe more than the vehicle is worth), you could still get approved to refinance with a new loan. Making a down payment can only improve your chances for approval and make lenders feel that their risk is even lower. 

The same goes for making extra car loan payments when possible. If you know you plan to refinance in the future, it could make sense to lower your loan amount by making extra payments.

Increase your income

Increasing your income is another way to lower your LTV ratio. See if you can pick up extra hours at work or apply for a promotion. If you have time in your schedule, apply for a part-time job or consider a temporary side hustle that can raise your income. Just remember, you’ll need to show lenders that your income is consistent and validate it with pay stubs or a bank statement. 

Shop around

You probably shop around before making a purchase more than you think. Since a car is a very costly purchase, you can benefit from shopping around for a new lender to compare rates and loan offers. Use the information you find to ensure you’re getting the best loan terms for your needs.

Don’t Give Up On Auto Loan Refinancing Due to “Bad Credit”

Refinancing an auto loan with a lower credit score is possible. There are so many lenders and each one sets its own guidelines and requirements for eligibility. Ultimately, your credit score will most likely not count you out for getting a new auto loan since there are other factors lenders look at. 

Can You Refinance a Car Loan With the Same Bank?

Posted on by Micah Murray

If you’re considering refinancing your car, you’re probably asking yourself “what is the easiest and cheapest way to refinance my auto loan?” If that leads you to wonder if you should ask your current lender to refinance your loan, there are some things that you should consider first. 

Can I refinance a car loan with the same bank?

Refinancing your car loan with the same bank or credit union that issued you the original loan is often a possibility since lenders don’t want to lose your business to a bank offering more competitive rates. 

However, not all lenders will allow you to do so, so you may need to check your lender’s policies. It may also depend on changes to your financial profile and credit score since you were granted your original loan. 

How Long Do I Have to Wait Before I Can Refinance My Auto Loan?

With auto loan refinancing, there is no official waiting period required between taking out a loan and refinancing it. You can refinance your loan as soon as you can find a lender willing to do so. 

However, you might have a hard time convincing your current lender to refinance your loan if you just recently took it out. That’s unless loan rates drop quickly and they are afraid to lose your business to a different lender.

The Pros and Cons of Refinancing With the Same Bank

When done responsibly, refinancing your car loan could come with many pros, like lower monthly payments, and very few cons. You most likely won’t even lose your car’s warranty should you decide to move forward with refinancing, but make sure to confirm with your provider beforehand.

However, refinancing your auto loan with the same lender offers a unique set of pros and cons that could affect your financial situation. 

Let’s examine the pros:

  • You might have less paperwork to fill out. Since your lender already has you on record as a borrower, you might have to provide less information in order to refinance your existing loan. This could save you paperwork and time, but that all depends on the lender and their underwriting policies. 
  • You might be more familiar with your current lender’s policies and customer service. If you’ve been using your loan provider for some time, you’re likely familiar with their policies and customer service. If you like your current lender, refinancing your loan through them ensures that you keep the same great service. 
  • Your loyalty might be rewarded with discounts. In an effort to keep you as a customer, a bank might offer you discounts on fees and interest rates when you refinance with them. You will need to contact your lender to ask them if they offer any refinancing discounts for existing customers.
  • You might be able to keep your online account. Keeping your current lender usually means that you can keep your online account and the documents stored within it. This will keep you from needing to learn a new lender’s systems and keep all of your auto lending documentation in one place; that way you have less to keep track of.

Now, let’s examine the cons:

  • You might miss out on lower interest rates and loan terms. Refinancing with the same bank, although convenient, isn’t always best if you’re after a better interest rate. If your loan terms are the reason you’re refinancing, it’s likely that you can find a loan company that will beat the loan terms that your current lender will offer you in their refinancing offer. 
  • Your current lender might charge prepayment penalties. Prepayment penalties help keep lenders from losing out on profits should you close the loan early. If your lender requires them, this will need to be paid before you can proceed with another loan. 
  • If you don’t like your current lender’s service and policies, refinancing with them will prolong your bad experience. If you don’t like your current lender’s service or policies, refinancing your car loan with them will only mean that you have to deal with them longer. 

Whether the pros or cons weigh heavier with you is based on your individual situation.

Is It Cheaper to Refinance an Auto Loan Through Your Current Lender?

Even though there is a possibility that refinancing your current loan through the same lender can save you some time, it might not save you much money. In fact, it might cost even more, since some lenders charge prepayment penalties. 

A prepayment penalty ensures that the lender receives at least some of the profits that they would make off the interest of the original loan, should it be cut short because it’s paid off early. 

These penalties are often 2% of the outstanding loan balance. So, if you refinance your $10,000 loan and your lender charges a 2% fee, you’ll pay $200 just to pay off your loan early and replace it with a new one. 

Plus, even if your lender offers you a discount on fees required to close on your new loan, the savings might not outweigh what you’ll save on interest with a better loan. 

