The Question of Auto Refinance



Everybody likes to take advantage of lower interest rates and save money on their car loans. For buyers who needed to buy a car when they had damaged credit, it is even more of a priority for them to try and refinance their loan once their scores improve.

 

Today, we are going to cover several questions we have received from car buyers about refinancing.

"I would like to refinance my car loan. What are the steps to do that?"

At Auto Credit Express, we don't refinance car loans. We connect car buyers with dealers in our network that can get them a vehicle despite their challenging financial situations. But, if you are looking to refinance, we can tell you how to do that.

  1. To start, you will want to pull your credit reports, as well as research what the current prime and subprime interest rates are. If you see improvement in either area, you may want to inquire further into refinancing. If not, you may want to wait a little longer.
  2. If you are confident that your credit score or lending rates have improved, the next step would be to contact your lender and request the payoff amount for the loan. You will need this information for the potential new lender so they can assemble a financing package for you.
  3. You will need to determine the difference between your car's current market value and the payoff amount on the loan. Since you will not be able to borrow more than what the car is worth from the new lender, you will need to have the ability to pay any difference there may be. Also, you will need to make sure that the age and remaining value of the car meets the new lender's borrowing requirements.
  4. Shop around for the best rate. Once you have determined which lenders you qualify with and which one will give you the best interest rate, contact your current lender and any other associated parties and send them the information on the new contract. This will allow them to transfer the lien on the vehicle to the new lender, and pay off the old loan.

Too Soon to Refinance?

Sometimes, you need to wait until the timing is right in order to get a better rate on your car loan.

"Do you refinance Auto Loans? I purchased a car back in January and was looking for a better interest rate. My current Interest rate is 23% and my credit rating was 500 when the car was purchased. I now have a 600 rating, and would like some relief."

To answer the question, the timeframe and the new score will not make it worth their while. There are two factors here that this buyer needs to consider:

  1. While their score has improved, a 600 credit score is still considered a poor rating, and they would likely not get a better rate than what they are currently getting.
  2. It has been less than a year since they opened the original loan.

The best approach for buyers who are looking to refinance is to get their FICO score back up to at least what is considered good (661 or higher). However, in some cases you may be able to refinance into a better rate if the car loan is in good standing, which means having a consistent payment history for at least 18 months. A solid borrowing history will make it easier for a new lender to consider you.

In the meantime, also consider opening up a secured credit card with your bank or financial institution in order to help your credit history.

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How to Finance an Auto Purchase

When you walk into a dealership, you won’t be there long before a salesperson asks how you intend to pay for your new car.

When the dealer starts in, just explain that you intend to pay in cash. Saying you’ll be paying in cash doesn’t mean you’re going to open up a briefcase with bricks of money inside, it just means that you’re not interested in dealer or manufacturer financing.

In some cases (if you have perfect credit if the car is about to be replaced by a newer model) dealer-sponsored financing might be a good deal, but most of the time it isn’t. You can usually find better deals on car loans at credit unions and banks.

Telling the dealer that you’re not interested in their financing takes away an opportunity for the dealer to pad the deal with an extra profit. Dealers make money on charging you, so they have ways of slipping various extra fees and charges into your financing arrangement. Forgoing dealer financing also allows you to focus on the features and purchase price of the car you want — a far more important and useful task than focusing on the monthly payment figure.

After declining financing, your next task is negotiating the purchase price of the car. Some survival tips:

Resist the temptation to lease. Leasing is basically an extended car rental. When you lease a car, you must return it at the end of the lease or buy it from the dealer at a predetermined price — usually higher than what you’d pay for a similar used car. When you take a loan out to buy a car, you pay down the loan and then the car is yours, free and clear. The only payments you’ll have to make after that are for gas, repairs, and insurance.

Lots of people lease. Smart, respectable people lease. It’s not a terrible thing to do, but it’s not the best way to keep a car because you’re always making payments. Lease a car for three years and, when the term expires, you need to look for a new lease or shell out thousands to purchase the car you’ve been driving.

Consider factory certified pre-owned cars. “Certified pre-owned” is another term for “used.” But these cars do come with extra assurances about the car’s condition. Going pre-owned can be a really smart move because most cars lose 18% of their value in their first year. A certified pre-owned car is one that has been inspected and fixed before it goes on the market, and comes with a manufacturer-backed warranty like new cars do.

Size up your future car loan. Once you decide you want a new car, the first thing you should do is figure out how many cars you can afford. Calculate this amount before you go shopping; don’t let a car dealer influence your decision.

Figure out how big a loan you should get. A good rule of thumb: Your monthly car payment should be no more than 20% of your disposable income. That means that after you’ve paid all your debts and living expenses, take one-fifth of what’s left. That’s your maximum monthly auto expense. Ideally, this number should cover not only your car payment but also your insurance and fuel costs.

Decide how long you’ll give yourself to repay your car loan. A monthly payment is, essentially, the amount of your loan, plus interest, divided by the number of months you have to pay back the loan. The more months you have to pay it back, the lower the monthly payment will be. But stretching out a car loan too long—or any loan, for that matter—will ultimately cost you a truckload more in interest payments.

