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Can I Refinance a Car Loan?

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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 02 December 2016
  • Copyright Protected:
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    Conjecture Corporation
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It is most definitely possible to refinance a car loan, and the process is often much easier and faster than the process of refinancing home loans. There are a number of reasons to choose to refinance a car loan, ranging from a desire to get a better interest rate as interest rates drop to a desire to reapply for a loan with a better credit record. Most banks and lenders offer refinancing opportunities for car loans.

Car loans have rates of interest which can vary considerably, depending on the lender, and the borrower's credit record. It pays to research ahead of time when purchasing a new or used car with a loan to find the best regional interest rates, rather than going with the lender recommended by the dealer, as this can save money right from the start. Even with research, though, a car loan may have a high interest rate because of the economic climate, or because the borrower has less than ideal credit. Refinancing a car loan can save a borrower a substantial amount in monthly payments, and over the life of the loan.

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To refinance a car loan, a borrower should collect information on refinancing from regional financial institutions, such as banks and credit unions. Credit unions sometimes offer especially low interest rates to their members, and membership is as easy as opening an account at the credit union. While researching refinancing options, borrowers should find out what the interest rate is and if there will be any fees associated with the refinancing.

It also pays to ask about incentives. Some lenders will drop the interest rate slightly for people who enroll in automatic payment plans, and others may offer cash rewards to customers who bring their auto loans to them. A bank may also waive origination fees for a new car loan in some cases, especially if a borrower points out that another lender is offering a better interest rate or a cash bonus for refinancing.

Appraisal of the vehicle is usually not required to refinance a car loan; the borrower just needs to provide the make, model, and year to the bank to get an estimate of the car's value. The bank will handle the transfer of the loan from the original lender, along with the modification of the car's title to reflect the change of lender. Borrowers will usually need to provide proof of insurance and evidence that there are no other liens on the vehicle before a refinancing application will go through, and the bank will also run a credit check, which will cause a slight dip in the borrower's credit rating for a few months. The small and temporary decline in the credit rating is well worth the savings which will be obtained by refinancing a car at a better rate of interest.

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Animandel
Post 3

This article talks about how some people have higher interest rates because they could only get a bad credit car loan. I had a friend who damaged her credit when she went through a divorce and she was forced to accept a high interest rate when she bought her new car.

Two years into the loan, her credit had improved and she was able to do a car refinance loan and save a lot of money. Your credit score is constantly changing so you should keep this in mind when you are considering refinancing a loan.

Sporkasia
Post 2

@Laotionne - Refinancing your car loan should not hurt your credit score. As long as you are current with your payments when you refinance a car loan you are fine. However, if you don't refinance and you start to fall behind then that will without doubt lower your credit score.

Over the length of the car loan you probably won't save a great deal of money, but in your case it might be the perfect solution since refinancing will help you keep your credit in good standing.

Laotionne
Post 1

I have had a couple unexpected bills come up recently and a friend suggested that I try to refinance my car loan so I could use the savings to help with my other bills. While I think my credit is good enough to do this, I'm not sure car refinance is a good idea. Refinancing a four year car loan seems like it would be a red flag on my credit report.

If I refinance a car loan will that hurt my credit score?

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