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Auto Loan Refinancing involves replacing a current auto loan with a new auto loan from a different lender, usually at a lower interest rate and/or at more favorable terms, such as a lower monthly payment or change in loan duration. In general – and especially when an individual’s FICO credit score has improved since the initial auto loan was taken out – it makes good sense for borrowers possessing a good repayment history to look for opportunities to refinance a car loan.
In fact, some of the best auto loan refinancing opportunities emerge within two years or less of an individual making consistent monthly payments on an original auto loan, during which time a credit score often improves. Indeed, refinancing a car loan frequently results in considerable interest expense savings over the life of the auto loan. Let’s take a look at the process of refinancing a car loan and the benefits of auto loan refinancing.
Reasons to Look Into Refinancing a Car Loan
For starters, most auto loans do not come with a prepayment penalty, so if you do end up paying off an original auto loan early as a result of auto loan refinancing, it won’t cost anything extra. Furthermore, submitting an application to refinance your auto debt won’t cost anything in terms of application fees, either.
Depending on market conditions and your new prospective lender, funds are often available rapidly – as soon as the same day in many cases – so you can quickly be on your way to saving money when you secure the lowest auto loan refinancing rates. Often times, the best auto loan refinancing rates become available to borrowers who have been making timely repayments to their original lender – but it won’t actually be the original lender who rewards them with the lowest auto loan refinancing rates.
The auto loan refinancing will come from a new lender who rewards the responsible borrower for his consistent repayment history to the original lender – because the original lender won’t want to break the original lending agreement and make things better for the borrower.
The Auto Loan Refinancing Market is Competitive
Even though the original auto loan lender will not be eager to adjust the terms of the auto loan, there are an abundance of lenders who will be interested in refinancing your auto debt. Capital One – My Auto Loan – Car Finance & Consumers Credit Union are four of the more visible auto loan refinancing options worthy of your further investigation.
These are just some of the lenders who can grant a new auto loan at some of the lowest auto refinancing rates available that will allow you to pay off your original loan balance and then begin making payments to your new lender at more favorable terms.
When Auto Loan Refinancing Makes Sense
Though an improvement in credit score is always a good reason to pursue auto loan refinancing, there are other valid reasons as well. For starters, when the macroeconomic climate has changed and interest rates have dropped from the level they were when you initially received an auto loan, refinancing will often lower your rate and help you pay off your auto loan in less time while you save on interest expense.
Remember – even if interest rates were low when you took out your initial auto loan, interest rates can fluctuate as a result of increased competition within the auto refinancing space as well as from changes in the regulatory environment. In other instances, when an auto loan was initially borrowed through the lending department of an auto dealership, the dealership will sometimes mark up the interest rate, as the lending arm of a dealership can be a significant profit center – especially when a potential borrower appears visibly excited about a new car purchase and fails to shop around sufficiently. Auto loan refinancing can help remedy that mistake.
Finally, in a situation in which unforeseen financial difficulty has emerged as a result of a job loss or other extenuating circumstance, it can also make sense to refinance and arrange for a lower monthly payment – even if doing so sometimes extends the overall life of the loan. Carefully investigate the potential outcomes in this scenario – as it can prove more expensive over the life of the loan – though any additional interest expense, if minimized, could be worth the peace of mind that comes with a lower monthly payment that is more manageable to afford.