FAQs about Refinancing a Car Loan
The process of refinancing a car loan raises some tricky financial issues. Experts recommend that drivers only consider auto refinancing if interest rates have dropped since they purchased the vehicle and auto refinancing can save money on monthly payments. However, “real life” sometimes gets in the way of the best financial practices. If you are considering refinancing a car loan, here are some frequently asked questions that may help you make a decision.
Q: How does refinancing a car loan work?
A: Similar to the original financing process, you find a company willing to pay off your original loan for a deal that’s acceptable to both you and the finance company. The new lender gets the title to your vehicle after paying off the loan, and you begin making payments to the new company.
Q: Can I save money with by refinancing a car loan?
A: In some cases, you can. If the available interest rate has dropped since you bought your vehicle, you may be able to qualify for an auto refinance at the lower interest rate. That way, the only thing that changes about your loan is the loan is slightly lower each month, meaning you save on the interest paid over the life of the loan.
Q: Why else do people consider refinancing a car loan?
A: By extending the term of the loan, for example from 4 years to 6 years, the monthly payments can be lowered – sometimes significantly. For people in the middle of a financial emergency, such as a lost job or unexpected medical expenses, it immediately becomes crucial to cut spending any way possible. Extending the term of a car loan also can produce money that can be used for other purposes.
Q: Will I have to pay a lot of fees when refinancing a car loan?
A: It’s not necessary, but that doesn’t mean that some companies won’t charge exorbitant fees anyway. That’s why it’s important to shop around to make sure the company is offering a good deal. Generally, you should expect to pay less than $100 total to a company refinancing a car loan for re-registration and transfer of lien holder fees.
Q: Is refinancing a car loan possible with bad credit?
A: Yes. In the same way that people with bad credit can buy new cars, there also is a market available to refinance loans for people with bad credit. The interest rate you qualify for will be determined largely by your credit score and credit history. Oddly, it isn’t that difficult to refinance a car after a bankruptcy because finance companies know you are prohibited by law from declaring bankruptcy again for several. So in that way, you are actually less of a risk than other bad credit customers.