How Does Refinancing A Car Work?
A frequent question many people ask when searching for ways to refinance their vehicle is: How does refinancing a car work? Quite simply, refinancing a car is as simple as taking out a loan to pay off the original. Only with car refinancing, the goal is to secure a loan that provides a lower interest rate than the first one. This way, borrowers can lower their monthly payments, and enjoy a better quality of life while still making their payments on time. The extra money “freed up” from the lower monthly payments can be used to meet other financial obligations as well.
Here’s a quick example: Sara has a really good credit score of 756. So, she took the opportunity to use her good credit to qualify her for a credit union car refinance loan rate of 2.75%. Her previous loan terms had a set interest rate of 4.21%. The 4.21% rate is right on par with the national average for auto loans. The 2.75% allowed Sara to pay her monthly bills in advance.
By paying her bills in advance, Sara freed up enough money from her paycheck to purchase a new refrigerator for her home. Her old refrigerator was vastly inefficient and on the verge of breaking down. The new, energy efficient model actually ended up paying for itself in terms of energy savings. So, it was a win-win with her new loan and it allowed her to furnish her home needs as well.
Is Car Refinancing Right For Me?
If your credit score is good, yes! People with the highest (best) credit score are always able to find lenders more than happy to refinance car loan rates with super low APR’s. Below 600 is too low to qualify for rates to justify refinancing, but if your credit score is above 600, go for it! A good credit score can get you a loan with an APR as low as 2.75%!
Car refinancing is perfect for people that are trying to build their finances, and need as much capital as they can get on hand. For example, someone who just got a new job with a higher salary, after years of working dead-end jobs, would, of course, want to be on the “fast track” to building a brand new existence. And everyone knows, that buying in bulk, having backup/emergency supplies, being able to represent a good salary with niceties, etc., is key to keeping a good job in the first place.
People with a 600 credit score, or just below that, need to recognize that building good credit is the key to a “lenders heart”. Simply put, if a lender review agent sees that your score is below 600, you won’t be approved for a low APR. In fact, many lenders employ an automatic disqualification process that denies applications from borrowers with low credit scores.
So what’s the solution? Be proactive! Start building good credit any way you can, right now, and don’t stop until you’ve achieved a score that lenders respect. A 720 credit score is excellent, so shoot for a score that high, or even higher if possible! A successful mortgage loan repayment is a good example of a genuinely respected element of someone’s credit history. A previous successful auto loan repayment is another.
Here are A Few Awesome Tips To Refinance Car Loan Rates
1. Before making the move to apply for a refinancing loan, make sure to close any old accounts you may have floating around that are not in use. By doing so, lenders see that you take good care of your credit and that you tie up “loose ends” before making major financial decisions.
2. Have all your car information, as well as all the information about your current loan, ready to transfer to the new lender. The lender will inspect your current loan, and make sure that it’s safe to proceed in helping you with your refinancing effort. With all information at your fingertips, the lender will have less of a reason to reject your application.
3. A previous history of a successful car loan or home mortgage repayment looks exceptional to lenders. If they see you’ve already been through the process of repaying commonly experienced loans, you’ll have a much better chance at refinancing approval.
4. Having a clean credit report helps too, with no charge-offs present. Just because a creditor has ceased all efforts to collect a past debt, that doesn’t mean a lender will ignore it. Lenders have to consider ALL factors when forecasting whether or not you’ll make good in repaying your loan.
5. It may not show up on a credit report, but lenders have many ways of researching and discovering facts that have an impact on their lending decision. Such as, whether or not you have a good job/work history, whether you’re an upstanding member of the community and many other events that indicate the likelihood of loan repayment.
Hopefully, this article has answered your question of: How does refinancing a car work?