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Is Car Loan Refinancing Right for You?

last updated June 16, 2018 by

Are you afraid of falling behind on your auto loan repayments because you had an emergency that required a lot of money? This begs the question, Is car loan refinancing right for you? Today, you’re going to learn how to learn why car loan refinancing is right for you.

What is car loan refinancing? It’s a loan advanced to a car buyer in order to complete paying off their initial credit repayment plan. You can acquire car loan refinancing through commercial banks, credit unions, and car dealerships you owe.  After applying for car loan refinancing, your car becomes collateral.

If you’ve never applied for car loan refinancing, pay attention to the facts explained below.

Is Car Loan Refinancing Right for You?

Does refinancing a car loan affect your credit score?

When you apply for car loan refinancing, the car dealership or bank makes a credit inquiry. If you’re familiar with the credit score system, you know that each inquiry costs you five points. Assume that your credit score was 640 then you approached four car dealerships for car loan refinancing. Your new credit score will be 620.

So, does this mean car loan refinancing isn’t right for you?

Financial coaches advise people to inquire about interest rates and other repayment terms before putting pen on paper. You don’t have to provide your names to any creditor because you’re just window shopping. After you find your ideal creditor, allow them to perform a credit inquiry because you’ll only lose five points.

Do you have to put down money when you refinance your car?

It depends on whether or not you’ve met your creditor’s car loan refinancing requirements.

You qualify for car loan refinancing if you meet these conditions.

  • The minimum outstanding balance on your current auto loan is $7,500
  • The buying price reflects your vehicle’s true market value. Creditors usually avoid refinancing overpriced cars.
  • Your car is not more than five years old.
  • The outstanding balance should be way less than your car’s market value.
  • Your monthly income meets the lender’s minimum amount

Car owners who owe more than their cars’ worth have to pay the cash difference in advance.

How long does it take for a credit payoff to show in your credit report?

Under normal circumstances, you should see changes in your credit score after 90 days.

Once you apply for a car loan refinancing, your creditor takes some time to verify your contacts and financial statements. If you submitted honest information and met all refinancing conditions, your new creditor will pay off your original loan within 30 days.

After clearing your previous debt, both creditors should report your new debt status. Good creditors send updated consumers accounts’ reports monthly. Sometimes, you might not see the expected changes after 90 days because your creditor forwards consumer accounts’ reports once every three months.

Can you lower your car payment?

Yes, you can. The law allows you to negotiate for longer repayment periods.

If you run a business, a period of declining sales can hinder your ability to pay installments on time. Rather than face the consequences of loan defaulting, you can reach out for a new repayment plan. Your monthly installments can reduce by up to 30 percent if you apply for the longest repayment plan.

While it’s relatively easy to get a new repayment plan, you’ll end up paying more interest charges. In the long run, you’ll probably have spent 40-50 percent extra.

Another way to lower your monthly car payment is to lower your car insurance. Check out The Super Quick Checklist for Cheaper Car Insurance.

Can you skip a payment on your car refinancing loan?

Even though it carries a lot of risks, some creditors allow car buyers to skip one monthly loan installment. Although lenders don’t encourage it, they allow loan borrowers to reach out for repayment negotiations. If you ever find yourself needing extra time, make sure you visit the creditor’s office.

You may come across a creditor who will ask you to pay the interest rate on your outstanding installment. After payment, your creditor lets the outstanding installment roll over to next month. However, you may still have to pay late payment fees.

If you miss more than two consecutive monthly payments, your creditor automatically repossesses your motor vehicle. The outstanding debt will leave a nasty stain on your credit report.

Can I refinance my car with the same lender?

It depends on whether your lender offers this service. Plenty of car dealerships nationwide offer car refinancing loans in order to attract and retain buyers. Requesting car loan refinancing from the same lender has several benefits. Since the seller already knows you, there’s no need for lengthy negotiations. Plus, you’ll get better interest rates compared to approaching a different lender.

Are there any downsides? Unfortunately, there are a few. You’ll need to present a higher credit score than when you did while applying for the original auto loan. Some car dealerships offer car refinancing to customers who’ve paid at least 60-70 percent of their outstanding auto loan.

Complete Auto Loans provides fast and hassle-free car loan refinancing to its customers. Is this car loan refinancing right for you? Yes, it is because they don’t check your credit history. You also pay affordable interest rates and get bad credit car loan refinancing.

Are there options you can rely on instead of car loan refinancing?

Fortunately, you can pay off your current auto loan by applying these tips.

1. Request for new repayment terms immediately

When some people realize that their income cannot sustain debt repayment, they tend to wait until their creditors make several angry phone calls. It’s almost impossible to convince your lender to extend your grace period or roll over outstanding installments if you keep them in the dark.

Make a point of visiting your lender’s office to explain your late payments. You can request your lender to receive 50 percent payments and give you a different grace period to clear outstanding balances. Once you reach an agreement, you won’t have to worry about ruining your credit score.