It largely depends on factors like your financial profile and credit score, and whether or not they have improved since you originally took out the loan. You don’t need a perfect credit score to refinance your loan, but if it’s not very high, you should try to improve it even slightly before you consider refinancing. 

To find out how much money you could save by refinancing your auto loan, you can use our auto loan refinance calculator to estimate potential savings. 

Is It Easier to Refinance an Auto Loan Through Your Current Lender?

Whether or not refinancing with your auto loan’s current lender is any easier than doing so elsewhere depends on your experience with your lender. If you have made consistent, on-time payments throughout the life of the loan and have a positive credit history, refinancing with them will likely be straightforward. 

Depending on your lender’s refinancing process, this could mean that you don’t have to fill out a lengthy application, provide as many financial documents, or learn an entirely different online platform for managing your loans. 

On the other hand, if your lending experience has been difficult, especially if you have missed or late loan payments, you can expect that the refinancing process might be as well. 

If your lender finds you to be a higher credit risk, your refinance offer from your current lender might not be the best. Luckily, you have many other refinancing options.

Should You Refinance Your Car Loan With the Same Lender?

Whether or not you should refinance your car loan with your current auto lender depends on if there is a better refinancing deal out there for you. To make sure that you don’t miss one or have to refinance more than once, you should compare loans offered by multiple lenders to your current lender’s refinance offer. 

Shopping through a marketplace like AUTOPAY lets you compare loan terms from multiple lenders, so you can feel confident knowing that you’re getting the best deal. To find the best refinance loan for you, start by filling out our auto refinance form.

How to Know if You Shouldn’t Refinance With the Same Lender

You’ll know that you shouldn’t refinance with your current lender when you find a refinance offer that beats the one that your current lender offers. Since lenders are always looking to attract new customers, it’s likely that there’s a lender out there willing to give you better terms. 

If the terms of your loan aren’t your reason for refinancing your auto loan, a negative experience with your lender might be. Whether that negative experience is a bad customer service experience or unexpected fees, you shouldn’t refinance with the same lender if you haven’t been happy with your lending relationship.

How to Refinance Your Auto Loan With the Same Lender

When you refinance your auto loan through the same lender, you can expect the process to be similar to that of applying for your original loan. However, each lender will be different. You can expect the refinancing process through your current lender to look something like this:

  • You will fill out an application. Your lender should have all of your personal, loan, and vehicle information on file, like the current loan amount and if you have a cosigner. So, the application process for current borrowers is often simple, but it kicks off the rest of the process. This is your chance to update any financial or personal information that might affect whether you will be approved or denied for refinancing. 
  • Your lender will review your eligibility. Once your lender has received your application, they will work to figure out if you qualify for a new loan. To do so, they will review your proof of income, credit history, current auto loan standing, vehicle value and more. 
  • You will receive your lender’s decision. Once your lender has determined whether or not you qualify, they will issue you an approval or denial. This can come by way of email, phone call, an in-person discussion or even a text, so make sure to confirm which method your lender will use before decision day. 
  • If you’re approved, you’ll follow your lender’s instructions to close on the loan. Depending on whether you are working with an online lender or an in-person one, your lender will either instruct you to complete the loan process online or to meet them in person. During this process, you should be prepared to sign the loan contract and provide any last-minute documents that your lender might need. 
  • Your loan funds will be distributed. If you’re refinancing through the same lender, they’ll handle paying off the old loan and bringing your balance back to current, so you won’t need to handle distribution. 

All in all, refinancing an auto loan should not take more than a couple of weeks from start to finish. 

Is Refinancing With Poor Credit Worth It?

Posted on by Amy Stenglein

Yes, you can refinance your car loan even if you have a lower credit score. But is it worth it? When refinancing with a lower credit score, you must consider all your options. However, there is potential to save money by refinancing your car loan.

You need to begin with understanding how credit scores work and what you can do to improve yours. A higher credit score is essential for getting the best interest rates on a loan because a higher interest rate means you’ll pay more in the long run. 

You also need to ask yourself some important questions like what are your refinancing goals, can you secure a lower interest rate and are the new loan terms better than your current one? 

If you’re unsure whether refinancing is worth it or want to explore it as an option, we’ll examine how a lower credit score affects your chances of getting approved for a car refinance and how you can increase your chances.

Understanding Credit

We’ll discuss credit scoring and what factors influence your score. Knowing more about credit can help you make better choices when borrowing money.

Credit scores explained

Credit scores explained

Your credit score is a number that shows your level of creditworthiness — or how likely you are to repay a loan. The higher your score, the better your chances of being approved for a loan with a lower interest rate. A FICO® score is the most widely used credit scoring model and assigns a number between 300 and 850. 

  • Excellent: 800–850
  • Very Good: 740–799
  • Good: 670–739
  • Fair: 580–669
  • Poor: 300–579

A lender takes more than just a credit score into consideration – so even if your score falls in the lower range, it’s still possible to qualify for refinancing.

