Common car refinancing mistakes to avoid Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by providing you with interactive financial calculators and tools as well as publishing reliable and original content, by enabling users to conduct research and compare information for free to help you make financial decisions with confidence. Bankrate has agreements with issuers, including but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The products that appear on this site are from companies who pay us. This compensation could affect how and when products are featured on this website, for example such things as the order in which they be listed within the categories of listing and other categories, unless prohibited by law. Our loans, mortgages, and other products for home loans. This compensation, however, does not influence the information we provide, or the reviews that appear on this website. We do not cover the entire universe of businesses or financial deals that might be accessible to you. Tom Werner/Getty Images
3 min read . Published on February 24, 2023.
Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in helping readers in navigating the ins and outs of securely taking out loans to purchase a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to manage their finances by providing clear, well-researched information that breaks down complicated subjects into digestible pieces. The Bankrate promises
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You can find specific refinancing requirements from lender’s websites or Bankrate’s .
2. Do not contact your current lender first . While your current lender might not have the lowest rates, it’s the best place to begin. Before you look into refinancing options that aren’t offered by the current lender it is advisable to reach out and discuss your situation with them to determine if they are able to help. Certain lenders provide this service , which alters the terms, the due date for payments or the interest rate to help borrowers get financial relief. Bankrate tip
If you do go through with refinancing your loan there is a chance that they’ll offer a better deal than the new lender might.
3. Extending your loan term too long Refinancing is a way to reduce costs, however if you extend your loan excessively it could cost you more money over its life. Although it will result in lower monthly payments but you’ll also be paying more interest. Tips from Bankrate
Before term adjustment make use of auto refinances to confirm you will save money.
4. Not considering your credit As with most cases regarding financing, your credit serves as the primary factor in approval. So, work to improve prior to you refinance your loan. You’re more likely to receive the available and get an improved loan overall. If your credit score is 670 or more usually qualifies for borrowers with the highest interest rates. Bankrate tip
Check your credit ahead of loan applications by using AnnualCreditReport.com.
5. Only shopping with one lender As you would when shopping for your initial auto loan We suggest comparing at least three lenders. While deciding on the first loan offer may be tempting, not all lenders are made equally. In the end, the lower your interest rate the more you’ll save on your car loan. You need to ensure that you’re getting the best offer available. Tip for banks
Compare the rates currently provided by a variety of lenders. Be aware of the conditions for approval, the repayment options and how they compare to your current loan.
6. Being upside down on your loan Before refinancing, check what equity in your car lies with an . Equity is the amount by which the value of your vehicle is greater than the amount you owe to the car loan. If you owe more than the value of your vehicle or you have equity that is negative refinancing is not a good idea. Tips from Bankrate
Do not refinance a car you’re not able to pay for. Check where your may be overextending and calculate expected costs before signing off on an additional loan.
7. Don’t give up after the initial rejection loan refinancing requirements vary from lender to lender, so even if you’ve been rejected by one doesn’t mean you’ll be rejected by all. If you’re asking, “Why can’t I refinance my car?” you have the right to inquire with your lender in accordance with the (ECOA). They must tell you why your application was not approved. Bankrate tip
Understanding why you were denied can help you improve your chances of being approved in the future. For instance, if you have a credit score that is low, you can work towards improving it before you apply again.
The bottom line: While refinancing your car loan can come with risks, it is a great option to reduce the monthly costs and to continue affording your vehicle. Keep these common mistakes in mind and stay up-to-date on the latest trends for you to be sure you leave with the best loan for your needs.
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Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the ways and pitfalls of taking out loans to purchase cars. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing concise, well-studied facts that break down otherwise complex subjects into bite-sized pieces.
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