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Auto Loan

7 Reasons to Get a Preapproved Car Loan Before You Go to the Dealership

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When you need a new car, most people start looking at car options online and then head to the dealership, thinking only of the vehicle itself. Then the salesperson shows up, and you go through the process of looking and test-driving and negotiating the price. When you finally get to the paperwork, you’re exhausted, right when you’re about to discuss the most important part of this whole transaction — the financing.

Wouldn’t it be nice if you had most of the auto loan part done before you even walked into the dealership? Not only is getting preapproved for auto financing the best way to ensure you’re getting the greatest possible deal on your loan, it’s also a simple way to expedite the entire car-buying process itself, helping you get in and out of the dealership and into your new ride faster.

Here, we’ll give you an overview of how to get preapproved for a car loan as well as all the benefits that come with it.

How does a preapproved car loan work?

When a lender gives a preapproval for an auto loan, it means the lender agrees to finance a car for you up to a certain amount, at a certain APR for a specific time.

Be aware that a pre-qualification and a preapproval are not the same thing. A pre-qualification is a soft offer in which most lenders do not pull your credit. If you have a pre-qualification and then do an official application, once you know the car you want, your actual loan offer might be very different, because lenders will do a hard pull on your credit and get a fuller picture of your credit history.

A preapproval, on the other hand, is a firm offer by a lender. Once you decide which car you want, the final loan offer should generally stay the same.

To apply for a preapproval, you can either go online directly to the lender’s website or go in person at a bank or credit union. You can request a preapproval from multiple lenders, which is a smart way to get the best deal possible. Some lenders, such as LightStream, even have a program where they’ll agree to beat any competitor’s rate you can find that’s lower than their rate.

If you are preapproved, the lender will tell you how much financing you qualify for, your loan APR and term. Now, you know exactly how much car you can afford before you start shopping for a particular model.

Why go through all that trouble before you head to the car lot? We’ll cover the benefits of approval next.

7 advantages of getting preapproved for a car loan

You know exactly how much car you can afford
You might try for a preapproved auto loan and find out you could actually borrow more than you thought, and get a better car than you planned. The reverse could be true, too. You could apply and find out you could only borrow some of what you thought. Either way, you’ll better know the vehicle price range you should be considering.

Remember the maximum loan amount the lender tells you that you’re preapproved for means just that — that’s how much the lender will give you to cover all the expenses of buying a car, not just the car’s sticker price. You have to account for the taxes and fees that will be charged as well. So if a lender tells you you can borrow a maximum $20,000, you should probably look for a car around $17,000, depending on your state’s taxes and fees.

You have the upper hand during negotiations
When you are preapproved for financing, you’ll know what you qualify for in terms of APR, so the dealership won’t be able to charge you a much higher APR. In fact, you’ll be able to tell the dealership you already have a loan preapproval, and challenge them to beat it and find a lower APR loan for you. This is a huge advantage over anyone who’s walking into a dealership without financing first.

You’ll know your rate and your monthly payment
If you know how much your loan will cost you, not just how much the car itself will cost, you can figure out your budget more accurately.

So if you think you’ll borrow $20,000 for 60 months, dividing it means your estimated monthly payment is $333. But that’s the monthly payment on the car; it doesn’t include the loan interest. If you know your APR is 5%, you can figure your actual monthly payment will be $350 by using an auto loan calculator like this one on LendingTree, the parent company of MagnifyMoney. (Note that some calculators have built-in assumptions with location and credit score that might give you a slightly higher payment than doing the straight math.)

A lot of the work can be done ahead of time
It’s hard to focus on paperwork and numbers when you’re tired from spending hours negotiating with a salesperson and test-driving cars at the dealership. By doing what is arguably the most difficult part of financing a car ahead of time, you’ve done your homework beforehand. All you’ve got to do is show the dealer your loan offer and see if they can beat that deal. Whether they can or not, you know you’re walking away with a good deal.

