Why not to refinance your car?
Refinancing to extend your term or taking cash out of your equity could leave you owing more than what your car is worth, referred to as being upside-down on your loan. If you decide to sell or trade in your car, you would have to pay the lender the difference, which could amount to thousands of dollars.
Lenders have specific requirements regarding the age and mileage of cars they're willing to refinance, and some lenders won't refinance a loan that's too close to the end of its term. Generally, if your car is older or has high mileage, lenders may offer you a higher interest rate, if they offer refinancing at all.
Refinancing may lower your credit score a few points, but the impact to your credit score will only be temporary. Applying for a loan generates a hard inquiry. Refinancing may be worth it if rates have dropped since you took out your loan.
When you refinance a loan, the original lender is paid off by the new lender. You'll have to keep making repayments on the new loan, but your terms might be much better than before, which can save you money in long-term interest or lower your monthly payment amount, or both.
As such, refinancing might not be worth it if: You've been paying your original loan for quite some time. Refinancing results in higher overall interest costs. Your credit score is too loan to qualify for a lower rate.
You don't have to lose any equity when you refinance, but there's a chance that it could happen. For example, if you take cash out of your home when you refinance your mortgage or use your equity to pay closing costs, your total home equity will decline by the amount of money you borrow.
For example, when refinancing your mortgage, there will be closing costs to be paid as part of the process. If you opt to have the closing costs rolled into the new mortgage, you're augmenting the mortgage balance — the amount you owe — and thus diluting your equity — the amount you own.
Some borrowers are able to reduce the term of their loan by refinancing. If you are a borrower who has had your loan for a number of years, a reduction in interest rates can allow you to move from a 30-year loan to a 20-year loan without a significant change in monthly mortgage payments.
An interest rate under 5% is a great rate for a 72-month auto loan. However, the best loan offers are only available to borrowers who have the best credit scores and payment histories.
The higher your credit score, the better refinance rates you will get. There is no single 'best' credit score that qualifies you to be able to refinance a car. However, companies recommend that you have a score above 600 on both the FICO and VantageScore rating systems.
Can you pay off a 72 month car loan early?
There are no legal restrictions to paying off your auto loan early but it may come with fees from your auto loan provider. Paying off a car loan early can be a good option to save money and reduce your debt, but whether it is a good idea depends on your unique financial situation.
What happens when you refinance a car? When your new, refinanced loan is approved, your new lender will pay off your old loan, and you'll start making loan payments to your new lender. If the lender is the same, they'll retire your old loan and issue a new loan that you'll start making payments on instead.
After you buy a car, you have to wait at least 60 to 90 days before you can refinance, since it takes about this long to transfer the title to your name. Generally, it's best practice to wait to refinance a car loan for at least six to 12 months.
Because refinancing involves taking out a new loan with new terms, you're essentially starting over from the beginning. However, you don't have to choose a term based on your original loan's term or the remaining repayment period.
A good interest rate for a car loan is typically below 5.18% for new cars and 6.79% for used vehicles. However, the best rate is unique to the borrower so it's best to look at the average interest rates for your credit score category to know if you're getting a good deal.
If refinancing saves you money or reduces your financial stress, it might be the best choice. But if you're looking for a new or more affordable car, trading in could be the better option.
Refinancing a car loan means reducing your payments while keeping your existing car. A trade-in may be a better option if you want a new vehicle. However, if you have recently refinanced your current vehicle, it shouldn't stop you from trading in your car for a new one.
Refinancing your mortgage can help lower your monthly payments and save you money over the life of the loan, but doing so more than once (or many times) could cost you more than you expect.
| Product | Interest Rate | APR |
|---|---|---|
| 10-Year Fixed Rate | 6.42% | 6.45% |
| 5-1 ARM | 6.15% | 7.33% |
| 10-1 ARM | 6.93% | 7.81% |
| 30-Year Fixed Rate FHA | 6.46% | 7.14% |
If your credit has improved since you took out the original loan, or a dealership stuck you with a too-high interest rate, refinancing may lower your rate and reduce the total amount of interest you pay. If you're struggling to make monthly car payments, refinancing can also decrease your payments.
Does refinancing lower how much you owe?
Refinancing has a lot of advantages: It can allow you to lower your monthly payment, save money on interest over the life of your loan, pay your mortgage off sooner and draw from your home's equity if you need cash. Refinancing also comes with closing costs, which can affect your decision.
If you are refinancing a mortgage, you have until midnight of the third business day after the transaction to rescind (cancel) the mortgage contract. The right of rescission refers to the right of a consumer to cancel certain types of loans.
Disadvantages of a Larger Down Payment
The two biggest cons of making a down payment that's around 50 percent are: More money down doesn't lower your interest rate – Bad credit car buyers get higher than average interest rates, and it's extremely rare that a larger down payment can lower it.
High interest rates: Interest rates for auto loan refinancing with an online lender are higher than what's offered by banks and credit unions. Support is not available in person: Online lenders operate solely online, so in-person support is not available.
Some lenders actively advertise that you can skip a payment when you refinance. But you aren't actually getting a free month; you're just getting a month free of mortgage payments. You'll still owe the money, and you'll eventually pay it.
