Should i refinance my auto loan

If you took out your loan through a dealer — especially without negotiating the interest rate — refinancing could potentially save you thousands of dollars over the remaining life of the loan. For many bank members, this could mean accessing special discounts. For example, Chase offers a 0. And Bank of America Preferred Rewards customers may qualify for a rate discount of up to 0.

Refinancing for a longer term can bring down your monthly costs and make balancing your checkbook more manageable. Keep in mind that while lower monthly payments may help you in the short term, a longer-term loan could put you at more financial risk. If your immediate goal is to reduce your monthly expenses, an auto loan refinance could still be a good choice.

Consider refinancing now but increasing your monthly payment once your financial situation has improved. You can always enter your desired loan terms into an online debt repayment calculator to see if refinancing could reduce your monthly payments and how much your total interest cost could decrease. Refinancing your auto loan means paying off your existing loan early. This could be a problem if your existing loan contract includes a prepayment penalty clause.

Before applying for auto refinancing, make sure to crunch the numbers so you can determine whether prepayment fees would cancel out the financial benefit of refinancing. It feels counterintuitive, but some loans will penalize you for paying faster than the terms specify.

If your loan includes prepayment penalties, you should do the math before refinancing — if refinancing will still save you money after paying off your current loan, even with the prepayment penalties, it might be worth it. If not, you should probably stick with your current loan. Be sure to ask about this when refinancing or applying for an initial loan.

Even though you may have clicked on a link that takes you to another company's site that we have partnered with, we are not responsible for the accuracy, security, or content of their website. We encourage you to view privacy and security disclosures of all websites you visit. Online Branch Username. Money Smarts Blog. All News Videos Subscribe. Should I refinance my auto loan? Sep 30, Aileen Reimers, Financial Coach.

Nearly any type of loan can be refinanced including auto loans , mortgages, student loans , and personal loans. There is no set limit on how many times you can refinance, and you can often refinance as soon as one month after taking out the initial loan.

By refinancing, you can get a new loan with a lower interest rate or monthly payment. The refinance savings for both car loans and mortgages can be significant. Here are some recent stats:. Not everyone refinances to save money. Sometimes people need to remove a cosigner from a loan and transfer the title. This is common after a divorce or breakup. Others refinance to take advantage of the positive equity in their home.

This is much more common when refinancing mortgages and less so for cars. The downside with a cash-out refinance is you end up with less equity in your property. In fact, you can often score a better interest rate if you choose a shorter loan term.

You can also lengthen your loan term, but doing that could lead you to actually end up paying more in interest over time. If you extend an auto loan, you also risk becoming upside down on your loan. While the idea of refinancing is the same for vehicles and homes, they are two different loan products.

Lending is all about risk. The larger amount of money you want to borrow, the riskier the loan is for the bank or credit union fronting the money on your behalf.

Every bank and credit union will have their own underwriting guidelines that determine which borrowers can be approved for a loan and at what terms. But there are two very important differences when it comes to refinancing car loans and mortgages : your debt-to-income ratio and the appraisal process. When applying for refinancing, one of the most important factors is the debt-to-income ratio , which is your monthly debt payments divided by your monthly gross income.

This difference in debt-to-income ratio can make or break your ability to get approved for one or both types of loans. Both types of refinancing involve an appraisal which will determine the current market value of the property. We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us.

The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

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Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can. Refinancing a car loan involves taking on a new loan to pay off the balance of your existing car loan.