22. April 2019
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.
- 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.
- 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.
- 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.
- 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:
- 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.
- 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.