You’re not tied down to any one dealership
Getting preapproved for an auto loan gives you more freedom and time to check out different dealerships. By not being dependent on a dealership for financing, you can comfortably check out multiple dealerships if you want. With an auto loan preapproval, you know what your loan offer will be like without waiting for a dealership’s lender partners to respond.

You have a plan B
If the dealership isn’t able to beat your auto loan pre-approval or find a good offer, you shouldn’t be worried, because you already have an offer. Having a preapproved auto loan takes stress off you by serving as a fallback in case the dealership isn’t able to find a good loan offer for you or beat the one you have.

Less stress
Overall, having a preapproved car loan offer lessens the stress of making such a major purchase. You’re able to know what you qualify for, plan your budget and do the work ahead of time so you aren’t pressured to get everything done in one day. And you know you won’t be fooled into paying a higher APR than you deserve.

Where to find a preapproved auto loan

A lot of lenders offer preapprovals for auto loans, but not all. Check online to make sure the lender you want to apply to offers preapprovals. Banks, credit unions and online lenders could all be possible sources. You may want to start with your current bank to see what kind of deal they offer but typically, you can find the best rates at online lenders and credit unions. It won’t hurt your credit to apply to multiple lenders, as long as you do so within a 14-day window.

Here’s a list of the best auto loans in 2018 if you want to check them out. Most preapproved loan offers are good for one month, so don’t start applying if you’re not ready to buy a vehicle within a month from the time you complete an application.

It’s smart to apply to a few places so you can compare offers. Don’t just do one and think that’s the best you can get. If you would like to compare to multiple offers at once, you can check out LendingTree, where you could possibly be matched with up to five lenders.

Applying for auto loan preapproval

To get preapproved for an auto loan, you’ll need to have some information on hand for the application.

  • Personal details, such as address, date of birth and Social Security number
  • Employment information: where you work and how much you make each month
  • A basic idea of the vehicle you want, like if you want a new car or a used car
  • Loan information, such as how much you want to borrow and for how long
  • Account data: how much you have in your checking and savings account, and any other accounts, such as stocks, bonds and debts

What’s next? Buying a car with a preapproval

Take the preapproval with you when you go to officially pick out and buy your vehicle. Most preapprovals are good for 30 days. If you don’t use it to get a car by expiration date, you’ll have to apply again. Once you know exactly which car you want, you could do a couple of things.

The first is that you could tell the dealership about your preapproved auto loan and see if the dealer could beat what you already have. If the dealership can’t beat it, or if you already shopped around for your preapproval and know you want to go with that lender, then let your preapproval lender know exactly which car you want by contacting them on the phone or online. The lender will ask for a bunch of information on the car, such as the year, make, model, mileage and VIN.

Based on the car you want, the lender will tell you the final numbers with taxes and all, and guide you through finalizing the loan.

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.

Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at [email protected]

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Auto Loan

Can You Lease a Used Car?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Lease a used car
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When you think of leasing a car, you probably think that it only pertains to a new vehicle. But did you know that you can lease a used car? While it’s not very common, this type of leasing has been around for a few decades and it’s on the uptick.

Why? The difference between the cost of a new car and used car is quite significant in today’s market. According to the analysts at Edmunds, a consumer automotive research site, the current market for pre-owned vehicles could reach 41 million in 2019. This, analysts say, is due to rising car prices and higher interest rates. As of November 2018, the average amount financed for a new car came to nearly $32,000, according to Edmunds. The average amount for a used car was about $22,000, a difference of $10,000.

Matt Jones, senior consumer advice editor for Edmunds, wishes more people would consider leasing used cars, and advised that it’s great for people who want to try out a certain make/model, without making a huge financial investment.

“Leasing a used car might be just as good, if not better, because you’re getting a car that costs less,” he said.

How does a used car lease work?

