A recent study analyzed 2.4 million auto loans extended by 326 financial companies across all 50 states and 1.3 million credit auto loan applications from 41 different institutions. The number one finding was quite interesting.
Most borrowers in the study could have saved significantly on their auto loans by simply shopping around and checking offers with two more lenders– a significant price difference was found from one provider to the next for the same loan product.
The study concluded that consumers consistently fail to identify the best financing terms on auto loans, partly because the search costs are high.
If you currently have a car loan, it’s worth taking the time to shop around to see if you can save by refinancing. Further, new tools streamline the search, effectively lowering the effort that research requires.
How does an auto loan refinance work?
Auto loan refinancing is a process in which you replace an existing auto loan with a new one. You will get a new loan, use it to pay off the old loan, and then continue making payments on the new loan.
Most people do this if they can get a better deal on the new loan and save themselves some money.
Jim Landy, CEO of SpringboardAuto, says, “It is a good idea to check your auto loan regularly to see if you can reduce the payment or interest. At SpringboardAuto, we’ve made it easy for customers to see if they would benefit from a refinance.
Our customers fill out a three-minute application, hit submit, and instantly see their potential savings without impacting their credit score. On average, our recent customers have saved $85 on their monthly payment, over $1500 in interest, and we’ve been able to reduce APRs by 6.7%.”
Should I refinance my car?
Here are a few questions to ask yourself to figure out if it’s a good time to refinance your vehicle.
- Can you get a better deal? Has your credit improved or income increased, are you ready to drop a cosigner, or have lending rates dropped? Maybe you just got a really bad deal in the first place. All of these situations could result in you lowering your costs.
- Are you having trouble making your payments? If you don’t think you can keep up with your current payments, refinancing may be able to lower them. If you don’t qualify for a lower interest rate, you could extend out your terms to lower the monthly payment. The downside to this is that you will pay more overall for your car. However, it may be better than losing your car and tarnishing your credit report.
- When is the last time you refinanced your auto loan? Most lenders make you wait a certain amount of time.
Note that lenders do have certain eligibility requirements, so you may not be able to refinance your car if you don’t qualify.
Auto loan refinancing requirements
Let’s take a closer look at seven common requirements you will run into when attempting to refinance your vehicle:
1) Credit score
Your credit will be a factor in receiving an approval. Lenders often perform a soft credit pull to pre-approve you and offer you a deal. If you accept, they will perform the hard credit inquiry to initiate the loan.
Not all lenders service the entire U.S. Check with those of interest to ensure they serve your state.
Lenders will check your income via pay stubs, bank statements, etc. Each will vary in its minimum requirements.
Borrowers must be U.S. citizens or permanent residents with valid government-issued identification documents.
You will need to show proof of comprehensive and collision insurance.
6) Vehicle restrictions
Many lenders will have requirements that limit what kind of vehicles they will finance in order to protect their investment. For example, LendingClub only refinances vehicles that are 10 years old or newer with under 120,000 miles.
Further, vehicles have to be for personal use and can’t be an RV, motorcycle, or salvaged vehicle. SpringboardAuto has similar requirements and also limits the vehicle makes that it will finance.
7) Current loan restrictions
Lenders typically also have minimum and maximum limits on their loans. Your existing loan will need to fall within the range. For example, Autopay offers loans ranging from $2,500 to $100,000, and LendingClub’s range goes from $5,000 to $55,000.
Further, there may be rules on how long you must have had your current loan and how much time is left on it (i.e., LendingClub requires at least three months since initiating the loan and 24 months remaining on the loan term).
Be sure to check with lenders as you shop around because requirements will vary from one to the next.
How to compare auto loan refinance lenders
To find the best auto refinance companies, here are four key factors you should consider:
1) Auto finance rates
Look at the interest rate range offered by lenders and get quotes to find out what each lender can offer you. This will determine how much it will cost you over the term of the loan, so this is one of the most important factors. Your credit history and financial profile will determine what you can get.
SuperMoney’s auto loan offer engine can help you effortlessly compare interest rates from a variety of lenders. Simply answer a few qualifying questions and, without impacting your credit score, we’ll provide several competing offers.
After that, you can compare lenders side by side to find the right one for you.
2) Total cost
In addition to the interest rate, you will want to look at the big picture. Calculate the total cost of the interest over the length of the loan term along with any fees the lender charges. Then, you can compare apples to apples. An online refinance car loan calculator can help with this step.
3) Eligibility requirements
Check the eligibility requirements to ensure the lender suits your needs. One may very well be a better fit than another. For example, SpringboardAuto refinances loans up to $45,000, while LendingClub’s maximum limit is $55,000. Further, some may be more lenient when it comes to refinancing a car with bad credit.
It’s best to make a shortlist of the companies that are a good fit for you, and then get quotes from them. Or let SuperMoney do the work for you.
4) Customer reviews
Next, find out if current customers are happy with the service. Even if a lender can save you some money, it may not be worth the headache if they provide a bad customer experience.
Read up on reviews to find out how customers rate a lender overall and if there are any specific areas that people repeatedly complain about.
Here are few key things to look for:
- Accessible customer service representatives through multiple channels
- An easy online application process
- User-friendly online account management
- Tech savviness
- Quick resolving of issues
- Customer-focused problem solving
- Quick funding
- Streamlined title management
Lower your car loan with the right lender
Shopping around is always a best practice when making a purchasing decision, especially a big one. With the help of SuperMoney’s auto loan offer engine and the criteria above, you can easily find the best deal on refinancing your car loan. Let the savings begin!
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.