How long should you wait to refinance your car?
While you could refinance your car almost immediately after purchase, it's best to wait at least six months to a year to give your credit score time to recover, build up a payment history and catch up on any depreciation that occurred when you purchased.
While you might find more favorable rates advertised soon after you buy your new or used car, the downswing in your credit score means you probably won't get as favorable a rate as you would if you waited for your score to recover. The general advice is to wait at least six months before refinancing your auto loan.
For a simple rate-and-term refinance, you can refinance at any time if it's a conventional loan, after seven months if it's an FHA streamline refinance, after 210 days (or six payments, whichever is longer) if it's a VA loan or after 12 months if it's a USDA loan.
Refinancing may lower your credit score a few points, but the impact to your credit score will only be temporary. Applying for a loan generates a hard inquiry. Refinancing may be worth it if rates have dropped since you took out your loan.
Lenders often require at least six on-time payments before they consider you eligible for refinancing. This is to lower the risk of default. If you can keep up with your current payments, you prove that you can handle your debt.
What is a good interest rate for a 72-month car loan? An interest rate under 5% is a great rate for a 72-month auto loan.
Auto loan refinancing is generally a good idea if it allows you to save money on interest. But it's not always a wise financial move, especially when interest rates are high. Think carefully before applying.
You don't need a down payment to refinance, but you'll likely have to come up with cash for closing costs. Some lenders let you roll closing costs into the mortgage to avoid upfront expenses. You can also try negotiating with the lender to waive them.
Conventional loans – you can do a rate-and-term refinance right away if you want, but typically not with the same lender. That's because, before 6-months, the lender may lose their original commission. On the other hand, if you want a cash-out to refinance, you'll have to wait for at least 6-months.
There's no legal or lender-based limit to how many times you can refinance a car loan. As long as you meet the creditworthiness criteria, you can refinance as often as you'd like.
Does refinancing a car cost money?
You may have to pay some additional interest in addition to the principal. Even worse, some loans, such as loans with precomputed interest, make you pay all of the interest in addition to the principal. You're also likely to incur refinance fees. These can include lien holder and state re-registration fees.
Refinancing a car loan with negative equity can be difficult, unless you have good credit. If you find you owe more than your car is worth, you most likely can't refinance until you get into a positive equity position.
A good interest rate for a car loan is typically below 5.18% for new cars and 6.79% for used vehicles.
If you refinance and extend your loan's term, you are more likely to end up owing more than your vehicle's worth. This is called being upside-down or underwater on your loan. Your chances of going upside-down with a longer loan term increase because cars generally depreciate in value each year.
Top Auto Loan Lender | Lowest APR | Term Length |
---|---|---|
PenFed Credit Union | 5.24% | 36 to 84 months |
Auto Approve | 5.24%** | 12 to 84 months |
Consumers Credit Union | 6.54% | Up to 84 months |
Auto Credit Express | Varies | Varies |
There are several ways to pay off a car loan early, and the best way to do it depends on your situation. Some of the most common ways include making larger payments each month, making a large bulk payment when you can and refinancing your loan to a shorter term or lower interest rate.
Company | Used APR Range |
---|---|
AUTOPAY Best for Bad Credit/Low Rates | As low as 5.69% |
Consumers Credit Union Best Credit Union | As low as 6.84% |
LendingTree Best for Refinance | As low as 5.99% (Refinance) |
LendingClub Best for Fair Credit | 4.99%–24.99% (Refinance) |
Lower monthly payments: Many choose to get a 72-month loan because the monthly payments are lower. And, borrowers may be able to get a more expensive used or new car and still stay within their budget.
You can reduce your monthly car payments on an existing loan by negotiating with your lender, refinancing, selling your car or trading it in for a cheaper car. You can also get lower payments on a new car if you make a larger down payment and shop for an affordable vehicle.
Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly.
What's needed to refinance a car?
- Proof of employment or income, such as a paycheck stub or tax return.
- Proof of car insurance.
- Your driver's license.
- Proof of residence — for example, a utility bill — if the address on your driver's license and credit report don't match.
- Your car's registration paperwork.
Thanks to declining interest rates, many homeowners can refinance and save hundreds of dollars on their monthly payments. But even if you're only saving $50 or $100 a month, it might make sense to refinance despite a distant breakeven point.
Refinance closing costs commonly run between 2% and 6% of the loan principal. For example, if you're refinancing a $225,000 mortgage balance, you can expect to pay between $4,500 and $13,500. Like purchase loans, mortgage refinancing carries standard fees, such as origination fees and multiple third-party charges.
When you refinance, you are required to pay closing costs like those you paid when you initially purchased your home. The average closing costs on a refinance are approximately $5,000, but the size of your loan and the state and county where you live will play big roles in how much you pay.
As recently as December 2023, the futures market gave March 2024 rate cuts a 77% probability of occurring. Even Fed officials themselves are predicting lower rates soon, with 17 of 19 projecting that the funds rate will be lower at the end of 2024 than it is now.
References
- https://www.marketwatch.com/guides/car-loans/how-to-lower-car-payment/
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- https://www.creditkarma.com/auto/i/refinancing-car-loan
- https://www.bankrate.com/loans/auto-loans/pros-and-cons-of-refinancing-a-car/
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