How credit scores are determined

Credit scores are calculated using many factors, each weighted differently. The following is a list of considerations that affect your credit:

  • Payment history (35%) – The less payments missed, the better.
  • Utilization rate (30%) – How much of your total available credit is free.
  • Length of credit history (15%) – 12 months or more is best. 
  • New credit (10%) – Recently acquired loans, credit lines and credit cards.
  • Credit mix (10%) – Showing you can manage different kinds of credit well.

It’s always a good idea to check your credit each year to make sure all of these factors are reported correctly. 

How to check a credit score

If you’re considering auto loan refinancing and you think you have a low credit score, the first thing to do is check your credit score. You can check your credit score online for free or use this form to check it by mail for free. You can do this free credit check once every year. 

Checking your credit score tells you where you stand. You might also be fortunate enough to find that your score is not as low as you thought. If that’s the case, you might have a better chance of being approved for a loan with a lower interest rate. On the other hand, if it’s lower than you thought, don’t worry — there are still things you can do to improve your chances of being approved.

The important thing is having the information, as it will allow you to make informed decisions.

credit report with a low credit score

The reasons for a poor credit score

There are several reasons why your credit score might be low, including: 

  • Late or missed payments – When you miss payments on your bills, it can negatively impact your credit score. In addition, repeatedly missing payments can result in your account being sent to collections, damaging your score even further.
  • Collection accounts – If you have any unpaid debt that has been sent to collections, this will be added to your credit report and lower your score.
  • High balances – Carrying a high balance on your credit cards can also lower your score.
  • Length of credit history – If you haven’t been using credit for very long, you might not have much credit history to show.
  • New accounts – Opening too many new accounts at once can lower your score.
  • Bankruptcy filing – A bankruptcy filing will stay on your credit report for seven years and will significantly impact your credit score as lenders will see you as a high-risk borrower.

According to Forbes, there are also reasons why responsible people might have low credit scores. One way is having a single credit card that drives up utilization, which is the amount of credit you’re using compared to the amount of credit you have available. 

For example, if you have a $5,000 credit limit and use $3,000 of that, your utilization ratio is 60 %. According to Experian, the average utilization rate is 17.0 % among consumers with FICO® credit scores of 780, which is in the “very good” zone for credit ratings. 

An excellent way to control this ratio is to keep your balances low. You can also grow your available credit if you open a new line of credit or get a credit limit increase. 

Knowing why your credit score is low can help you make a plan to improve it.

Improving your credit score

There are many things you can do to improve your credit score. Try these tips: 

  • Make all your payments on time – This is the most important factor in determining your credit score, so it’s crucial to make all your payments on time, every time.
  • Keep your balances low – Keeping your balances low will help improve your credit utilization ratio, which is important for determining your credit score.
  • Avoid opening too many new accounts at once – Opening too many new accounts at once can cause you to appear riskier to lenders and lower your credit score.
  • Check your credit report regularly – Checking your credit report regularly can help you catch any errors or inaccuracies that might negatively impact your score.
  • Consolidate your debt – Consolidating your debt with a bank or credit union could help you pay off debt faster.

Once you’ve done everything in your power to improve your credit score, it’s time to consider what your goals are with refinancing and some other important factors.

Before Refinancing Your Car Loan

Think about your goals, the terms of your current loan and other important factors with refinancing your car loan.

goals for refinancing

Goals for refinancing

It’s important to know what your goals are. Ask yourself questions like:

  • Am I looking to lower my monthly payment? – This can help to alleviate some financial stress, but keep in mind that it could extend the length of your loan. You might also pay more in interest over the life of the loan.
  • Am I looking to save on interest and pay off the loan faster? – A shorter-term loan can help pay off your loan sooner and save on interest, but it might mean that your monthly payments are higher. This is advisable if you can afford the higher payments.
  • Am I looking to get cash out? – You might be able to get cash back when you refinance your car loan, but keep in mind that this will likely increase the interest you pay over the life of the loan.

Knowing these goals will help you determine what type of loan is best for you. In addition, it will give you direction when working with a lender. 

Terms of your current loan

You’ll need to know the terms of your current loan before you can refinance. This includes things like: 

  • Balance of your loan 
  • Interest rate 
  • Length of the loan 
  • Monthly payment

You’ll also need to know the value of your car so you can determine how much equity you have. You can use a car valuation tool to get an estimate.

Be aware of fees

There are a few fees to be aware of when refinancing your car loan. These can come from the new lender or the old one. The new lender might charge application, processing and origination fees. The old lender might charge an early termination fee or other fees. You might be able to negotiate these away in some cases, but they’re still something to be aware of. 

Understand what you can afford

Knowing what you can afford before starting the refinancing process is important. Remember that just because you’re approved for a loan doesn’t mean you have to take it. Only borrow what you need and what you can afford to pay back.

