If you’re looking for ways to cut your monthly expenses, refinancing your auto loan may be a viable option. Many people consider refinancing their auto loans in hopes of getting a better interest rate or a lower monthly payment. While refinancing an auto loan could potentially better your financial situation, there are circumstances in which sticking with your current financing is the better option.
You must determine if this financing option is right for you, which requires understanding key questions to ask when refinancing a car. We are here to help.
At Camino Federal Credit Union, we have been serving the Montebello community since 1941 with financial products tailored to each member’s situation and sincere, attentive support. Learn crucial questions to ask when refinancing an auto loan by reading our blog.
6 Questions to Ask When Refinancing a Car
1. Do I Qualify for Car Loan Refinancing?
Of all the questions to ask when refinancing a car, you should start by determining if you qualify for refinancing. It can be difficult to qualify for an auto refinancing loan if you have poor credit or even if you have a high-mileage car with over 100,000 miles.
Even if you have stellar credit, some lenders may be hesitant to refinance your loan if your loan pay off day is near.
There is no limit on how soon you can refinance your car. If you have recently bought a new car but are unhappy with your current interest rate, you can apply to refinance your loan immediately. A better interest rate through refinancing can reduce your monthly payments considerably.
2. Will Refinancing Impact My Credit Score?
Another consideration is that refinancing often involves a hard credit check. As a result, when applying for refinancing, your credit score could drop by as much as 10 points.
Submitting multiple applications over several months could have an impact on your score. But timing could be helpful.. Submitting all your auto loan applications within a 14 to 45-day window impacts your score the same as submitting one application.
The age of debt is also an important factor in your credit score. Taking on refinancing debt increases your newer debt, which could add to the impact this has on your credit.
Making timely payments, using savings to reduce monthly payments on high-interest debt, and reducing your credit utilization ratio on credit cards will boost your score, and many members find that their scores recover quickly following these good practices.
3. What Will My New Payment Be?
For most people, the purpose of refinancing an auto loan is to lower their monthly payments, and asking about your new payment is a common question to ask when refinancing a car. Several factors determine what your new monthly payment will be.
Interest rates, your credit score, the length of the loan, the total loan amount, and your car’s current value determine your new payment. Lenders will let you know the exact payment so you can compare it with current financial obligations and determine if it works for you..
Ask your loan advisor for a quote to compare your current monthly payment to the refinanced monthly payment.
4. What Will My New Interest Rate Be?
The interest rate directly affects your monthly payment, so you should have a clear understanding of what your new interest rate will be.
Ideally, the new interest rate would be lower than your current rate. If you cannot get a lower interest rate, refinancing may not be the right option. If your credit score has improved since the first loan, better interest rates will likely be available.
On the other hand, if your credit score has dropped, it could be difficult to qualify for lower interest rates that make refinancing worth it.
If you have improved your credit score and your car’s value hasn’t depreciated significantly, you could lower your monthly payment considerably. Knowing your new interest rate is an important factor when considering refinancing options.
5. How Long Will My New Loan Term Be?
If you have good credit, you can likely choose between short and long-term. Still, you should consider the impact of a longer term. A longer term, even at a lower interest rate, means you could pay more in interest over time.
Extending the life of your loan could result in an upside-down auto loan. An upside-down auto loan describes a situation where you owe more on the loan than the resale value of the car you are refinancing.
6. Are There Any Additional Fees for Financing My Auto Loan?
Generally, there aren’t significant fees associated with refinancing, but make sure you read the fine print and ask for clarification because there could be some fees involved with financing.
Always carefully read the fine print and ensure the loan doesn’t include products you have no interest in. Some loans may include early termination fees, transaction fees, or transfer fees.
Auto refinancing fees for documents and title transfers are usually fairly inexpensive. If a lender is attempting to charge you large fees for refinancing an auto loan, they are likely not a good lender, and it may be time to shop around for a better offer.
When it comes to refinancing an auto loan, you want to make sure you’re getting the best deal possible from a lender you can trust. At Camino Federal Credit Union, we offer competitive interest rates and up to 125% financing.
Are You Interested in Refinancing an Auto Loan? We Can Help!
Refinancing your auto loan could be a great solution for you and your financial situation. But there are always crucial questions to ask when refinancing a car. Factors like your vehicle’s value and how much you still owe on the loan determine if this is the right decision. Fortunately, at Camino Federal Credit Union, our priority is helping our members find the right financial product to build a bright financial future.
If you’re ready to refinance your auto loan or want to discuss your refinancing options with one of our Member Advisors, contact us at 1-800-835-3400. You can also visit our Auto Loans page and fill out a contact form for more information on your financing options.