Is Refinancing the Right Choice for Your Car Loan?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - March 4, 2020

If you're in the market for a new auto loan but don't want to let go of your car, refinancing might be the right choice for you. Refinancing isn't always possible, or even the best choice in every situation. Here's a look at what you should consider if you're thinking about refinancing your vehicle.

Why Refinance Your Car?

Refinancing should only be done for one reason: to lower your monthly car loan payment. This can be done either by getting a lower interest rate or a longer loan term. Both options can reduce your monthly payment, but only one truly saves you money.

To save money on both your monthly payment and your total loan cost, you need to refinance with a new loan contract that has a lower interest rate. This is typically done with a new loan provider, although you can still check with your current lender to see if they can help you.

If you can't qualify for a lower interest rate, you may still be able to lower your monthly payment by extending the loan term. This lowers your payment each month, but, overall, it increases the cost of your loan because you're paying interest over a longer period of time.

Do You Qualify for Refinancing?

In order to replace your existing auto loan with a new one, both you and your vehicle have to qualify by meeting the lender’s refinancing requirements. The refinancing requirements vary by lender.

Typically, you need a good credit score in order to refinance. However, if you originally took out a bad credit car loan, an improved credit score might be enough to allow you to qualify. Additionally, your loan amount must fall within the lender's acceptable range, and your vehicle has to meet the age and mileage requirements.

If you or your car don't meet the requirements necessary for refinancing and you still need to lower your loan payment, it may be time to consider other options, such as trading in your current vehicle for one that’s more affordable.

Trading In Your Car

Even if you really want to keep your car and refinance your auto loan, it isn't always possible. If this is the case, consider using your vehicle as a trade-in on something more affordable. Who knows, you may end up with a car you like even more than your current one.

Trading in is a good option, but it’s better if there's equity in your vehicle – meaning you owe less on your loan than the car is worth. This way, you can trade in your vehicle and pay off your loan. Plus, any money left over can be used as a down payment on your next car.

You can typically trade in your vehicle even if it's worth less than you owe (has negative equity), but you have to come up with the difference in order to pay off your existing loan before you can take out another one.

In some cases, you may be able to roll over negative equity into a new loan, but not all lenders allow this. You should also be careful when considering this option, as it means adding the negative equity to your new loan, which increases the overall cost because the loan amount is larger.

Finding Your Next Vehicle

If refinancing turns out to be the right choice, that's great! However, it may not be the option for you. If you're unable to qualify for refinancing and need to find a more affordable car, start here at CarsDirect. You can research new and used vehicles, and when you're ready to go out and find a dealership to work with, we can make that journey simple by doing the searching for you.

By filling out or easy and free auto loan request form, you can take the hassle out of finding a dealer that has the lending resources you need. We work with a large network of special finance dealerships all across the country, and we want to get you connected to one in your local area. Don't hesitate any longer, get the process started right now!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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