Refinancing your car loan could save you thousands of dollars over the life of your loan. So what’s stopping you? Are you worried it isn’t worth the time commitment of gathering paperwork and meeting with loan officials?
“It’s actually a pretty easy thing,” says Matt Jones, senior consumer advice editor at Edmunds. “Refinancing a home is work, but refinancing a car is much, much easier.”
So is refinancing right for you? Let’s start with the basics.
What is refinancing?
Refinancing a loan is the process of replacing an existing loan with a new loan — ideally one with better terms and lower interest rates. You then use this new loan to pay off the debts of the old one.
Why should you refinance your auto loan?
When you can take advantage of a lower interest rate than you’re currently paying, you should refinance.
“If the terms [of the original loan] weren’t favorable, someone may refinance simply because they want to get out of a high interest loan,” say Jones.
Why might you be able to get a better interest rate now?
- If you didn’t comparison shop for your auto loan, you may not have gotten the best available rate.
- If you’ve raised your credit score, gotten a raise, or paid off other debts since buying your car, you could get a better rate now than when you purchased.
- If more competitive rates are available now than when you purchased. Average auto loan interest rates reached a five-year low at the end of 2015 and stayed relatively low since. So if your loan predates 2015, you may be able to take advantage of a lower rate. But be sure to factor in any fees involved in refinancing when making your decision.
There are also more dire reasons to refinance. If you’re unable to make your monthly payments, you may want to refinance to get a longer loan term, even if your interest rates don’t change.
What to consider when refinancing
Several factors affect which lender is the best option for your refinance:
Your credit score.
The best rates are reserved for the highest FICO scores. But if you shop around for your loan, even those with fair to good credit scores can find a lender with good rates.
Your remaining unpaid balance
Many lenders have minimum and maximum auto loan amounts. Make sure that your desired lender refinances loans of your size before applying.
Most lenders charge a fee to process a new loan. If this fee is more than what you will save by refinancing, it isn’t worth it.
The age of your car and miles on your vehicle
Not all lenders offer a loan for an older car with a lot of miles on it.
Most of the time, refinancing won’t make sense unless you’ve made at least 18 months of payments on your original loan.
Where to refinance your car loan
Your instinct may be to return to your original lender to request a better rate or longer terms. However, getting a favorable offer from the original lender is unusual, Jones explains. “Usually people have more luck with a new lender,” he says.
In that case, you’ll have to research new lenders. SuperMoney has made it easy to compare auto refinance lenders by creating an auto loan offer engine that gets lenders to compete for your business.
This auto loan offer engine allows borrowers to submit a single online application and get multiple auto refinance offers back. The tool makes it easy to get transparent, apples to apples comparisons when shopping for the best auto refinancing rates, fees, and terms.
“The traditional auto refinancing experience is antiquated – like purchasing an airline ticket 20 years ago,” says SuperMoney CEO Miron Lulic. “These days buying an airline ticket is fast and easy. We’ve brought that same great comparison shopping experience to the auto refinance loan industry.”
Comparing options on SuperMoney won’t hurt your credit score, because SuperMoney’s lending partners only perform soft credit pulls, not hard inquiries.
Top lenders to consider
You can view interest rates and reviews for all our top lenders right here, but here are a few of our favorites.
LightStream, a part of SunTrust Bank, is a reputable and well-reviewed lender with ultra-low refinance APRs. The catch? LightStream only accepts borrowers with good to excellent credit.
OpenRoad Lending offers competitive interest rates that enable auto owners to save an average of $100 a month on payments. There are no application fees or other hidden costs.
LendingClub is a marketplace lending platform that connects borrowers with lenders. It has helped millions of customers reach their financial goals.
Autopay aims to make car loans simple, fair, transparent, and friendly. The average Autopay customer who refinances their auto loan saves $165 per month and reduces their APR by 50%.
SpringboardAuto makes refinancing your auto loan a breeze. You can find out within 60 seconds if you qualify and it won’t hurt your credit score.
See what auto refinancing rates you qualify for
Regardless of where you choose to refinance, be sure to do your due diligence. You can see reviews of dozens of lenders from real customers right here.
There’s no substitute to comparing multiple lenders to see what rates and terms you qualify for. SuperMoney’s auto loan offer engine allows you to see what rates you qualify for without damaging your credit score or wasting time on endless application forms.