Frequently Asked Questions About Car Loan Refinancing Answered

Posted by on March 05, 2020 @10:56:57 EST
Fine silver sportscar parked outside.

Refinancing a car loan includes assuming another credit to take care of the balance of your current car loan. The vast majority of these car loans are secured by your car and paid off in fixed monthly installments over a declared time frame — generally a couple of years. 

People, for the most part, consider car loan refinancing as a way to save more money, as refinancing could score you a lower interest rate. Accordingly, it could decrease your monthly installments and free up money for other financial commitments. 

Regardless of whether you can’t find an ideal rate for you, you might have the option to discover another loan with a more extended reimbursement period, which may likely decrease your month to month cost.

When should you refinance your car loan?

You don’t have to stand by and wait for any minimum time before getting a car loan refinancing. You simply need to meet all the requirements needed for the new loan before you can even refinance. You can refinance even after purchasing—even before you make your first monthly installment. Just make sure that you really end up with a better arrangement and that refinancing doesn’t make you pay more for your vehicle. 

Sometimes, you might not be able to refinance your car loan until you have documentation from your Ministry of Transportation. Getting all the necessary documents and registration details might take a while, but it could be worth it.

Is refinancing your car bad for your credit?

When you decide to apply for credit, the lender needs some confirmation you are able to provide payment on time as agreed on. With your authorization, the lender will then check your credit status. 

At the point when you apply to refinance your car, a hard inquiry will be noted on your credit, causing a temporary drop in your score. The impact of a hard inquiry usually fades after 6 months. Car loan inquiries are usually packaged as a single inquiry if they’re done in a minimized time frame. So it’s best to apply to a few places at the same time. 

Additionally, refinancing may hurt your credit by reducing the average age of your records. That is because the original car loan will be taken care of earlier than expected and be completely replaced by another car loan. Yet, that is generally a small problem. Reliably paying on time is undeniably more significant in this scenario.

Money on a wooden table

Can I refinance my car loan with the same bank?

Your bank is the best place to begin when you have to refinance your car loan. If you’ve kept up with your installments and are on favourable terms, they may consider refinancing your present loan. 

However, your bank isn’t always in the situation to do this. In these cases, you likely have different choices you can go to – particularly if your credit has improved since you initially took out your car loan, or the interest rates have dropped. Something else to consider is the reason you need to refinance. It very well may be a decent choice to consider if you need to keep the vehicle you have, and: 

  • The prime interest fee has dropped 
  • You need to decrease your monthly installment by extending the loan term 
  • You didn’t get the most minimal interest you currently meet all requirements for

Is it better to refinance with your current lender?

There are pros and cons when you decide to do your car loan refinancing with the bank you currently have a loan with. The answer lies within you and your bank’s relationship, but with these comparisons, you will be able to decide where to go with your car loan refinancing. Here are possible scenarios you can expect if you plan to continue with your current bank:

The Pros are:

  • The process will be quicker and easier for you and the lender. This is because of the fact that the current lender already has your information on car loans and car financing. They have a thorough history of your payment and past loans as well.
  • They will likely waive or cut closing costs.  Since you’re refinancing with the same company you got your loan from, they will likely waive certain fees for car loan refinancing, like an appraisal fee.
  • You might be able to negotiate with better terms. If your banking company and you are acquainted properly (you met the loan officers), this will be good leverage for your car loan refinancing.  
  • You will likely get a discount. There are benefits when you have an existing account with banks – you can get discounts for your new endeavours or maybe some reward points that will help you in getting a different loan or a mortgage.

The Cons are:

  • You will likely not get the best offer. As stated before, your current bank will know what your current rate is and will probably give you a slightly lower offer than what you have. But for getting the best offer out there? You really need to snoop around for the best car financing and car loan offers.
  • You still need to look for the best bank yourself. You have to go out and check yourself for the best estimates and maybe bring it up with your current bank if you really want to stick. If they don’t, you can go to the one with the best offer.
  • You will likely be treated as a new customer. This happens when it’s been years since you took out the mortgage and you will be required to go through the same steps as a new customer.

What is a good APR (Annual Percentage Rate) for a car loan?

On a typical three-year car loan, the average Annual Percentage Rate is around 3% to 4.5%. In any case, you might be offered differently depending on your credit score assessment just as where you’re getting the loan. At last, the most effortless approach to look at your car loans and interest rates is to search around for a better one or get pre-approved and think about that way. 

So as to get the best Annual Percentage Rate, the very first thing you’ll need to do is prepare. Check your record of payment and take note of the score. The higher the credit score, the lower your interest rate. You should be prepared to make negotiations to get the fees you want. So what is a decent Annual Percentage Rate? It could be anywhere in the range of 3.17% and 13.76%, depending on your existing credit score. 