First, there are a few things to keep in mind about leasing a used vehicle:

  • Those that are leasable through dealerships must be certified pre-owned.
  • Per Edmunds, these kinds of vehicles are generally less than 4 years old, with 48,000 miles or fewer on the odometer
  • Having less-than-stellar credit hurts your ability to acquire financing. So even if you’re willing to move forward with leasing a used car, if you have a low credit score, it will be harder to secure a lease.

The process of leasing a used car isn’t very different from leasing a new car. The lender will tell you how much the car is worth, and establish the payments based on the differences between the car’s residual value and its sales price. In general, the lender will be the dealer’s own finance arm.

Banks offer leasing on used cars, but Jones said it doesn’t happen all the time, adding that it’s not as easy to secure.

The lender assembling the lease will assign an interest rate, which tends to be higher than on a new car lease, just as interest rates on loans for purchasing used cars are higher than the rates for new autos. Still, when you factor in the lower cost to buy the vehicle, combined with a lower rate of depreciation, the overall payment will be lower. Buyers who lease pre-owned cars have the ability to buy out the vehicle when the lease is up, just like you can do with new cars.

As for the depreciation rate for used cars, Jones explained that the depreciation is less for a used car, as well. “The amount of money you have to pay over the course of the lease is smaller,” he said.

As for interest rates on leases for used cars, Jones said the lease is based on — or around — the advertised special interest rate for a similar car; it is also based on your credit score.

Wondering how long you can lease a used car for? Jones said it’s no different than leasing a new car — leasing is done on a case-by-case basis. If you decide you don’t want to keep the car when your lease is up, you simply turn the car back in.

How to find the right used vehicle to lease

Finding a used vehicle that suits your lifestyle — this is the fun part of the leasing process. But if you have no clue what type of car you’d like to lease, you may want to go online and search for cars that fit you. Searching terms like “the best family-friendly cars” or “best budget commuter cars” can help you get some ideas of where to start. You could also check out our used car checklist. Once you have a few makes and models in mind. you’ll want to do the following:

Find a lender and check out car dealerships.

Once you’ve found a particular vehicle that suits you, you’ll want to call the captive lender (the lender who is working with the dealership) of that carmaker to inquire where the company offers leases on certified pre-owned vehicles.

Try searching the brand’s name along with “finance phone number” to see if a customer service number pops up. For example, if you are jonesing for a Subaru Outback, you would call the Subaru Motors Finance program. And be patient — leases on second-hand vehicles aren’t too common, so finding a dealership that creates them will take some time.

Once you’ve located a dealer that does offer used car leases, head there and see if they have your dream car on the lot or available. After test driving it, let the sales associate know that you’d like to discuss leasing the car (rather than buying it). Most salespeople will likely refer you to the sales manager. As Jones noted, buyers shouldn’t be discouraged if you are told “no” — just ask to speak with a supervisor. Because these types of leases are rarer, some staff members might not even be aware they exist.

Obtain a price quote and compare prices.

Jones said getting a competitive lease quote is an important part of the process, but don’t obsess over getting tons of quotes — “if you find one quote, and it’s good, just take it,” he said. “Don’t pull your hair out trying to find another one where you might save five or six bucks. It’s just not worth it.”

This is a good time to take advantage of a used car appraisal tool, available at sites like Kelley Blue Book (KBB.com). These online resources will help you find the pre-owned car’s retail value. When you’re on the cusp of leasing a used car, It’s important to educate yourself on what’s going on in the marketplace.

Then, once you’ve found a dealership that’s willing to offer you a pre-owned car lease, ask for a price quote. You’ll want to negotiate a fair purchase price for the car and know what the residual value — the estimate of your car’s worth when the lease is up — will be just in case you decide to buy the car when your lease is up.

The higher the residual, the lower your payments will be. So if you’re trying to get a good payment on a car, you want to search for a high residual.

Finally, you’ll want to know the total down payment and total monthly payment will be, including all taxes and fees. This is crucial to know since it will be what you’ll be spending on your car each month.

What are the benefits of leasing a used car?