Calculate your monthly car payment by considering the loan amount, interest rate and length of the loan. Or use a refinance car loan calculator to get a quick idea. Then, use a budgeting tool to see if you can comfortably afford the new payment. 

Strategies to Get Approved for a Refinance Loan

If you’re looking to refinance your car loan with a low credit score, you can do a few things to improve your chances of approval. Here are a few strategies.

strategies to get approved for a refinance loan

Improve your credit score

We’ve already discussed how you can start to improve your credit. However, improving your credit score will take time and depends on why it’s not so great. 

So, if your lower credit rating is due to a lack of credit history, you might be able to fix that by using a credit builder loan or becoming an authorized user on another person’s credit card. If your credit score is low because of high utilization, you can try to pay down your debt or get a debt consolidation loan. 

On the other hand, if you have a history of non-payment, it will take some time and effort to improve your credit score. So the most important thing is to make all your payments on time going forward.

Shop around

Shopping around is essential when looking to refinance your auto loan with a low credit score. Not all lenders have the same standards, and some might be more willing to work with you than others. Therefore, it’s a good idea to compare offers from a few different banks, credit unions and other lenders before you make a decision.

When you’re comparing offers, be sure to look at more than just the interest rate or monthly payment. Other factors like fees and loan terms can affect the overall cost of the loan. For example, a low-interest rate with a long loan term might cost you more in the long run than a higher interest rate with a shorter term. 

Of course, if your goal is to save on interest, this won’t work. However, it might be a good option if you’re hoping to decrease monthly payments to relieve financial pressure.

Get a cosigner

If you’re having trouble getting approved for a loan on your own, you might be able to get approved with a cosigner. A cosigner is somebody who agrees to sign the loan with you and is responsible for making payments if you can’t. 

This will help improve your chances of being approved because it shows that you have someone else who is willing to take on the risk. Your prospective cosigner should have a good to excellent credit score and show enough monthly income to make the payments if necessary.

professional person using a calculator

Is Refinancing Worth It?

Refinancing your car loan with poor credit can be a good way to save money on interest, lower your monthly payments or both. However, it’s not always the best option, and there are a few times when you shouldn’t refinance.

Refinancing is probably not a good idea if you’re upside down on your loan, meaning you owe more than the car is worth. This is because you could still owe the same amount of money (or even more) after refinancing.

You should also avoid refinancing if you’re close to the end of your loan term. This is because you’ll likely have to pay fees and closing costs, negating savings from a lower interest rate. If you’re only a short time away from paying off your car loan, you’ve also already paid most of the interest. 

This is because most auto loans front-load interest, meaning most of the interest is paid at the beginning of the loan. If you’re nearing the end, you’re working on the principal.

Refinancing When It’s the Best Option for You

Refinancing your car loan with a low credit score can be a good way to save money on interest, lower your monthly payments or both. However, it’s not always the best option, and there are several factors to consider before refinancing.

 For example, if you’re upside down on your loan or close to the end of your term, refinancing might not be worth it. In addition, it’s important to shop around for the best deal. Lastly, always keep your financial goals in mind and ensure that refinancing is the best option for you.

Trade in vs. Refinancing: What Makes Sense for You

Posted on by Autopay

Making the decision to trade in your car or refinance your auto loan is a big one. However, there are several things you’ll want to consider before making a decision. In this article, we’ll explore some key factors you should examine when choosing.

How Trade-Ins Work

When you trade in your car, you’re essentially selling it back to the dealership (or whoever you’re trading it in to). They will then give you a certain amount of money to purchase your new car. A major advantage of this is that it can save you time and hassle in trying to sell your car on your own.

Another benefit is that you might be able to save on taxes. For example, when using your trade-in toward the purchase of a new vehicle, your state might tax you on the full value of the new car or the difference of the new car value minus the trade-in value. 

If it’s the latter, you’ll be able to lower your taxes and overall price tag. And according to Consumer Reports, the majority of states do tax the difference.

And finally, if you still owe money on your trade-in, the dealership might be able to roll that amount into your new loan. Just keep in mind that you’ll be paying interest on that amount over the life of your new loan.

When you trade in your car, keep the following in mind. Private sales usually result in more money than trading it in to a dealership. Dealerships need to make a profit off your vehicle, so they typically give less money than the car is worth.

You’ll also be subject to the laws of supply and demand. If the dealership is flooded with trade-ins of the same make and model as your car, they might not give you as much money as it’s actually worth. However, this could work in your favor in some cases if the dealership is desperate for your type of car.

woman signing for a new car at a dealership

Refinancing Your Auto Loan

When you refinance your car loan, you’re essentially taking out a new loan with a new interest rate. A great benefit of this is lowering your monthly payments, saving you money in the long run. 

And with 47 percent of Americans extending their car ownership beyond their original forecast, according to Deloitte, you might find yourself in this position. However, remember the following when considering auto loan refinancing.

