Auto Refinance FAQ
What is auto refinancing?
Auto refinancing works much like home refinancing. You pay off the remaining balance on your existing car loan with another loan. By refinancing your vehicle loan, you can reduce your monthly payments and/or interest rate.
When should I consider refinancing my car loan?
Auto refinancing is most valuable to individuals with less than stellar credit. Car companies advertise amazing interest rates, but only extend those rates to a limited number of buyers. If you didn’t qualify for a low interest rate on your car purchase, an auto refinance loan has the potential to save you money.
How can I save money with an auto refinance loan?
Refinancing your car loan can save you money provided that:
- the new interest rate is less than that of your old loan, and
- the new loan term is the same or shorter than the remainder of your current loan
Even with a lower interest rate, you could end up paying more interest if the term of the new loan is longer than that of your current loan. The longer term cancels out the savings of the lower interest rate.
If your goal is simply to reduce the amount of your monthly payment, regardless of the extra long term costs, then a longer repayment term is okay.
Do all cars qualify for refinancing?
No. Exact requirements vary among lenders, and may depend on your credit rating. In general, most lenders will only refinance late model vehicles with relatively low mileage. Commercial vehicles, RVs, conversion vans, salvaged vehicles, lemon law cars, and gray market vehicles usually do not qualify. Some lenders will not refinance Daewoo, Kia, or Suzuki vehicles either.