Moving forward on your decision to lease a used car is a huge step, and you want to ensure you’ve made the best choice for you, and your wallet.

There are plenty of benefits to leasing a used car. Here are just a few:

  • Good quality car: When you lease a CPO car, you may feel better knowing the car you’ve chosen began its life on the road as a leased new car. Because of that, it should have relatively low mileage and wear, zero accidents and solid maintenance. Certified pre-owned vehicles come with warranty coverage and other extras that can alleviate any doubts you have about leasing one.
  • Excellent lease buyout opportunity: Say you decide you love your Ford Explorer so much, you want to keep it. Used cars cost less than new cars, so their residual values are less, too. Thus, they become great buyout options at the end of the lease.
  • Potentially lower auto insurance costs: Used cars are worth less than new ones, so the cost to insure a used car will most likely be less.

What are the drawbacks of leasing a used car?

But just as there are lots of benefits to leasing a used car, there are a few drawbacks as well:

  • It takes time. Lots of time. Because this type of lease isn’t very common (and not all dealerships are familiar with them), they will take more time and effort to find and negotiate. It’s time-consuming for the dealership, too.
  • The cost to maintain a used car: Maintenance costs can add up, especially when you have a car that’s already been driven thousands of miles. Maintaining a used car will most likely cost more than maintenance costs on a new car. Fortunately, certified pre-owned cars will come with a warranty of some kind.
  • The used car is, well, used: New cars are pretty and pristine, with nary a scratch; this isn’t the case with a used car. Expect to find a ding or two.
  • Potential lack of cutting-edge technology: When you buy or lease a current model-year vehicle, you can pretty much guarantee it will have at least some high-tech features such as backup cameras, automatic liftgates, and keyless entry. This isn’t always the case with a pre-owned car. If you decide to lease one, Edmunds suggests that you make sure it has the technology features you are seeking.

To find the best deal, Jones suggests you make sure you have the right car for you, the right amount of patience and a clear idea of what the difference in lease payments will be to be in order to choose used over new.

Alternative ways to finance a used car

If you would rather not lease a used car, you can pursue buying one instead. Reaching out to your bank is a great place to start, or even checking out these best used and new car loans to get you on the right track.

Another option is to take over someone’s used car lease. Websites like Swapalease and LeaseTrader are online destinations where you can potentially take over someone else’s lease. These websites offer step-by-step instructions on how to find a car to lease, what you’ll need to provide, and how the entire process works.

The bottom line

Making the decision to lease a used car takes time, research, and careful consideration of costs. While it may be a solid option for many buyers, it’s not the best choice for everyone. It’s up to you to weigh the pros and cons and decide for yourself if this type of lease makes the most sense for you.

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.

Lindsay Martell
Lindsay Martell |

Lindsay Martell is a writer at MagnifyMoney. You can email Lindsay here

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Auto Loan

Refinance Auto Loan Rates: 4 Best Places to Look in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

When you’re looking to refinance your auto loan, it’s best to check around at multiple lenders for the best rates. Because many lenders today offer online loan options, you can check out the most current offers without putting in the actual legwork of shuffling from bank to bank in person.

See what rates your bank or credit union advertises. Check their websites or call them by phone. Often they’ll give rate discounts when you make automatic payments using one of their checking accounts, which is an easy bar to meet if you’re already a member.

Look at competing lender offers. Whatever your current bank or lender says, compare them to other deals by shopping online. There are dozens of auto loan options out there, but don’t be intimidated. We’ll help you find the best places in this guide. It won’t hurt your credit if you apply to a few different lenders for the same type of loan within 14 days, so don’t let that stop you from applying to one of the best car refinance companies if something looks good.

Look at what your current lender advertises. Not all companies refinance their own loans, but, for those that do, you might be able to refinance with the same company if you qualify for a lower rate or different term.

In this guide, we’ll show you the best places to start shopping for an auto loan refinance, as well as provide tips on how to decide when refinancing is the best move for you.