If you have good credit, you might be able to qualify for a lower interest rate than what you’re currently paying. This means you could save money on your monthly payments. However, if you have bad credit, you might not be able to qualify for a better interest rate, so refinancing might not be your best option. 

Although, in some cases, you could still get better loan terms or lower your payment. You can use a refinance car loan calculator to help you figure out if refinancing makes sense for you.

family smiling while driving in a car

Also, when you refinance your loan, you’ll likely have to pay some fees to do so. These fees can include an application fee, an origination fee and a prepayment penalty. Make sure you understand all the fees associated with refinancing before you make a decision, and shop around to find the best deal.

Lastly, you’ll want to consider the length of your loan when deciding whether or not to refinance. If you have a longer loan term, you might not save as much money in the long run by refinancing. On the other hand, if you have a shorter loan term, you could save quite a bit of money by refinancing.

Which Option Is Best?

There’s no right or wrong answer when it comes to trading in your car or refinancing your auto loan. It really depends on your individual situation and what makes sense for you. Here are some scenarios to consider.

You might want to refinance your car loan if you:

  • Are happy with your car and would like to keep it but want to lower your monthly payments
  • Have good credit and can qualify for a lower-interest rate
  • Don’t mind paying fees to refinance

You might want to trade in your car if you:

  • Are looking to get rid of your current car and upgrade to a new one
  • Would like to save time and hassle by not having to sell your car privately
  • Are okay with getting less money for your car than it’s worth

If you’re still unsure which option is best for you, we recommend reaching out to see what we can do to help you decide. 

Can You Refinance a Car More Than Once?

Posted on by Autopay

Yes, you can refinance your car loan more than once. In fact, as long as you can find a lender to approve you for a loan, you can refinance as many times as you want. There are no laws or regulations against it. However, there are a few things to keep in mind before you decide to refinance your car loan again.

Why Refinancing Your Car Loan Could Save You Money

When you refinance your car loan, you are taking out a new loan, ideally with a lower interest rate and possibly with a different term. This could lower your monthly payment and save you money in interest over the life of the loan. It doesn’t change the initial purchase price of the vehicle, but when you do this multiple times, it’s possible to save even more money. 

Ensure It’s the Right Time to Refinance a Loan

Refinancing should make sense, so you want to be sure that it’s the right move for you before you sign on the dotted line. Here are a few things to consider:

  • Check your credit score – Your credit score is one of the most important factors that lenders take into account during the loan approval process. If your credit score has improved since you originally financed your car, you might be able to qualify for a better interest rate. However, if your credit score has dropped, you should hold off on refinancing until it improves.
  • Wait for interest rates to drop – Interest rates are constantly fluctuating, so it’s important to keep an eye on them. If rates have changed and gone down since you originally financed your car, it might be worth refinancing to get a lower rate and save money.
man on the phone while looking at his interest rate on the computer
  • Your car loan amortization schedule – If you have a simple interest loan and have limited time left on it, it might not make sense to refinance since you’ll have already paid off the majority of interest and be working on paying down the principal. However, if you’re locked into a high interest rate and still have a considerable amount of time left on your loan, it might be worth refinancing to save money in the long run.
  • Your financial situation – When you refinance, you can also change the length of your loan, which can lower your monthly payments. If you’re in a position where you need the financial relief of lower monthly payments, refinancing might be a good option for you. Conversely, if you have a higher income and are looking to clear up debt, you might want to consider a shorter loan term so you can pay off your car loan faster.

After you’ve considered all of the above, you’ll know if it’s the right time for you to refinance.

Consider the Fees

Each time you refinance, you’re taking out a new loan. That means you’ll have to pay any associated fees again. These costs can add up over time, so it’s important to factor them into your decision to refinance. Be sure to ask about any potential fees and compare them to other offers before you choose a new lender.

Additionally, some lenders might charge a prepayment penalty for refinancing. This fee is typically a percentage of your loan amount and is charged if you pay off your loan early.

woman using a calculator and her laptop

Finding a New Lender When You Refinance

When you’re ready to refinance your car loan, the first step is to shop around for a new lender. This could be a bank, credit union or online lender. 

There are a few things to keep in mind when you’re looking for a new lender:

  • Interest Rates – Be sure to compare interest rates from multiple lenders before you choose one. 
  • Fees – As mentioned above, fees can add up over time, so be sure to ask about them upfront. 
  • Reputation – Check out online reviews and Better Business Bureau ratings to get an idea of a lender’s reputation. 
  • Customer Service – Find out what the customer service is like before you commit to a lender. This can be especially important if you have questions or need assistance down the road.

Once you’ve checked into these factors, you’ll have the information you need to decide which lender is best for you.

Refinance to Save

You can refinance your car loan more than once, but be sure to do your homework first to make sure it makes financial sense for you. Start by using a refinance car loan calculator and then compare rates and fees from multiple lenders to find the best deal. Remember to factor in any associated costs so you can make an informed decision that’s right for your financial situation.

