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How to Refinance a Car Loan in 5 Quick Steps

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Refinancing your auto loan can be an attractive option if it saves you money over the life of the loan or reduces your monthly payments.

Does refinancing your car loan make sense?

There are a few scenarios where refinancing your car loan makes good financial sense:

  • If your credit has improved since you took out your car loan and you could get a better interest rate. As a result, it could decrease your monthly payment.
  • You’d like to shorten your loan term — this way you’ll pay the debt off sooner, forking over less in interest over the life of the loan. Keep in mind, this may have the effect of raising your monthly payment.
  • Or, you need to stretch out your loan term. This has the benefit of a potentially lower monthly payment but you’ll probably pay more in interest overall. In general, it’s best to avoid this scenario, unless your financial situation has changed for the worse and you can’t make the original payments.

You could be better off sticking with your original plan if your loan has an early termination fee or early payoff penalty.

How to refinance your car loan in 5 steps

#1 Check your credit and make necessary improvements

Take a look at your credit scores. Late payments, using more than 30% of your available credit on revolving accounts, and having a lot of credit inquiries in the past two years could hurt your credit score. Making even small improvements to your credit file could help you get a lower interest rate on your new car loan, which may result in lower monthly payments. People with the highest credit scores generally receive the lowest rates. In 2018, the median credit score of auto loan borrowers at the time they took out a loan was 704.

If your credit utilization ratio is high and you can afford to pay down your credit card balances, do so before applying to refinance your car loan. Each time a lender asks for your credit score, it recalculates using the most recent information in your credit report. Since credit card companies report to credit bureaus once every 30 days, it could take a month or more to see an improvement in your score if you decide to pay down your card balances.

#2 Get your documents in order and apply for a loan

It may be possible to get a better deal with your current lender. Check with them first to see if you are eligible for an interest rate modification. This could decrease your payments immediately without the need for a new loan.

If your current lender can’t offer a better interest rate on your current loan, it’s time to shop around for better terms. Your new lender will need some information from you to process your application for a car loan:

  • Vehicle identification number (VIN): This helps the lender verify that your car is valuable enough to secure a new loan for the amount you’ll borrow, since your vehicle serves as collateral for the loan. The VIN lets your lender know the car’s year, make, model, color, and engine type.
  • Payoff amount for your current loan: This number may change frequently, so get the most recent figure by calling your current lender.
  • Current odometer reading: Your new lender will use this as a factor in determining the value of your vehicle.
  • Proof of current auto insurance
  • Account number with current lender
  • Contact information for the current lender
  • Your personal information: This may include your contact information, Social Security number, address, employer’s contact information, your income, and your residence status.

The documentation required to qualify and execute the loan depends on the bank, credit union, or online lender you choose. Pay particular attention to their requests to avoid processing delays.

#3 Research your options and understand your current loan

You can compare rates online or visit lenders in person to fill out refinancing applications. Before you can compare new loan options, you’ll need to fully understand the terms of your current loan.

Make sure you understand whether your current lender charges penalties for paying off your loan early. Figure those penalties into your calculations when deciding whether refinancing is in your best interests.

Verify the structure of your loan contract to understand whether you pay simple interest or pre-computed interest. Simple interest, calculated on the amount you owe, means the quicker you pay off the loan, the less interest you’ll pay. Pre-computed interest is a fixed amount, calculated and added at the beginning of the contract. Even if you pay off the loan early, you still pay 100% of the interest. Auto loans are usually simple interest loans.

Understanding the structure of your current loan will help you compare your options as you seek to refinance the payoff amount. Choose terms that best fit your individual financial situation. Make sure potential lenders offer a low or no-fee simple interest loan with an interest rate lower than your current loan.

#4 Decide on a lender and accept the terms of your new loan

Upon approval, you’ll receive loan details like the total amount, fees, interest rate, length of the loan, and monthly payment. It’s up to you to decide whether the loan fits your budget and your financial goals.

When you decide to accept the terms of a loan, your new lender will pay off the previous loan. Keep your former lender informed about the situation so you can avoid late fees and penalties during the transition.

Fees. Unlike refinancing a mortgage, the fees to refinance an auto loan are typically modest. Lenders may not charge an application fee, and though you may have to pay a fee to transfer your car title with your county or state, those fees are typically less than $75.

#5 Set up payments

Your new lender provides information to help you understand your payment options. Authorizing automatic payments from your bank account is the best way to avoid late fees and protect your credit rating. Late payments have a negative impact on your credit score, which could trigger interest rate increases on other accounts. You may also be eligible for a decreased interest rate or smaller loan fees if you agree to automatic payments.