The best places to shop for an auto loan refinance

To help you choose the right lender for your refinance, we picked out some of the best places to refinance a car online. We started by analyzing more than 450,000 auto refinance applications for 17 lenders submitted through the LendingTree marketplace. We then compared and selected the top four lenders that 1. consumers were choosing most often and 2. offered the lowest average APR.

LendingTree

If you are looking to explore your options, LendingTree is a good starting place. Its online auto lender marketplace lets you compare up to five lenders side by side. You can find lenders that offer loans with APRs starting at 3.99% for New car financing. Motorcycle and RV financing and refinancing are available as well. People of all credit scores may apply. After completing a short online form, you may be able to see real interest rates and find out if you prequalify for any offers instantly.

Pros:

  • LendingTree partners with dozens of financial institutions that compete for your business. Depending on your circumstances, you may be matched with one or more lenders at one time, allowing you to potentially compare several offers and choose the lender that has the best rate and loan terms for you.

Cons:

  • Some of the lenders on LendingTree don’t offer prequalifications. You may or may not be matched to one that does a preapproval, not a prequalification, which would require a credit pull.

A prequalification is a not an automatic approval. Some auto lenders may not offer a prequalification at all and they may require you to submit an application for approval.

How to apply
Go to the LendingTree website and fill out the prequalification form. You’ll need the vehicle information, your information, including contact, loan, employment and income details on hand.

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.

iLendingDIRECT

Like LendingTree, iLendingDIRECT is an online marketplace where you can potentially be directed to multiple auto lenders. Once you submit an application, the company will shop around for the best loan offers for you. It works with more than 20 financial institutions to offer a wide range of refinancing options, cash back loans, lease buyouts, and more. APRs start at 1.99%. Cars, trucks, motorcycles, boats and RVs can be refinanced; maximum terms and amounts depend on the type of vehicle.

Pros:

  • In some cases, you can skip the first month’s payment to give your wallet a break. If you don’t qualify for refinancing because of poor credit, iLendingDirect will work with you to help you improve your credit so you can qualify.

Cons:

  • Compared to other refinance marketplaces, iLendingDirect has relatively few financial institutions as partners.

To apply
Either call them or fill out a short contact form online and they’ll reply to you. You should have your personal contact information, your vehicle’s year, make and model, and your loan information at hand. With this information, they’ll find the best offers you’re pre qualified for, and you can choose from those which loan you’d like to apply for.

iLendingDIRECT

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on LendingTree’s secure website

rateGenius

rateGenius is another online loan marketplace, but this one specifically works with borrowers seeking to refinance. They have a network of 150 lenders around the country. APRs start at 2.99% and loan amounts and maximum and minimum loan terms will vary depending on the type of vehicle.

The original loan term may be shortened or lengthened, though usually rateGenius will match the term of your new refinanced loan to the amount of time left on your original loan.

Pros:

  • The application takes a few minutes and refinance offers are ready within 48 hours.

Cons:

  • rateGenius doesn’t refinance specialty vehicles. It may also charge fees for use of its marketplace. This plan might not be the best fit for you if your income ebbs and flows from month to month.

To apply
Give them a call or fill out an online application form. You should have the following information ready.

  • Current loan information (lien holder name, monthly payment)
  • Vehicle information (make, model and style; VIN; mileage)
  • Employment information (along with a phone number for employment verification)
  • Personal information (SSN, name and contact details)
rategenius

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on LendingTree’s secure website

Autopay

The online loan marketplace AutoPay works to provide refinancing to people at different levels of credit. The minimum loan term is 24 months, while the maximum goes up to 84 months. You have to have at least $5,000 remaining on your loan and no more than $100,000. APRs start at 1.99%.

Pros:

  • This would be one of the best refinancing companies to go with if you have a small amount remaining on your loan or less-than-great credit.

Cons:

  • Depending on its lending partners at the time, Autopay doesn’t refinance specialty vehicles other than motorcycles.

