Common car refinancing mistakes to avoid Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators that provide objective and unique content, by enabling you to conduct research and compare information for free to help you make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that appear on this website are provided by companies that pay us. This compensation can affect the way and when products are featured on this site, including, for example, the order in which they may be listed within the categories of listing, except where prohibited by law for our loan products, such as mortgages and home equity and other products for home loans. However, this compensation will have no impact on the content we publish or the reviews that appear on this website. We do not cover the entire universe of businesses or financial offers that may be accessible to you. Tom Werner/Getty Images
3 min read . Published 24 February 2023
Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the ways and pitfalls of borrowing money to purchase a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances through providing precise, well-researched, and well-written information that breaks down complicated subjects into digestible pieces. The Bankrate promises
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You can find refinancing requirements on lender’s websites or Bankrate’s .
2. Not checking with your current lender initially. Although your current lender might not offer the lowest interest rates, it is still the best place to start. Before exploring refinancing options outside your current lender it is advisable to approach them and explain your situation and see if they could help. Certain lenders provide this service , that alters the conditions, the payment due date or the interest rate to provide borrowers with financial relief. Tips from Bankrate
Even if you don’t follow through with refinancing your loan there is a chance that they’ll offer more than an existing lender could.
3. Extending your loan term too long The purpose of refinancing is to cut costs, but should you extend your loan to a large extent, you could spend more money over its duration. While it could mean the payment will be lower however, you’ll also have to pay more interest. Tips from Bankrate
Before term adjustment make use of auto refinances to ensure you save money.
4. Do not take your credit into consideration As with most cases regarding financing, your credit score serves as the main factor for approval. Thus, improve it and prior to you refinance your loan. You’ll be more likely to receive the available and walk away with an improved loan overall. A credit score of 670 or greater typically qualifies borrowers for the best interest rates. Bankrate tip
Check your credit ahead of loan applications by using AnnualCreditReport.com.
5. Shopping with just one lender Similar to when shopping for your initial auto loan We suggest comparing at least three lenders. Therefore, even though signing on the initial loan offer might be tempting, not all lenders are all created equally. The lower the interest rate, the less you’ll pay for your car payment. You need to ensure that you’re getting the best offer available. Tips for Bankrate
Compare the rates currently offered by a range of lenders. Pay close attention to the approval requirements, repayment options and how it compares to your current loan.
6. Being upside down on your loan Before refinancing, check what equity in your vehicle is with the help of . Equity is the amount by which the value of the car is higher than the amount you owe for the loan. If you owe more than your car is worth, or hold negative equity refinancing your loan is probably not a good idea. Bankrate tip
Don’t refinance a vehicle you’re not able to pay for. Check where your may be overextending and estimate the costs prior to signing a new loan.
7. Refusing to accept your initial rejection loan refinancing requirements differ from lender to lender So just because you were denied by one lender doesn’t necessarily mean that you’ll be rejected at all. If you’re wondering, “Why can’t I refinance my vehicle?” you have the right to inquire with the lender in accordance with the (ECOA). They must tell you why your application was denied. Bankrate tip
Understanding why you were denied can help you improve your chances of being approved later on. For example, if the credit rating of yours is low, you can work towards improving it before applying again.
The bottom line: While refinancing your car loan is not without risk, it is a great way to lower your monthly cost and continue affording your vehicle. Keep these common mistakes in mind and be up-to-date with current information to ensure you walk away with the right loan to meet your needs.
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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers to navigate the ways and pitfalls of borrowing money to buy a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances with concise, well-studied information that breaks down otherwise complex topics into manageable bites.
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