Check with your former lender to verify that it closed the account. If you made monthly payments via automatic withdrawal, make sure to terminate that arrangement.

What to watch out for when refinancing a car loan

Interest rates on car loans are rising

The Federal Reserve made the most significant increase to the federal funds rate in 10 years in September 2018. In January 2019, interest rates on new vehicle loans averaged 6.19% — this is the second-highest recorded rate in about a decade. In response to a federal funds rate increase, auto lenders often raise interest rates on car loans incrementally. More recently, the Fed decided to hold the federal funds rate at the previous level.

With generally higher auto loan rates, it may be more difficult to find a lower interest rate than your current loan. When you explore the option of refinancing your vehicle, make sure that you can secure better terms with a lower interest rate than your current loan.

You could get financing for more than your car’s value

While this may seem like great news, accepting a loan for more than your car is worth is known as being “upside down” on your loan. If you can afford to make extra payments to reduce the amount you owe, do so. Owing more money on your vehicle than it’s worth could make it difficult to purchase a new car in the future.

Read and understand the contract to avoid misunderstanding the terms of your car loan

Before accepting a loan offer, look carefully at the terms. Watch out for excessive loan origination fees and early payoff penalties. Take note of late payment penalties. Look for information about whether there’s a grace period after the monthly due date during which you won’t get charged a fee.

Ask questions about anything that isn’t clear in the paperwork. This document represents a legal commitment, so it’s crucial to avoid surprises and verify that the loan includes the terms you want most.

The bottom line

Refinancing an auto loan isn’t for everyone. If you can secure a new loan with a lower interest rate or a payment that fits more easily into your budget, refinancing could be the best way to reach your financial goals. Here are four good places to look for auto refinancing in 2019.

LendingTree
APR

As low as
3.99%

Terms

24 To 84

months

Fees

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Rachel Morey
Rachel Morey |

Rachel Morey is a writer at MagnifyMoney. You can email Rachel here

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Auto Loan, Reviews

Review: Wells Fargo Auto Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Wells Fargo Auto Loan

If it’s time to get a new or used car, it’s time to do your research. Perhaps you’ve picked out the car of your dreams and you want to figure out the best way to pay for it.

When it comes to financing a vehicle, you have a ton of choices. Wells Fargo, founded in 1852, is one of many places to consider getting an auto loan from.

Wells Fargo Auto, a division of Wells Fargo Bank, serves more than 3 million auto loan customers throughout the United States.

About Wells Fargo

Wells Fargo offers new and used vehicle financing through its network of 11,000 active car dealerships, but it’s possible to apply with the bank directly if you’re interested in financing outside of the dealership or refinancing an existing auto loan. You could also use a Wells Fargo personal line of credit or loan to buy a car from a private seller or buy out your leased vehicle, but you may have to pay an annual fee or origination fee. A home equity loan or line of credit is another possibility but puts your home at risk should you default on your car payments.

It’s worth noting that Wells Fargo continues to compensate auto loan customers who were charged for insurance they didn’t need or add-ons after their car loans were repaid or their vehicles repossessed. The bank’s redress program came after a December 2018 settlement with attorneys general from all 50 states calling for $422 million to be repaid to auto loan customers.

Wells Fargo: At a glance

  • Loan terms up to 72months
  • Loan amounts between $5,000and $100,000for new and used auto loans.

Because a majority of Wells Fargo’s loans are through dealerships, what’s known as indirect lending, you may not know your exact rate or terms until you apply through a dealership. A Wells Fargo spokesperson said rates are based on a number of factors, including the borrower’s credit history. While the best rates and terms tend to go to those with the best credit, it’s possible to be approved with less-than-stellar scores at Wells Fargo.

Wells Fargo also offers loans for those looking for specialty vehicles like motorcycles or recreational vehicles. Existing customers may be eligible for a discount if they use autopay to make their vehicle payments from a Wells Fargo consumer checking account.

A closer look at Wells Fargo auto loans

Highlights of Wells Fargo auto loans

  • Multiple ways to pay: You could make your car payment through the bank’s online eServices function, automatic loan payments or at any Wells Fargo branch.
  • APR discount: Wells Fargo offers a 0.25% discount for existing customers who use a consumer checking account to make automatic payments on its car loans.

