If you’re struggling to pay your monthly bills, refinancing your car loan may be a good solution that will help free up additional cash in your budget. The money you save from auto refinance can be used to pay down high interest credit cards, save for a large purchase, make improvements on your home, or simply help you start growing your savings.
While there are numerous benefits to refinancing a car loan, it’s crucial to understand that making a poor decision on a loan offer can have devastating consequences. If you’re not careful, you could get locked into a new loan that creates additional financial hardships for you over the next few years. To avoid this scenario, it’s important to avoid the following 6 mistakes that people commonly make when refinancing a car loan.
One way to save money on car loan refinance is by extending the term of your car loan. This can result in a lower monthly payment, but it also means that you may pay more over the lifetime of the loan due to the additional interest that accrues with a longer loan term.
It’s important to crunch the numbers if you’re considering extending the loan term. In many instances, the temporary savings associated with lower monthly payments may be negated by the extra interest you’ll pay over the lifetime of the loan. While reducing your monthly payments is certainly appealing, it’s also important to make sure you’re saving money overall by refinancing. If the additional interest from an extended term means you’re paying more money overall after refinancing, you may want to keep shopping for a better loan option.
Whenever you’re refinancing a car loan, it’s critical to compare offers from multiple lenders. This is the most effective way to ensure you receive the best possible terms to address your specific needs. When you simply accept the first loan offer you receive, you’re much more likely to get stuck with a higher interest rate than you’d receive after shopping around.
When you work with iLending, we make this process easy by comparing rates from different lenders for you. We’ll leverage our network of more than 50 nationwide and local lenders to find the best loan options to address your goals. In addition, you’ll only have one hard pull on your credit report with our process, ensuring that any negative impact to your credit score is minimized.
Your credit score is one of the most important factors impacting the rates you’ll receive when you refinance your car loan. If your credit score has significantly improved since you took out your existing auto loan, you’re much more likely to qualify for a lower interest rate when you refinance. However, if your credit score is low, you may not be able to receive a low enough interest rate to make refinancing your car loan worth it.
Before applying to refinance, always check your credit report. You’re allowed to receive a free report from each of the three major credit bureaus (Experian, Equifax, TransUnion) once a year. Review these reports carefully. If you notice any inaccuracies, you can dispute the incorrect information and have it removed before applying to refinance. This may help raise your credit score.
Even if you don’t find any inaccuracies in your credit report, you may want to hold off on refinancing if your credit score is low. There are several steps you can take to raise your credit score, such as:
By taking these actions prior to applying to refinance, you may be able to raise your credit score and increase your ability to secure a better interest rate when you eventually refinance.
You should always check the equity of your vehicle before refinancing your car loan. If you have negative equity in your vehicle (you owe more on your loan than the car is worth), you will be considered upside down on your car loan. If you try to refinance when you’re upside down on your loan, you will need to make an upfront payment to get the value of your new loan lower than the value of your car. If you’re struggling financially, making this upfront payment may not be in your best interest.
You can determine the value of your car by checking on Kelley Blue Book, NADA or Edmunds. You can then compare this value to the amount owed on your loan to see whether you’re upside down on your car loan. If you are, refinancing may not be worthwhile.
Often, timing is critical when trying to maximize the value of car loan refinance. If you try to refinance too soon after taking out your existing loan, your credit score may not have had enough time to improve. In this situation you may not be able to secure a low enough rate to make a significant impact on your finances.
Waiting too long to refinance may also negate any potential savings benefits. This is due to the fact that car loans are structured in a way that front loads the interest on your early payments and backloads the principal on your later payments. Therefore, if you refinance very late in your loan term, most of the interest will have already been paid off and you will have limited ability to save money over the life of the new loan.
Make sure to read the terms of your existing car loan before you apply to refinance. Some auto loans include an early repayment penalty. In these situations, you may be stuck paying a hefty fee when you refinance, and this can significantly eat into the savings you’d experience as part of the refinance process.
iLending can help you avoid these mistakes and ensure you receive the best possible rate on your car loan refinance. Our You First Approach™ was designed with your needs in mind, and it makes refinancing easy and hassle free.
As part of our unique approach, you’ll work with a personal loan consultant who will speak with you to learn about your goals. Your loan consultant will then shop around for you, comparing loan options from our vast network of lenders. This process helps us identify the ideal solutions for your specific needs. Your loan consultant will present the best options to you and help you determine the right one to choose. Once you’ve decided on a loan option, your loan consultant will assist you with the entire application process and make sure your existing loan is properly paid off.
iLending clients save $145/month on average after refinancing their car loan. By adding this money back into your monthly budget, you can break free of the financial burdens associated with an onerous car loan.
Apply now to get the car loan refinance process started.