How Soon Can You Refinance a Car?

Posted on by Autopay

If you’ve considered refinancing your car, know that it might be possible to refinance as soon as a few months after your original purchase, though your terms could be better if you wait six months to a year. Don’t wait too long, though. If you are too far into your repayment term, lenders might be unwilling to approve your application.

Refinancing a Car Loan

Refinancing a car loan involves getting approved for a new loan that will:

  1. Pay off your current auto loan.
  2. Allow you to pay off your vehicle under more favorable terms.

Refinancing will require you to apply for a refinance loan, a process similar to auto loan financing for a new car.

Refinancing in the First Months of Your Loan

If you recently purchased a car and aren’t happy with your current loan terms, refinancing might be a possibility. Still, there are several factors that could hamper your ability to win approval for a refinance or to get the terms you are looking for:

  1. In cases where you have very recently purchased your car (such as in the past month), your car title or registration might not yet be processed. A lender will either need the title (if you are in one of the states that allows car owners to hold their titles before loan payoff) or registration to begin the refinancing process. Because of this, there might be a delay in being able to refinance.
  2. Taking out a car loan often lowers your credit score. This is due to two factors. First, the hard pull on your credit report results in a credit inquiry being reported to the credit bureaus. This can take a few points off your score. Your loan also contributes to your debt load, which, depending on how much debt you have, can also lower your score.
  3. Some lenders have a policy against refinancing a new loan. They’ll want to see at least six months of payments before considering your refi application.

Still, everyone’s situation is unique and you could be able to get approved for refinancing in the earliest months of your loan.

When Is the Right Time to Refinance a Car Loan?

Loans that are six to 18 months old are often in the “sweet spot” for refinancing. There are two primary reasons for this:

  • No administrative or credit issues: By this time, your paperwork has been sorted out and your credit score has likely rebounded.
  • Loan balance is still high: A higher loan balance makes the refinance profitable for the lender.
  • It’s less likely that you are upside down on your car loan at this point. Being upside down on your car loan means that you owe more to your lender than your car is worth. Many lenders won’t consider refinancing in this situation.

There are other factors to consider, however. If interest rates are currently high, refinancing is likely not a good idea. Pay attention to economic indicators before seeking a refi loan.

Another thing to consider is your use of credit and financial situation. If you have recently financed a large purchase, you might find it hard to get attractive terms on a refinance. Use our refinance car loan calculator to determine how much you’ll pay each month and over time.

Don’t Wait Too Long to Refinance Your Car Loan

Unfortunately, it’s also possible to wait too long to refinance your auto loan. Here are some scenarios in which this could be the case:

  1. Your car has a lot of miles on it: Cars with a lot of mileage are worth less, which can make refinancing more of a challenge.
  2. You are close to paying off your loan: Lenders want there to be at least a few thousand dollars left on your loan balance before agreeing to issue a refinance loan.
  3. You are already in financial trouble: Refinancing a car loan can be a decent strategy if you need to lower your monthly payments, you still have good credit and a verifiable income. If your credit has already been damaged or you’ve lost your job, you might still qualify for refinancing, but the process might take a bit longer.

It pays to be a savvy consumer, particularly when it comes to large purchases. If you believe that you might be able to get a better deal on your auto loan through refinancing, take the time to do some research and then make sure to shop around to find the best loan for you.

If I Refinance My Car, Will I Lose My Warranty?

Posted on by Autopay

Refinancing a car loan can be confusing, particularly if you haven’t done it before. One question you might have is whether your car warranty (or warranties) will continue under your new loan. 

If so, breathe easy — most manufacturer warranties do remain in effect. Don’t let that keep you from trying to refinance and get a better auto loan rate. 

But what about non-manufacturer car add-ons like extended warranties and vehicle service contracts? Those are different. We’ll cover why that is below.

Warranty Assurance Guarantee Secured Plan

What Is a Car Warranty?

A car warranty is an agreement from your car’s manufacturer to repair mechanical defects for a period of time or mileage after you purchase your vehicle. 

A bumper-to-bumper or “comprehensive” warranty is always provided by the manufacturer when you buy a new car. For example, your new car’s warranty may provide coverage for three years or 36,000 miles, whichever comes first. 

Used cars may or may not include a warranty. Sometimes the manufacturer’s warranty is still in effect. There are also a handful of states with lemon laws for used cars which require varying types of coverage, much like a warranty. However, most states do not offer any sort of protection from defects or failures, even if the seller lied about its condition. 

Vehicle Service Contracts and Other Car Loan Add-ons

When you purchased your car, you might have purchased other extras to cover additional repairs over an extended length of time. The cost of these extras (like GAP waivers or vehicle service contracts) is often rolled into your original car loan or your refinance loan, but you can also buy these products later.

A vehicle service contract covers specific mechanical failures and repairs for a specified timeframe or up until the mileage limit is reached. A VSC is not an extended warranty. Instead, it functions more like insurance – you file a claim and pay a deductible to cover the remaining costs – and is offered by an independent provider, not the car manufacturer.