Lowlights of a Wells Fargo auto loan

  • Mix of direct and indirect loans: While it’s possible to apply directly through Wells Fargo for an auto loan, most of its auto lending is through dealerships.
  • Negative press: In addition to fines Wells Fargo has had to pay in regards to its auto loan customers, it has been fined for the way it treated mortgage customers as well. In all, the bank has agreed to pay billions in settlements and consent orders.

How to apply

As we’ve already mentioned, most customers apply through one of 11,000 dealerships in the Wells Fargo network. But applying outside of the dealership is possible — a Wells Fargo spokesperson said customers may call or visit a branch for more options. It’s possible to apply for a refinance loan online, in person or by calling 800-289-8004. We’ll talk more about refinance loans in more detail, below.

Here’s what the bank will want to know about you and your car:

  • Personal information: Address, contact information, date of birth and Social Security number.
  • Country of citizenship information
  • Marital status (Wisconsin only)
  • Housing information: Whether you rent or own and for how much as well as information about previous recent addresses
  • Income information: Your occupation, gross monthly income and previous employer
  • Information about your car: Year, VIN, mileage and remaining loan balance. You can find out your remaining loan balance by calling your current lender.

The fine print on an auto refinance loan

The only way to make sure you’re getting the best deal on a loan for a new car or to refinance the one you have is to shop around. Make sure a refinance really is in your best interest and that you understand Wells Fargo’s criteria before you sign:

  • Minimum loan amount of $7,500
  • Co-signers allowed
  • Not offered in Alaska, Arkansas, Hawaii, Louisiana, North Dakota or Washington, D.C.
  • May be difficult to get approved if your vehicle has more than 100,000 miles or is 8 years or older.

Once you have applied, Wells Fargo will contact you by phone, mail or email. You’ll have the option of signing and returning the loan package by mail or finishing the process online.

Who is a Wells Fargo auto loan best for?

Wells Fargo auto loans can be a good fit for those in the market for a new or used vehicle, or folks looking to refinance a current loan. It may be the best option for existing Wells Fargo customers looking to refinance — it’s possible to apply directly through the bank, online and, if you’re willing to make auto payments, you may score a lower interest rate.

A Wells Fargo auto loan might be good for anyone shopping for a new or used car as well, but the only way to make sure you’re getting the best rate, particularly if it’s one offered through the dealership, is by comparing it with your preapproval offer from another bank, credit union or online lender.

A Wells Fargo auto loan is not a good fit for anyone interested in a private party auto loan. For those, look to competitors such as Lightstream, Bank of America or a credit union.

Lindsay Martell contributed to this report.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Auto Loan, Reviews

Review: Bank of America Auto Loan

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Bank of America Auto Loan

The history of Bank of America dates back to more than two centuries, but that doesn’t mean its banking services are stuck in the past. In recent years, Bank of America has modernized its service offers by adding mobile auto lending services that allows buyers to choose a car and a car loan in one place. Yes, you can apply for its loans in person at a branch or over the phone, but it’s hard to beat the speed and convenience of applying from home or anywhere you use your smartphone.

According to Bank of America, you could receive a loan decision within 60 seconds of applying, which is about as fast an approval as you can get from any lender, whether in person or online. But don’t be so quick to gloss over the details. While you may get approval decision within a minute, you might not be getting your lowest rates. Bank of America offers competitive rates for new car financing and a discount for certain customers, but other lenders may be able to beat Bank of America when it comes to used car loans and refinancing.

About Bank of America

Bank of America’s online auto buying experience starts when you submit an electronic application through its website where you have the option to use your loan approval to shop for and buy your car through Bank of America’s network of participating dealerships. Once you get your loan approval you can visit the Bank of America website or use the banking app to search a national inventory of more than one million cars, then visit dealerships for test drives and to finish the paperwork.

You can also use a Bank of America loan to buy a vehicle outside of the network. The bank offers loans for:

For specific rates for used and new cars as well as loans you could use to refinance your existing car or to buy out your leased vehicle, see the chart below.

Bank of America: At a glance

  • Loan amounts starting at $7,500
  • Terms between 12 and 60 months

Bank of America offers a wide variety of loans, but its loans aren’t available for specialty vehicles such as motorcycles or RVs. Financing is available to residents of all 50 U.S. states who borrow a minimum of $7,500 ($8,000 in Minnesota), but it can’t be used to buy cars that are over 10 years old or with more than 125,000 miles.

