Determining Factors for Car Refinancing Rates

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


, - December 4, 2013

Refinancing a car may or may not save you interest in the long run. Learn how to evaluate a car refinancing rate to determine your overall savings.

Depending on the type of loan you initially received for your car, your car refinancing rate may be lower than your initial rate. If your car loan had a high interest rate, consider refinancing. This can make the interest rate to be more reasonable, allowing your loan to be more affordable for you. Refinancing your vehicle can also help you with debt consolidation and getting rid of unwanted payments.

During the initial purchase of the vehicle, you were at the mercy of a bank to approve your loan. You didn't have much flexibility and were merely just looking for an approval. When refinancing your auto loan, you have the freedom to research different banks and loan companies. This is when you can really look at loan companies and get the best terms possible for you. You can choose the loan terms that best fit your budget and the type of loan you prefer. If up to this point you have been on time with all payments and never late, you will have a higher credit score and will be less of a risk to lenders, thus giving you a better rate and loan.

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Factors that Influence Rates
There are several different factors that might affect your auto refinance rate: the state you live in, your acquired assets, your credit rating and history, and the value of your vehicle. It would be best to establish the car's value and how much you owe on it before you apply for a car refinance. You may be disqualified for refinancing if the value of your car is less than the amount you currently owe. Because rates for used vehicles are constantly rising, it would be best to pay off as much of the car as possible before applying for a refinanced loan. Then the bank will own less of the car, and you will have a better chance for approval.

Refinance rates are influenced by factors like your credit score, the loan amount, and more. Generally speaking, the lower your credit score is (meaning, the worse you have been about paying off debts and maintaining your financial situation), the higher the interest rates on any loan or refinancing option will be. The loan amount may influence the rates as well, although this is typically not as big of a factor.

Other Factors
There are external factors that can influence your refinance and loan rates as well. For instance, the auto market will fluctuate in terms of supply and demand. Typically, the higher the demand is for a particular car, the more people will be willing to pay on that car. Additionally, loan rates are dependent upon the overall economic state. Average rates tend to vary considerably from place to place and over different amounts of time.

Incentives
If you have excellent credit, and wish to refinance your car loan, then you will certainly have many options available to you. In fact, you may be able to get potential lenders to compete for your business by offering reduced rates or incentives. If you use one of the online car loan shopping sites on the Internet such as Lending Tree or E-Loan. You may be able to ask potential lenders to give you a better rate or even cash rebates for transferring your loan to them. Car loan lenders love people with good credit; therefore, they may be willing to work with you or offer you an incentive to transfer your loan to them. After all, they will make money regardless of the interest rate they charge you.

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Related Questions and Answers

Why are New Car Loan Interest Rates Lower than Used Car Rates?

New car loan interest rates are lower than used car interest rates for several reasons. First, the new car dealership has factory-backed special financing programs. 0 percent interest, for example. Second, new cars are worth more intrinsically to financial institutions than used cars. Third, financial institutions assume that new car buyers are more creditworthy than used car buyers. Is this a discriminatory practice that can be proven? The answer is yes and no. It does discriminate against people who prefer used cars and there is no real way to prove it. Used car rates are higher because the dealership lays out cash for trades and must make that money back, so rates are higher.

Where Can I Use a Refinance Car Loan Calculator?

A refinance car loan calculator is available at most financial institutions. For example, you will find them offered at bank or credit union websites. You may also find them offered by the manufacturer's finance arm. There are also dealerships that are offering this type of calculator. The majority of dealerships offering refinancing calculators are those specializing in "in house" refinancing where the customer pays directly. Or, the dealership will be primarily a used car dealership that is using the calculator as a sales aide. You may also find refinance loan calculators at standard new/used car dealerships that are encouraging their customers to refinance through their business or financial offices.

What Is the Current Interest Rate for Refinancing an Auto Loan?

