Is Refinancing Your Car Worth It?

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - July 27, 2020

When is saving money not worth it? Refinancing your car loan usually happens for one reason: you want a lower monthly auto loan payment. Refinancing can not only save you money month to month, it can save you cash in the long run.

How Refinancing a Car Works

Refinancing is when you replace your current auto loan with another one, while keeping the same vehicle. This means you can either talk to your current car’s lienholder (your lender) or find another lender, although a lot of people look for another one when refinancing.

When you find a lender that’s willing to refinance your auto loan, they pay off your current loan and put a new one in its place – preferably with more favorable terms.

Refinancing can be done in one of three ways:

  • Lengthening your loan term
  • Lowering your interest rate
  • Both lengthening your loan term and lowering your interest rate

The most cost-effective way to refinance is by lowering your interest rate. If you simply stretch out your loan, it lowers your monthly payment, but you keep the same interest rate. Keeping the same interest rate for a longer period of time means you’re actually spending more on your car loan in the long run.

If you can stretch your loan term and lower your interest rate, you’re going to have to crunch the numbers and see if it saves you any money. However, if you’re simply looking for a lower monthly payment because things are too tight in your budget, just stretching your auto loan could work in a pinch. Be advised that doing this is going to cost you, in which case, refinancing may literally not be “worth” it.

Refinancing Requirements and You

Refinancing can take some work, too. You’re going to need to find a lender that can work with you and your auto loan. But if you originally took out a bad credit car loan and only qualified for a higher interest rate, taking the time to find a lender to lower it could very well be worth the money you could possibly save in interest charges. Interest charges can stack up, especially if you only qualified for an interest rate in the double digits.

Even if you have less than perfect credit right now, you still may qualify for refinancing if your credit is better than when you took out the vehicle. Not everyone can refinance all the time – lenders set in place requirements that your car, your auto loan, and you all need to meet in order to qualify.

While lenders vary in their specific requirements, here are the basic stipulations to see if looking for a refinancing lender is worth your time:

  • Your vehicle is less than 10 years old
  • Your car loan is at least one year old
  • You have a good credit score, or your credit score has increased since the start of your original loan
  • Your vehicle has less than 100,000 miles
  • You don’t owe more on the car than it’s worth
  • You’ve stayed current on the payments and have had a good payment history

If you can check off all these boxes, you could be on your way to refinancing your auto loan. We can’t stress enough that lenders vary in their specific requirements, so some may have more stringent stipulations, or others may have less conditions for you to meet. Either way, take your time to do some rate shopping and talk to a few lenders to find the one that works best for you.

If you need some help looking for a refinancing lender and don’t know where to start, complete our free refinancing request form and our trusted partner will look for one for your situation.

Don’t Meet the Refinancing Requirements?

If you don’t quite meet those refinancing requirements but you still need a lower monthly payment, it may be worth your time to get into a cheaper vehicle. Most people refinance to free up their monthly disposable income. And if you’re worried about defaulting on your loan or things are getting too tight for your liking, trading in your current car for something else may be your next best move.

However, getting into another auto loan when you have less than perfect credit can feel impossible at times. We want to help with that here at CarsDirect. Not only do we have connections with refinancing lenders, we have a nationwide network of dealerships that are signed up with bad credit car lenders.

To get matched to a dealer in your area, fill out our free auto loan request form. All of our forms are secure, and carry no obligation. Get started now!


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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