Plan the rate you need and be ready to negotiate on the terms you want if they offer you an option that is higher than you anticipated. You should also research other company’s offers before you make a deal with the car loan refinancing offer. You don’t want to just concentrate on the installment and disregard the remainder of the arrangement. Give a close inspection of the subtleties.

How can I get my car payment lowered?

If you have an existing car loan, here are the following steps you can do to lower your existing car payments:

  • Try talking to your current lender. In case you’re behind on your present car loan or at risk of missing an installment, talk about your money related situations with your bank or loan servicer at the earliest time possible. Your lender might have the option to work out an installment plan or offer you different choices to assist you with your current problem.

  • Opt for car loan refinancing. Refinancing your current loan may decrease your monthly installments. If the interest rates have dropped since you got your personal car loan or your credit has improved, or you’re simply uncertain if you got the most ideal rate in the first place, you might have the option to get another loan at a lower rate and better terms with the same bank or with another.

  • Trade your current car for a more affordable one. If you have a positive value in your vehicle, which means your loan balance is less than the car is worth, you might have the option to lower down your monthly installment by exchanging it for a more affordable car that can still suit your needs.

Is it worth refinancing for 0.5 percent?

You’ve probably just obtained your loan and have it approved, but you notice that there’s another offer that’s 0.5 percent cheaper than what you have now. Is it worth it? The old general guideline was that you should refinance if you could get a rate that was 1 to 2 points lower than your present one. 

All things considered, the guidelines have changed, on the grounds that rates as of late have been at historic lows, so a half-point (0.5) drop makes up a bigger level of your current rate. That small 0.5 makes a huge change and saves you a lot of money – definitely worth the car loan refinancing.

Is it better to finance a car through a bank or dealership?

Working with a dealer and going for the bank are almost the same, the difference is – you need to do it yourself when you go to the bank and compared to going to a dealership, they will do all the hard work for you. 

The bank will be able to provide you with a statement of commitment that you can show to the dealer and they will be able to see what your limitations are. A specific loan amount provided by the bank will save you the trouble of dealing with salespeople convincing you for add-ons that you will likely never use.

The dealership will handle everything related to car financing and even submit it to different lenders so you can compare the rates that work well with you. Some dealerships will likely charge you more for doing all the work and will likely won’t provide you with all of the information you need to decide. At the end of the day, it still depends on you.

How can I lower my car payments without refinancing?

There are different ways you can lower your car loans and car financing without the need for car loan refinancing. Here are the possible and effective ways you can lower your car payments:

  • Prepayment. This is one of the effective ways to reduce your car payments and avoid any installments that come with it. When you pay a larger amount, you are deducting the amount you owe from the lender at a faster rate, as well as avoid the possibility of late fees penalty. But before doing this, check with your bank and see if there are penalties regarding prepayment.
  • Request for lower fees. When you have a good standing and you’re a good payor, they will likely provide you with better options as well. This is to avoid the likelihood of you going for a car loan refinancing in a different bank.

How many times can you refinance?

At the moment, there is no legal limit to how many times you want to refinance your car loan, but some lenders have different sets of standards and policies regarding refinancing. It can be bad in your credit history if they see you’ve been through dozens of car loan refinancing and will likely not offer their services to you. If it can’t be helped, a good rule of thumb is to wait at least six months before going through car loan refinancing.

When should you not refinance?

While a car loan refinancing can definitely save you some money, it’s not always a good choice. Here are reasons why you shouldn’t go through car loan refinancing:

  • You’re almost done paying off your current car loan. If you’re near the end of your original financing term, it’s better to simply skip it and just push through with your original loan. You won’t be able to save as much as you expect.
  • Your car is old. Like most things, the car depreciates over time and when there’s a good deal of mileage in it. Some lenders won’t accept car loan refinancing requests when the mileage is more than 100,000 kms or is older than 7 years.
  • It’s more expensive. When the fees outweigh the benefits, forget about car loan refinancing. There are some companies that have penalties for prepayments, and when you pay more for the refinancing, it defeats the purpose of saving money in the long run.
  • When you need more credit. Car loan refinancing can affect your credit history negatively for at least six months. This won’t work well if you want to apply for a new credit card or a mortgage. 

Deciding on car loan refinancing requires a lot of research and consultation with professionals you trust. Do your research before you sign, and always turn to an expert if you’re unsure.

Let's Get Started

Join thousands of Canadians who have trusted

Get Approved Now