The process of replacing an existing loan with a new one, usually via a different lender, is known as refinancing. Most individuals will utilize it to decrease their monthly payments, either by obtaining a cheaper interest rate or by extending the duration of their loan.
Refinancing is generally a smart decision if it enables you to save money on interest throughout the life of your loan. However, it is not for everyone, so think about it carefully before applying.
The main incentive to refinance is if you can qualify for a cheaper interest rate and save money in the long term. Technically, you may refinance your automobile loan at any time, even immediately after purchasing it.
However, your real savings will vary depending on where you are in the payback timeline. Run the numbers for your circumstances using an iLending refinance car calculator to discover how much refinancing may save you.
4 Pointers to remember when refinancing your vehicle loan
Refinancing is an excellent method to save money on interest and maybe reduce your monthly payment. Take your time researching lenders and choosing a decent offer – it might result in more savings in the long run.
1. Look around
Shop around and compare loan rates and conditions from various lenders before applying with one. Because each lender has its unique algorithm for determining your rate, obtaining several quotes is critical.
Most of the time, you may be preapproved before submitting a complete application and obtain a rate estimate with only a soft credit inquiry, which will not affect your credit score. You may choose the best offer and finish the refinancing procedure after you receive preapproval.
2. Consider costs before refinancing
Think about how fees may affect your money. Some vehicle loans contain a prepayment penalty, which means that paying off your loan early may cost you more than the interest savings. If this is the case, refinancing your car loan is not a good idea.
When you refinance a loan, some lenders demand a large origination fee. It, like a prepayment penalty, may eat into potential savings and make refinancing more difficult than just staying with your present lender.
3. Determine how your credit will be affected
A hard inquiry can lower your credit score by a few points almost every time you apply for credit. If you then create a new loan account, the average age of your accounts may decrease, thus lowering your credit score.
However, all of these variables are much less essential in determining your credit score than your payment history, and making on-time payments on your new loan will raise your score over time. So, unless you've recently applied for other loans or don't have a lengthy credit history, refinancing is unlikely to make a significant impact.
4. Investigate additional lenders
You may have initially borrowed money to purchase a vehicle via dealer-arranged financing. Many banks, credit unions, and internet lenders, on the other hand, provide direct financing to automobile purchasers and owners. Simply ensure that your present vehicle and auto loan fit the standards of the lenders. Most have mileage and vehicle age limits, as well as a minimum amount you must borrow to qualify.
