Refinancing is a process of replacing existing debt, in the form of loans, with a new one, usually under different lenders. Your credit history, the current interest rate on your car loan, and the terms of your existing loan should be considered during car loan refinancing. When you can save interest through refinancing, you are likely to save money throughout your loan.
If you have recently been offered a car loan or are just thinking about refinancing, here are some things you should know.
Do your research
Obtain multiple quotes from different lenders before applying with one. It is crucial to get more than one quote since each lender has its formulas for calculating your rate. Prequalifying before you submit an application can save you time and give you a rate quote without damaging your credit score. Prequalifying with just a soft credit inquiry can save you time, and may even save you money.
Maintain a short application timeline when there is no pre-qualification tool. Your credit score will be calculated according to the combination of your multiple inquiries that appear between 14 and 45 days after they appear on your credit report.
Using rate quotes, you can determine whether car loan refinancing is worth it for you and how much you can save.
Consider more than just big banks.
Interested in car loan refinancing? There’s no need to limit your options to traditional lenders. Visiting a local credit union is usually a smart choice since credit unions have the primary goal of serving their customers, not making a profit. Find out what rates you can get from different lenders, including online auto refinancing, using iLending.
If your application is rejected, remain calm.
Investigate why you were declined and then determine whether you can take action to resolve the issue. Your credit score is being negatively affected by a credit card balance you have on one of your cards? Your credit health and future application prospects may be improved if you pay it off.
Having a high-mileage car or one older than ten years may affect your chances of getting approved. However, not all lenders use the same rules. One lender may decline your application, but another could approve it.
Understanding what will happen to your credit
It’s almost always the case that every time you apply for credit that your score will be lowered several points. In addition, you lose points if you open a new loan account since this means you get a new account and thus have a lower average age.
Even so, both of these factors are less influential than timely payments when determining your credit score – and making timely payments will improve your score over time. If you have recently applied for a lot of credit, or if your credit history is short, refinancing is unlikely to improve your credit score.