Advertised rates for new car loans are comparatively low, but to find the lowest APR for your loan you’ll need to do some comparison shopping. Rates vary depending on what kind of purchase you’re making, where you shop and the condition of your credit, with the lowest rates available for buyers with excellent credit when they purchase a new car from a dealer. Bank of America advertises much higher rates for private party purchases.

Compare Auto Loans
 New from dealerUsed from dealerUsed from private party*RefinanceLease buyout*
Bank of America3.19%3.39%5.99%3.99%4.19%
Chase4.24%4.24%N/A4.89%N/A
LightStream3.99%3.99%4.99%3.99%4.99%
*Bank of America lease buyout and private party loan rates are current as of Sept. 18, 2019.

If you bank with Bank of America or have an investment account with its wealth management subsidiary, Merrill, you may be eligible for lower rates. Preferred Rewards members get a rate discount at 0.25% for Gold members, 0.35% for Platinum members and 0.50% for Platinum Honors members.

Your eligibility for Preferred Rewards is based on the average asset balances held by Bank of America and/or Merrill over the three months prior to your application, with a minimum average balance requirement of $20,000. You can enroll for free to see if you’re eligible.

A closer look at Bank of America auto loans

Advantages of Bank of America auto loans

  • Loan approval offers lock in your terms for 30 days. That gives you time to shop around and find the car you want.
  • No application or origination fees, unlike some other lenders.
  • No prepayment penalty, meaning you can pay off your loan early and potentially save on interest charges without being penalized.

Disadvantages of Bank of America auto loan

  • Other lenders’ rate discounts may be easier to qualify for than the Preferred Rewards’ discount. PenFed Credit Union, for example, offers a discount to customers who use its car buying service, which can mean new car loan rates as low as 1.49%*.
  • Loan preapproval isn’t available. That means you’ll likely have to take a hard inquiry into your credit, and possibly lose a few points from your credit scores, just to see the loan terms you’re being offered. However, it’s always a good idea to compare auto loan rates and applying to multiple lenders doesn’t hurt your credit any more than it does to apply to one, as long as you do so within a 14-day window.

How to apply for a Bank of America auto loan

Completing an application online is a straightforward process, and if you’re already a bank member you can choose to have some of the application prefilled. Whether you apply online, in person or over the phone by calling 844-892-6002, you’ll need to submit the following information to complete an application:

  • Name
  • Address
  • Social Security number
  • Employment information
  • Income
  • U.S. citizenship status
  • Email address

You may be asked to submit some of the following information to complete your application, if applicable:

  • Purchase agreement/bill of sale
  • Registration
  • Title
  • Vehicle make, model and year
  • Mileage
  • VIN number
  • Lease buyout instructions
  • Proof of income
  • Federal tax returns
  • W-2s

To apply in person, you can make an appointment through the website or walk into a bank branch and talk to a representative. Setting an appointment allows you to avoid waiting and helps ensure a specialist will be prepared with the information you need.

Once you’ve submitted your application, loan decisions are quick. Even if further review is needed after you submit your application, you’ll receive an email with your decision by the end of the following business day.

The fine print

  • Loans are only for cars purchased through franchise dealerships or private parties, which does not include independent dealerships except for CarMax, Hertz Car Sales, Enterprise Car Sales and Carvana.
  • If you apply online, you’ll get the details of your approval via email. Make sure to look them over, including interest rates and repayment terms for new versus used car purchases, before you begin car shopping.
  • Loans are available with payment terms lasting up to 60 months. While a longer term can lower your monthly payment, it can cost a lot more in interest charges. Make sure to do the math before agreeing to a long-term repayment.

Who is a Bank of America auto loan best for?

Savvy car shoppers know that using bank or credit union-backed financing for an auto purchase is generally a better option than going through a dealership. But it can be difficult to arrange bank financing and complete a car purchase without putting in the time to contact several different lenders and visit multiple lots.

If you want the security of financing with a large bank with branches around the country, or even from your pre-existing Bank of America account profile, Bank of America auto loans might be the solution for you. They offer some of the same perks as dealership financing, allowing you to apply for a loan and shop for a car, all within the same platform.

But some extra legwork usually pays off: Comparing rates with other banks, plus credit unions and online lenders is the only way to make sure you’re getting the best deal possible.

*Rate and offer current as of June 1, 2019 and are subject to change. Promotional rate is not available to refinance existing PenFed car loans. Terms apply.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Sarah Brady
Sarah Brady |

Sarah Brady is a writer at MagnifyMoney. You can email Sarah here