The price of a vehicle service contract can range anywhere from a few hundred dollars to more than a thousand dollars, depending on your vehicle, coverage selection and where you buy it.

woman hand signing contract

Maintaining Your Car Warranty During Refinancing

If you’ve decided that it’s time to refinance your car loan but are concerned about maintaining your warranty or add-ons during the process, don’t be. A new car warranty stays with the vehicle, regardless of the status of your car loan.

The issuer of your extras and add-ons may or may not honor your contract even after the contract has been paid off by the refinance loan. In most cases:

Refinancing your car loan will not cancel your vehicle service contract. However, it’s important to review your original agreement with each provider to make sure that your terms aren’t affected by refinancing your loan. 

Refinancing your car loan will cancel your GAP protection plan. The original loan has been paid off, so there is no longer a financial “gap” to protect. You will need to purchase a new GAP waiver for the refinance loan.

Don’t Let Warranty Concerns Keep You From Refinancing

To recap, refinancing your car loan shouldn’t make you lose your warranty or vehicle service contract, but you should check the fine print of your plan’s details to confirm. So go ahead and find yourself a better auto loan. Your wallet will thank you later. 

What Is a GAP Waiver and Do I Need One?

Posted on by Autopay

Accidents, vandalism, theft — these are all risks that car owners must contend with. If your car can’t be recovered or repaired, you are looking at a total loss claim with your insurance company, something that can create financial strain if you are still paying off your car loan.

Fortunately, Guaranteed Asset Protection (GAP) offers significant protection against financial loss in these situations. GAP coverage ensures that you don’t have to pay the difference between your current loan balance and the compensation provided by your insurance company.

"What Is a GAP Waiver" man holding his head in his hands after a car accident

What Is Guaranteed Asset Protection (GAP)

Guaranteed Asset Protection, sometimes known as Guaranteed Auto Protection, is a financial product that addresses a common problem: The gap between the actual cash value (ACV) of your car, as determined by your insurance company, and what you still owe on your auto loan.

If you have the misfortune of losing your car to an accident, vandalism or theft, having GAP coverage helps protect your wallet and credit.

There are two types of GAP coverage: GAP waivers and GAP insurance. While both offer protection, they are two distinct products.

GAP Waivers vs. GAP Insurance

The primary difference is that GAP insurance is an insurance product, while a GAP waiver is an agreement between you and your lender:

GAP waivers: When you apply for a car loan or auto refinancing, your lender may offer you a GAP waiver as an add-on option. Purchasing the waiver means that your lender has agreed to waive the balance of your loan if your car is written off as a total loss by your insurer and the claim check does not cover the balance of your loan.

GAP insurance: This is optional insurance coverage that you purchase from an insurance carrier, not your lender. The terms of this insurance and how you purchase it will conform to your state’s insurance laws and regulations, but typically it’s something you add onto your car insurance policy.

Additionally, GAP waivers can only be purchased at the time of financing whereas GAP insurance may be added to your car insurance policy at any time.

How GAP Works

Guaranteed Asset Protection products address this problem by covering the “gap” between what insurance pays out and the balance of your auto financing loan.

If you are among the over 80 percent of car buyers in the United States driving a financed car, you’re at risk of a significant financial loss if your car is stolen or damaged. Here’s why:

You’ve probably heard it said that a vehicle loses value, a process known as “depreciation,” as soon as you drive it off the lot. The saying is true: Cars lose value quickly, even if you take good care of your vehicle. While most drivers don’t pay much attention to depreciation, insurance companies do.

If something were to happen to the car and you file a claim with your auto insurance company, your insurer will determine your vehicle’s actual cash value and cut a check based on that – not how much you still owe on your car’s loan.

And if you chose a longer loan term or didn’t make a large enough down payment (or both)? The difference between the actual cash value of your car and the amount you still owe on the loan could be even more significant — and you’ll still owe it, even if you no longer have that car.

Ideally, we would all pay off our car loans faster than our vehicles depreciate, but everyone’s situation is different, and not everyone can afford to do that. GAP waivers can help you keep a lower monthly payment on your car loan while protecting your wallet too.

An Example of GAP Protection

Here is an example from AUTOPAY showing how a GAP waiver could protect you in case of an auto accident or theft:

Diagram, timeline Description automatically generated

Your original loan amount: $25,000
Term: 60 months
Loss date: 36 months
Loan payoff due: $15,000
Insurance settlement: $10,000
Difference between insurance and payoff: $5,000
Plus insurance deductible: $500

What you owe (difference + deductible): $5,500
GAP waiver pays: $5,500

"Why do i need a GAP Waiver" with man holding his neck

Why Get a GAP Waiver?

