Things To Consider Before Refinancing Auto Loans – When car buyers receive a loan for their purchase, it may not come with the best terms. Be it interest rates that are too high or a loan that stretches out too many years, the result will be paying hundreds or thousands of dollars in additional interest.
Instead of doing this, more and more people choose to refinance their auto loans. Yet before doing so, here are some factors to be considered.
An Improved Credit Score
Despite many people being able to improve their credit scores after getting their initial auto loan, many fail to take advantage of this improvement that can lead to lower interest rates when a loan is refinanced. As it is with any auto loan, the better a person’s credit score, the more favorable terms they receive from their lender.
Get Multiple Quotes
According to Lantern by SoFi, refinancing your loan may result in lower payments each month. Make it a point to get multiple quotes from various lenders. Since different lenders have different criteria for granting their loans, there can be quite a discrepancy from one lender to another. By shopping around, you will get a bigger picture of auto loan refinance rates.
Impacting Credit Scores
While it’s good to shop around for different loan terms, people usually don’t realize that each time they actually apply for credit, the hard inquiry, as it is known, almost always leads to their credit score being reduced by a few points.
Also, should a new loan be taken out for refinancing purposes, this will reduce the average age of all existing accounts, leading to yet another reduction in a person’s credit score.
High Miles on the Odometer
If people whose vehicles have high miles on the odometer seek to refinance, they rarely get what they hope for from a lender. Since a vehicle with high mileage tends to be older and has already suffered a substantial drop in depreciation, most auto lenders will decline to offer a loan for such a vehicle.
Paying Back the Loan
Unfortunately, people cannot just give their word to lenders that the loans they receive will be paid back on time. Therefore, loan seekers who wish to refinance must be able to show they have the ability to pay back their new loan. Along with making sure their new car payment fits well into their budget, they should also be able to document their income and employment to the lender.
Consider the Fees
Finally, individuals should take a close look at any fees that may be associated with their refinancing efforts. For example, many lenders have prepayment penalties in place, making it virtually impossible to pay off the loan early. Also, processing fees are often part of the mix and can eat away at any potential savings on interest.
With so much to consider, it’s best for anyone seeking to refinance to do their research and work only with lenders they can trust.
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