To apply
Visit its website to fill out an online prequalification form. You’ll need your driver’s license, a payoff letter from your current lender, proof of insurance on the vehicle, proof of income and proof of residence. Autopay then works to find the best refinancing offers for which you’re pre-approved, and you can choose which to apply to.

AutoPay

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Benefits of refinancing your auto loan

There are different ways to ditch a bad auto loan, or simply improve your payments to suit your current cash flow, and refinancing is a great way to do it.

Nicolas Ortiz, an auto insurance agent and adjuster at USAA headquarters in San Antonio, Texas, has worked in the industry since 2011 and did a stint as a finance manager at a car dealership for over a year.

“Most people look to refinance in order to lower their payment,” he said, “and you can get other benefits that come with it.”

Here’s more about the benefits of refinancing:

Get a better interest rate. If your credit has improved from when you first signed for the loan, you may qualify for a lower APR. “If you apply to refinance and get a lower APR, not only will your monthly payments be lower, but the overall interest that you pay will be lower, too, if you keep the same term.” Ortiz explained.

Decrease your monthly payment. If you’re strapped for cash, a lower car payment can make a big difference. It could give you some breathing room or prevent a repossession. To get a lower monthly payment, you may refinance with a lower APR, refinance for a longer term or both. Keep in mind your total interest cost may be higher over time when lengthening the term of the loan even if the APR is low.

Decrease your loan term to reduce interest payments. The less time you spend paying back a loan, the less you are likely to pay in interest payments. “To lenders, a greater length of time means a greater amount of risk; greater risk means more interest.” Ortiz told MagnifyMoney. Decreasing your loan term when you refinance will likely decrease your APR, but increase your monthly payment.

If you don’t want to commit to a bigger monthly payment when you refinance, one way to get a similar result is to simply refinance to get a better APR, then make monthly payments that are larger than the required monthly payment. This way you’re going to pay the loan off faster and pay less interest, but you have the option to make the lower required monthly payment if funds are tight.

Double-dip. If you have excellent credit and finance through a manufacturer when buying a new car, you usually have a choice of either getting a low APR, or getting large rebates from the manufacturer. “What you can do is if you qualify for manufacturer financing, take the rebates, sign up with them, and then turn around in a month and refinance with a credit union or bank that will give you a lower APR.” Ortiz said. You get the rebates from signing up with the manufacturer and the low rate from refinancing.

What to watch out for

A refinancing company may offer you add ons like GAP insurance or a warranty, which is also called a vehicle service contract (VSC). Make sure you know exactly how much each costs you and what it does. Don’t just say yes to a monthly payment that includes it.

GAP insurance stands for Guaranteed Asset Protection and covers the debt on the car that your auto insurance company doesn’t. For example, if you get a new car, don’t give a down payment, and crash the car a month later, what you owe on the car will be more than what the car is worth. GAP insurance covers the “gap” between what you owe and what the insurance company pays.

An extended warranty, also called a vehicle service contract (VSC), is an insurance product that will cover certain repairs to the vehicle. It is not your regular car insurance and won’t cover car repairs if you’re in a crash. It will generally cover repairs if something breaks from wear and tear.

For example, if your AC goes out because you live in a hot climate and like to make your car an ice box in the summer, the VSC might cover it. It depends on what type you get. It can be complicated, so, if you’d like one, know that you can negotiate on it and make sure you know what you get for the price you pay.

Questions to ask before you refinance an auto loan

While you can refinance at anytime, some people try to refinance when it may not make much of a difference, or may make a difference in a worse way.

Here are some questions to help you figure out if refinancing your auto loan is right for your situation.

Has your credit changed significantly?
If your credit’s gone up enough to push you into a higher score band (from “fair” to “good” for example), you should definitely check out the best auto refinancing companies to see if you can get a deal. You can use LendingTree’s free credit score tool to check your credit status. Note: LendingTree is the parent company of MagnifyMoney.