The most obvious reason to get a GAP waiver is that you don’t want the financial risk of owing money on a car that you can’t drive — or no longer have in your possession. But there are other financial advantages to purchasing a GAP waiver:

  1. If you don’t have GAP coverage and are left with a significant balance on your auto loan, that balance could impede your ability to finance a new vehicle, or may at least restrict you to less favorable terms. This is because account balances, including loan accounts, are reported to and by credit bureaus. Your overall debt load makes up part of your credit score.
  2. Even if you do secure financing for a new vehicle, you may be left with two loan payments to make each month. If you struggle to meet these obligations, you could be left with damaged credit.
  3. GAP waivers are either paid for upfront when you sign your loan agreement or, in some cases, are rolled into your loan. GAP insurance is a separate product and even one missed premium payment could threaten your coverage.
  4. Because you purchase a GAP waiver from your lender, the waiver is active as long as your loan is in repayment. If you purchase GAP insurance from your current auto insurer and, at some point, switch insurance companies, there is always the risk that you might forget to purchase GAP insurance to go with your new policy. Or, if your policy lapses due to nonpayment, you lose all of your insurance coverage. This could result in an unhappy (and very expensive) surprise.

Are There Reasons to Not Purchase GAP Coverage?

There may be some instances in which not purchasing GAP coverage might be the best decision for you. Here are some situations in which you might not want to secure GAP coverage:

Your loan-to-value ratio is below 100%. LTV is a percentage comparing your auto loan debt to the value of your car. A loan-to-value ratio above 100% means you’re upside down, or owe more on the vehicle than it is worth.

You have a relatively short repayment period. If you plan to pay off your car loan fast, then GAP protection might not be necessary, assuming you pay off the debt faster than your car depreciates.

You are confident that you have enough savings, or income, to cover any outstanding loan balance. GAP protects your finances, but if you’ve already established a fund to cover any potential leftover balance with ease, you may be able to forgo it.

Auto Refinancing and a GAP Waiver

The decision to purchase a vehicle or refinance an existing loan is a serious one that carries some significant risks. Purchasing GAP coverage can be one way to mitigate these risks, particularly if you have a long repayment period, are locked in to a high interest rate or are unable to make a large down payment.

How Long Does It Take to Refinance a Car?

Posted on by Autopay

The time it takes to refinance a car loan depends on a few factors, including the completeness of your loan application and your lender’s policy. The process can happen quickly, often within a few days of your application. Preparing for refinancing, including checking your credit reports and making sure that you can document the information in your application, can help prevent delays.

Finger about to press a red button on a conceptual refinance calculator

Refinancing an Auto Loan

Refinancing an auto loan allows you to secure more favorable terms for your car loan. If you are approved for refinancing, your old loan is rolled into your new, refinanced loan. If you’ve applied for auto loan financing in the past, you’ll find many similarities between the two processes.

Why Refinance?

People refinance their vehicle loans because they want — or need — a change in their current loan agreement. Refinancing allows them to take out a new loan with terms that better meet their needs. Here are some common scenarios:

Interest Rate Change

If interest rates drop during your loan repayment period, you might be able to save some money by refinancing at a lower rate.

Improved Credit

If you financed your original car loan while you had no or damaged credit, check your current credit score. If it has improved since you purchased your car, you may qualify for a lower interest rate if you refinance.

Need to Lower Monthly Payments

Even if you don’t qualify for a lower interest rate, you might be able to reduce monthly payments by refinancing for a longer loan term. You’ll pay more money over time, but the smaller payments each month might be easier on your budget.

Credit report with magnifying glass

Preparing to Refinance

If you are considering a refi on your auto loan, there are several things that you can do before applying that can help ensure a speedy acceptance and, hopefully, approval:

  1. Use a refinance car loan calculator to see what you can expect to save if you decide to refinance. 
  2. Order your free credit reports from all three major credit bureaus, TransUnion, Experian and Equifax. Check your report for errors and, if you find them, get them corrected before applying to refinance.
  3. Refrain from applying for new credit, making major purchases or closing credit card accounts. All of these actions can negatively impact your credit score, reducing your chances of approval or getting approved for favorable refinancing terms.
  4. Gather the documents you may need to apply for your loan. Your lender will tell you what documents you need, but be prepared to provide proof of identity, income and assets. For example, you may need to include pay stubs, W-2s or bank statements with your loan application.

Waiting for a Decision

If your loan application is complete and there aren’t any red flags during the application process, you can expect a decision within a few days. If you are approved for refinancing, the lender may handle paying off your old loan for you, or you may receive the funds yourself so that you can pay off your old balance. Receiving the funds, or the forwarding of the funds, can take a few weeks, so be sure to continue to make payments on your old loan until you can confirm that it has been paid in full.

Once your old loan is paid, you’ll continue to make payments on your new, refinanced contract.

Refinancing can be an effective way to make owning a car more affordable, so it is definitely worth taking the time to research this option with AUTOPAY. Get in touch with us today and one of our knowledgeable team members will answer your questions and help you get the process started.

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