 2. Get a credit union loan to pay off small outstanding balances

Credit unions offer loans that are way cheaper than commercial banks and payday loan lenders. Plus, you receive longer repayment periods. In order to qualify for credit union loans, one needs to operate a savings account for at least three months.

The good news is that you don’t pay anything to open a savings account in a credit union. You can make loan repayment easier by imposing standing orders. Credit union savings accounts don’t have costly recurring monthly charges.

3. Sell your old car to raise cash

Nowadays, most households have at least two cars in their driveways. There’s the sleek SUV that almost three times worth a modest family saloon car. Apart from paying high car loan refinancing installments, you also have to endure high insurance premium rates.

If you own a fantastic SUV, chances are high that your family hates riding in your smaller and less elegant saloon. Rather than pay insurance premiums for a car that you rarely drive, consider selling it to offset your current auto loan balance.  In the long run, you’ll also have more net income because you don’t have high gas and car maintenance expenditure.

4. Get another job or open a business

Insufficient net income forces car buyers to seek for car refinancing loans. A car buyer who’s going through a rough financial time also experiences stress due to downgrading his or her lifestyle. For instance, having to drive their car on weekends only, because, gas has suddenly become unaffordable.

When you’re proactive, you don’t wait for solutions to find you. Rather than complain about your financial woes, apply for a better paying job. Do you run a business? Think about diversifying your products or services. It’s easy to convince your creditor to extend your grace period when your bank statement shows that you have some income flowing in every month.

5. Tap into your Christmas savings account

Tough times call for tough decisions.

When facing sudden retrenchment or a poor business break, you’re worried about auto loan and mortgage payments. Applying for a new job or starting a new business requires time. Perhaps the job position you’re eyeing will be available after two months. In order for your new business to take off, you probably need three months of active marketing.

You need a backup as you wait for your new ventures to yield sufficient monthly income. Despite making grand holiday plans, you’ll have to use your Christmas savings in order to maintain your car and home.

Five important questions that determine whether car loan refinancing is right for you

1. Is my current financial situation temporary or permanent?

If your employer informs you that the company is considering implementing pay cuts due to high operational costs, you probably don’t need car loan refinancing. You can present your new paycheck to your creditor then ask for an extended repayment period. This new deal can save you up to 20-30 percent each month.

What happens when you suddenly receive a retrenchment letter or your best long-term customers refuse to renew their contracts with your business? Car loan refinancing is right for you because it’s impossible to service your auto loan without any income flowing into your bank account.

2. Do I still love my car?

People buy cars in order to fulfill various needs. For instance, pizza chains purchase small motor vehicles to make customer deliveries without spending too much on gas. Schools need buses to transport students from home to school. You own a personal car because you want to travel conveniently and arrive at your destinations on time.

Perhaps you no longer love your car because it doesn’t offer the same benefits as before. Wear and tear as a result of old age forces you to spend more time at the mechanic. At this point, the vehicle is turning into an unnecessary liability. If this is your situation, you don’t need car loan refinancing.

  3. Do I have assets that I can sell or lease to raise a significant amount?

If you really love the benefits you derive from your business or personal car, then retain it. In fact, you should figure out how to own it entirely. Why?  Because as long as you have an outstanding auto loan, the motor vehicle still belongs to your creditor.

Do you own a huge stock portfolio? Consider selling some financial securities in order to fully pay off your outstanding balance. If you have some undeveloped acres, look for a business that’s looking for land to lease. You’ll pay off your auto loan and still retain exclusive land ownership.

4. How does my credit score look?

Are you planning to get a mortgage for a new home? If your credit score sits above 700 points, creditors will want to do business with you. It indicates that you pay debts on time as well as a long credit history. A credit score below 500 triggers red flags.

Applying for car loan refinancing can subject you to several credit inquiries. After reading this article, you now know that each inquiry deducts five points from your current credit score. Moreover, it’s hard to get a mortgage when the bank notices you have more than two long-term credit repayments.

Since you’re planning to apply for a new mortgage, you should focus on improving your credit score to 700 or more. How? By avoiding additional long-term debts.

5. Am I comfortable with my current auto loan repayment terms?

Are you happy with the monthly installments you currently pay your creditors? Some people opt for car refinancing loans because it helps them save up to 30 percent on monthly installments. If for instance, you currently pay $1,000 a month, taking a refinancing loan with the longest repayment period could save you $300 monthly.

While you save $300 monthly, your total payments might be 50 percent more than your auto loan installments. If what you owe is less than $8,000 and you still have a job, why not request for a longer repayment period to clear your outstanding auto loan?

Bottom line

Car loan refinancing is really a last resort because we’ve discussed five realistic options that can help you clear your auto loan when facing a rocky financial situation. However, if you really love your car and lack assets to sell or lease, feel free to inquire about Completer Auto Loans car loan refinancing deals.