If you have a high APR auto loan because of poor credit, has your credit improved?
Many people who have poor credit and little choice but to sign for a high APR auto loan might ask when their credit will improve to the point they’ll be able to refinance at a lower APR — but it really depends on your specific situation. There are steps to successfully improve your credit. Making monthly payments on-time and in-full should help improve your score. Just have patience — lenders typically report payment behavior to the credit bureaus once every 30 days, but that can vary by lender.

If your credit hasn’t increased, or it’s dropped into a lower category, refinancing at this time probably isn’t right for you.

Do you want to add or remove a co-signer?
By refinancing with a new lender, you may have the ability to remove a cosigner from the original loan. However, you may struggle to get approved for refinancing if your credit is poor, you are underwater on your loan (meaning you owe more than the car is worth) or if you have missed several payments.

If you are looking to add a cosigner to a loan in order to get approved for better loan terms, make sure they understand the pros and cons. Their credit history can be positively affected by you making payments, but they will also be accepting liability for the loan if you fail to make payments.

Are you underwater or upside down?
Do you owe more on the car than it’s worth? If you do, you might want to think about paying down the loan before refinancing. You’ll be able to get the best deal in refinancing if your loan is equal to or less than the value of the car. However, if you know you can get a better rate now, even if you’re underwater, it might be worth doing so. That way, more of what you do pay on the loan goes to the principal and you can pay down the loan faster. Then, once you’re no longer underwater, you can refinance again for an even better rate. You’re not limited on the amount of times you can refinance.

Are you in danger of a repossession?
If you lost your job, had a family emergency, or just have a lot of trouble making payments, refinancing can make the best of a bad situation. You may not be able to finance into a loan that has a lower APR, but you may get a loan with a longer loan term, which will lower your monthly payments and give you more room to catch up.

Have auto loan rates dropped recently?
National trends in loan interest rates change based on national policy, politics and demand. Rates are expected to continue to increase this year, and indeed, rates hit a five-year high in February 2018. This isn’t a good trend for the auto loan consumer, as auto loan rates increase with it. If there is a sudden jump in the national rate for the season, consider refinancing a little later. If there is a sudden dip, like there was in the fall of 2017, it’s a good time to shop around.

When to consider refinancing

When to avoid refinancing

If the car is worth more than you owe on the loan.
Positive equity in a vehicle is attractive to lenders and will put you in the best situation to get a great rate.

If your credit improved significantly from the time you signed the auto loan.
By paying your obligations in full and on time, your credit might have gone up since you first got your auto loan.

If you’re in danger of a repossession.
Skipping and missing payments can have a negative effect on your credit. Refinancing could help you get a lower monthly payment you can afford and help you avoid trashing your credit score.

If you want to change something with a cosigner.
You could add on or take off a cosigner to the benefit of your interest rate.

If your credit has worsened significantly from the time you signed the auto loan.
Lenders base the interest rate heavily on your credit history and your credit score. Getting an auto loan with bad credit is not necessarily impossible, just more expensive.

If you owe a lot more on the loan than the car is worth.
If the car is worth a lot less than what you’ve promised to pay, the loan is riskier, thus making it harder and more expensive for you to get a loan — but there are ways to handle this type of situation.

If national interest rates rise by a point or more.
Interest rates on auto loans change along with the flux of interest on the U.S. 10 Year Treasury Note, because the loan terms are similar. If it shoots up, the lowest APR you can get will go up as well. Depending on your situation, it might be better to wait to shop for the best refinancing deal — or, if you want to refinance as soon as possible, go ahead and refinance and then keep on eye on national rates to maybe refinance again if there’s a big change.

If the car is brand new or really old.
Cars depreciate the most in the first two years. If you didn’t give a down payment, odds are that you’re underwater on your auto loan during that time period. Really old cars also aren’t really valuable to lenders and most have limits on vehicle age and mileage.

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Jenn Jones
Jenn Jones |

Jenn Jones is a writer at MagnifyMoney. You can email Jenn at [email protected]

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