Current interest rates for refinancing auto loans are in the 9 to 10 percent range nationally. For the consumer seeking the refinance option, this is great rate, because every percentage point you shave from your loan, you save about $20 per month in payments. There are some unscrupulous vendors taking advantage of the financially hard-pressed. They are offering "title loans" where the title on your already paid vehicle is the instrument, and the rate runs at 12 percent or more per month. If you opt to refinance a loan, remember you are only refinancing the amount it will take to pay off the vehicle, not the entire vehicle again.

Does California Have a Higher or Lower Refinance Rate than the National Average?

California refinance rates are about at the same level as other states. Refinance loan rates are in the 9 to 10 percent range. California does offer some business advantages to encourage refinancing. On average, though, the California consumer is paying at about the same rate per thousand vehicles. In other states, harder hit by the recent economic woes, there are many refinanced cars whose rates are far higher. In those states, refinancing loans can approach the 20 to 30 percent range. In these states, consumers have found that financiers work for themselves so that they provide their institutions not only favorable terms, but actively discourage fixed refinance loans.

Do Fixed Rate Refinanced Auto Loans Have a Higher APR than Variable Ones?

Fixed rate refinance auto loans, in general, have higher APRs than variable rate auto refinance loans. The reason is that the fixed rate loan is offering one a set percentage for x months and years. For financial planning, this is a sound way to do business because you can control your budgeting better. As a strictly financial tool, variable rate refinance loans are more profitable. This is because one may have to make larger payments at the end of the loan - a balloon payment. Of the two, fixed rate refinanced loans are preferred because they are set and offer no surprises, although not often as profitable as variable loans.

How Can I Qualify to Refinance My Auto Loan?

You can qualify and say "I refinanced my auto loan" by paying on time, early every month, never missing a payment, or never having a late payment. And possibly, making extra loan payments early on in the term of the loan to give yourself more equity in your vehicle. If you take all of these steps, which are wise when paying off any car loan, then you will easily qualify to refinance your car loan, because you will have established your creditworthiness to the bank, credit union or manufacturer's finance arm. To ensure that you are taking the right steps, it pays to discuss your payment history to establish your eligibility early.

What Is the Best Refinancing Rate I Can Expect with No Credit History?

The best refinancing rates you can expect in a situation, where you already have a car loan with no credit history, is the rate you are currently paying. Although one would expect that this is a null situation, because if you had no credit history then you would likely not have been able to finance your car in the first place. However, the one way in which you could have financed your car with no credit history is to assume that you had a large down payment, and the bank was willing to take a chance on the rest with the car as collateral.

Can I Refinance a Car Loan with Bad Credit?

If you pay your car loan on time and have generally good relations with the funding institution, you certainly may be able to refinance your car loan with bad credit. The key here is your relationship with the lending institution, since you are simply seeking to extend the term of your car loan and pull out any equity that may have accrued. Because you already have an existing loan with this institution, if your payment record is good, you should have little trouble refinancing. Even with bad credit, because the bank is still using your car as collateral. To be certain, though, discuss this with a bank loan officer.

How Many Times can I Refinance My Car Loan?

There are times when you may find yourself asking "can I refinance my car loan?". The answer to this question is unclear, unless your vehicle is a Rolls-Royce, top-of-the-line BMW, or another vehicle with an intrinsically high value that may appreciate during the loan term. Cars depreciate during the term of the loan and each time your car depreciates, you have less value available to refinance, and your bank or loan institution may agree with that assumption. Believing that whatever intrinsic value remaining in your vehicle does not warrant another car loan, so the car loan you had hoped for will not be available.

Are there any Fees for Refinancing a Car Loan?

There are times when you may consider refinancing a car loan. You can refinance your car; however, you won't find that you have to pay any fees for this refinance option, other than the new finance rate on the lengthened loan you will now be paying off. You may also find that your refinanced vehicle may be a point or two higher than your current loan, so that could be considered a fee, in the broadest sense of the term. Although it is actually part of the loan itself. Refinancing your car, while providing an infusion of money, may not be worth it in the long run.

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The CarsDirect editorial team is dedicated to providing our readers with the latest on new and used cars, expert opinions on which vehicles make the grade, and all the fun stuff in between.


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