For example, say you take out a $20,000 car loan at 5%. If you borrow the money over four years, your monthly payment will be $460.59. At the end of four years, you’ll have paid $2,108.12 in interest.

If you borrow the money over ten years, your monthly payment will only be $211.12, but at the end of 10 years, you’ll have paid $5,455.72 in interest.

Keep your loan term to five years or less (three is ideal) and you should be in good shape. If the monthly payments are too much even for five years, the car you’re looking to buy is probably too expensive.

Consider all pools of money. Should you sell investments to pay for the car instead of borrowing at 7%? That’s a tough call; usually, we’d say no. Do not spend any of your tax-sheltered retirement savings (IRAs, 401(k)s), as you’ll pay through the nose in penalties and taxes and rob from your future. As for taxable investments, consider whether cashing out would have tax implications (you’ll pay 15% on capital gains for investments held longer than one year; investments held less than a year are taxed at your ordinary income-tax rate) or whether you may need that money for something else over the next two to three years.

Should you take out a home equity loan to pay for a car, since the interest of those loans is tax-deductible?

Many people think home loans are the perfect way to finance the purchase of a new car. But the length of the term for a home loan — most require payments over at least 10 years, with penalties for early repayment — will send your total costs through the roof, even after the tax savings. Borrow for no more than five years, lease (if you must) for no more than three. If you’re considering a home-equity line of credit to pay for your car, remember that most HELOCs have a variable interest rate, so it’s possible your payments will rise over time.

How to Find the Best Auto Loan

You’re going to show up at the dealer with your own loan, but where should that loan come from?

Begin by getting a sense of the prevailing rate for a new-car loan. Focus on is the APR or annual percentage rate offered by each lender. The APR is the annual cost of the loan or interest rate. With this number, you can cross-compare loans from one lender to another, so long as the duration of the loans is the same.

You’ll probably get the best deal at a credit union— a members-only, nonprofit bank that can offer lower-cost loans than a traditional bank can. But check out rates at traditional banks and online-only car lenders such as AutoWrranty Auto Loans.

Don’t be distracted by dealerships offering rebates or zero-percent financing if you obtain your loan through them. “Zero-percent financing” means you are not charged any interest on the loan. So if you were buying a car that cost $24,000 and you had a 48-month car loan, your monthly payment would be $500, without any added interest. A rebate is a money taken off the price of the car. Rebates are also called cash-back deals.

Here’s the thing about those offers: The money you save via interest and rebates is probably coming from somewhere. If you qualify for 0% interest (and most people don’t, as it’s given only to people with near-perfect credit), your dealer won’t budge on the sticker price. If you take the rebate, you won’t get a rock-bottom or 0% interest deal.

That’s why splitting up the financing and purchasing of your car is a good idea: First, you can shop around for the best credit-union car loan, and then you go to the dealer and focus on negotiating the purchase price of the car. Bundling the transactions can lead to lots of stress and added expense — you may be so focused on financing costs that you the punt on the purchase price — to keep them separate.

If you do choose dealer financing, be extra vigilant about what you agree to, and what you’re signing—it’s not uncommon for dealers to add in various unnecessary fees (rustproofing, extended warranty) that fatten their bottom line. Question everything that wasn’t explicitly discussed during negotiation, and don’t be afraid to walk away.

There are some easy ways to catch a break with your dealer when negotiating the price of your car. Timing can be everything:

Shop early in the week
. Weekends are prime time for dealers. But if you show up on a Monday, a salesman may be more motivated to cut a deal because business will be slow for the next few days.

Shop at the end of the month. Car dealers get monthly bonuses if they move enough metal. If you show up on the 30th and your salesperson is two cars short of a bonus, he or she may cut you a better deal so to make numbers.

Shop for a car that’s about to be replaced/discontinued. Pretty simple logic here: Things that are about to be considered “old” sell for less. If you’re looking at a 2008 Honda Accord and the 2009s are about to arrive at the dealer, you usually can get a bargain. If the 2009 model is completely new and different from 2008, you’ll save even more. (Who wants to be seen driving the old-looking model? Smart, frugal people, that’s who.) And if Honda decides the Accord isn’t selling much anymore and kills it after the current model year? (OK, fat chance, but this is just an example.) Untold riches await. As do potential maintenance headaches — remember, some cars are unpopular for good reason.

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Should you refinance your auto loan? That’s a good question.

Everyone is talking about using the current low-interest rates to refinance mortgages. What about auto loans? Why shouldn’t people consider using these same low rates to refinance their car loans? Well, they should… and they are.

 

Why should you refinance?

Whether it be a mortgage, auto or other types of loan, there are many reasons people choose to refinance.

  1. Save money by refinancing with a lower rate – paying less interest and lowering your monthly payments.
  2. Increase your term length in order to lower monthly payments or decrease your term length to pay the debt off sooner.
  3. Personal reasons like removing a co-signer from the loan or having the peace of mind knowing you’re getting the best possible rate.

