Frequently Asked Questions about Car Loan Refinancing
What is car loan refinancing?
Much like home refinancing, car loan refinancing entails paying off your present auto loan with a loan from another lender. The new loan typically carries a lower APR than the original loan. You then make your monthly payments to the new lender, who now holds the title to your vehicle.
Why should I pursue car loan refinancing?
If you feel your present car loan is unsatisfactory for any reason, such as high monthly payments or unreasonable interest rates, you should look into car loan refinancing. The most common reasons for car loan refinancing include the desire to lower monthly payments or to lock in a lower interest rate. You might also want to reduce the life of your loan and pay off your car sooner to save on interest expenses. With car loan rates at historic lows, now is the time for car loan refinancing if you are looking to save money.
When should I look into car loan refinancing?
This will depend on your goals in refinancing your car loan. If you are looking for lower interest rates, you will want to find a car refinancing loan with a fairly similar term to your present loan. If your objective is to lower your monthly payments, then you'll want to find a loan that extends the term of your current loan to stretch your payments out over time. This, of course, might cost you a bit more in interest in the long-run.
How much will car loan refinancing cost me?
The only significant fee you might face in refinancing your car loan is a prepayment fee on your current loan. That is something you'll want to investigate and factor into your decision to refinance. Some lenders do not penalize you for prepayment, others might charge hefty fees. Other costs involved in car loan refinancing vary by state and lender, but typically include:
- Transfer of lien holder fees: $5-$10
- State re-registration fees: $5-$75
How much will I save with car loan refinancing?
Car loan refinancing can save you a considerable amount of money, but, of course, this will depend heavily on various factors. How much you will save depends on factors like the difference between your new and old interest rates, the amount of the balance on your current loan, and the term, or life, of your new loan.
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