Whatever the reason, it’s important to understand the impact of refinancing and also decide what you’d like your payments to be. (You can calculate your new payments by plugging in different interest rates at myFICO’s auto loan calculator.)

When should you refinance?

So when does it make sense to consider refinancing your auto loan? The answer is different for every borrower, but you might want to ask the following:

  • Have interest rates dropped since you first took out your loan and refinancing would help you save money?
  • Has your credit improved since you initiated the loan and you want to take advantage of your higher FICO®Score? (There’s actually an auto-industry specific score used by auto lenders to check your creditworthiness.)
  • Did you realize that the auto dealer charged you a much higher interest rate than what you deserve and you want to borrow from a different lender at a lower rate?
  • Are you having problems keeping up with the current payments? If financial hardship is the issue, you can extend the loan’s term which can help lower your payments. However, extending the term means paying more interest, so do your calculations carefully.

How should you refinance?

Refinancing an auto loan can happen a lot faster than it previously did. As long as you have a history of six to twelve months of consistent, on-time payments, refinancing should be very possible. You can even refinance online – it’s the best place to do your research and find a lender who can help you save money. However, before you begin, make certain that your current loan does not incur a prepayment penalty. Most auto loans don’t, but just check to be sure so you can feel secure that the refinance process will be worthwhile.

  1. Find the lowest rate. Check with two to three lenders to identify the lowest interest rate for which you qualify. Comparing offers provides the greatest opportunity for finding the best rate, and lowest payments.
  2. AutoPay.  You can get the best interest rate by selecting the AutoPay option during the application process. Many lenders lower your interest rate even further if you choose to pay your monthly bill this way.
  3. Make higher payments. If, and only if, you can afford higher payments you should consider doing so. It shortens the term of the loan so that you can pay it off sooner and save a lot money down the line on interest.

A quick example.

Here’s an easy-to-understand example of how refinancing an auto loan can save you money… big money.

Loan Amount: $16,500

Loan Term: 60 months

Interest Rate: 21% APR

Monthly Payment: $446.38          Interest on Loan: $10,282.83

After refinancing at 7%

Monthly Payment: $330.63          Interest on Loan: $3,337.57

Every percentage point the interest rate is decreased can make a big difference in your monthly payment and the total interest paid.

SIDE NOTE: A few things to remember when refinancing…

  • The new loan needs to be in the same name as the current loan
  • Have your car loan account number available
  • Have the car’s year, make, model and VIN handy
  • You will not be required to have the car appraised in order to refinance your loan
  • A refinance of less than $7,500 is probably not worth the lender’s time
  • Borrowing more than the car’s value will not be possible
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What Happens When Car Scrapping Goes Wrong?


While it’s nice to think that all cars go to Car Heaven, in reality they go through a scrap metal recycling process. In order to recycle the remains of your vehicle, you need to get a special permit and find an Authorized Treatment Facility (ATF).

Depolluting a Car

 

The recycling process was designed so that the toxic materials in the car don’t harm the environment. This process requires removing any valuable parts of the vehicle that can be salvaged, remove all toxic gases and liquids. Among these are the battery, liquefied gas tank, all potentially explosive materials (including airbags and seat belt pre-tensioners), fuel, oils, fluids, filters, components containing mercury, shock absorbers, and other potentially dangerous materials.

In the depollution process, a professional mechanic accesses the On-Board Diagnostics (OBD) and with one command activates the airbags, releases the seat belt pre-tensioners, actuates-off the Anti-Lock Braking System (ABS), powers-off the engine controls, cripples the transmission and deactivates the electronic reactive devices inside the car. Then all gas, liquid and potentially dangerous materials are emptied from the vehicle. Now the car’s remains can be scraped into a metal cube.

How Unsafe and Dangerous Can the Depollution Process Be?

The depolluting process reveals a very dangerous vulnerability; imagine that with one simple command in the OBD system you can access all devices (airbags, seatbelt tensioner, etc.). Unsettling to say the least.

Having such Zero-Day command inside the OBD functions is a threat that we cannot mitigate because of the “Motor Vehicle Owners’ Right to Repair Act,” that says that every person has the right to repair their motor vehicle, not necessarily in a repair shop/garage.

OBD components

We know that any hacker can attack a connected vehicle remotely without needing a tool, like through an OBD App, for example. The hacker can also exploit the OBD system, entering through the CAN bus remotely and activating the Zero-Day command while the car is driving, risking drivers and passengers alike.

Prevent a possible attack

There are not many ways to prevent a possible cyber-attack while a car is driving. The only viable way to prevent an attack is by hardening the Electronic Control Units (ECUs) to factory settings. Therefore, any change on the controllers will block the command and the hacker will be unable to access the CAN bus that leads to the OBD exploitation.

When the ECUs are hardened, they don’t allow false positives or false negatives and any deviation in factory settings will result in a blocked command with negligible performance impact.

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