Refinance Car Loan

How to Refinance a Car Loan

You may love the fact that your vehicle gets you where you want to go, but hate the car loan you pay every month. If you decide to refinance your car loan, it can save you money and possibly reduce the length of the loan. Read on for a complete guide to auto loan refinancing.

When should you refinance your auto loan?

Whether you should refinance your auto loan depends on several factors. It may make sense to refinance a car loan, if one of the following applies to your situation.

  • Your credit has improved.
    If you have a higher credit score since you bought the car, you may be able to qualify for a lower interest rate. This can mean you pay less each month and less interest over the life of the loan.
  • Interest rates have dropped.
    If interest rates have dropped 2% or more, you may save money by refinancing your car loan. Even if interest rates haven’t dropped, you may not have the best rate possible. This is your chance to get a better interest rate.
  • You’re having trouble making your payments.
    If your financial situation is currently strained, you might be able to refinance to a longer term loan. This will stretch out the payment schedule, making payments smaller and more manageable every month.

Understand your auto refinancing savings

Before you jump into an auto loan refinance, calculate your potential savings. Knowing how much you could save each month and over the life of the loan will help you determine if refinancing makes financial sense.

Online loan refinance calculators (like this) help you make comparisons. You enter required information, including the total amount left owed on the loan and the current monthly payment amount and interest rate. The calculator provides you with alternate payoff scenarios.

If you currently owe $20,000 on your auto loan at 7% interest, and you’re paying $300 per month for the next 85 months, you’ll pay $5,401 of interest over the life of the loan. Here are interest reduction scenarios for comparison. (Keep in mind–these loan refinancing scenarios are examples and don’t include any taxes or extra fees.)

  • A reduction to 5% interest will lower the monthly payment to $280, saving you a total of  $1,702.
  • A reduction to 4% interest will lower the monthly payment to $271, saving you a total of $2,490.
  • A reduction to 3% interest will lower the monthly payment to $261, saving you a total of $3,262.

Questions to ask when refinancing an auto loan

Before you refinance your auto loan, ask the lender(s) the following questions:

  • Are there prepayment penalties?
    According to the Federal Deposit Insurance Corporation (FDIC), some companies charge a prepayment penalty when you refinance an auto loan before it matures. If you’ll need to pay prepayment penalties to your existing auto loan lender, you may not want to refinance. Determine how much the penalty will be. If it’s more than you’ll save refinancing, it’s not worth the trouble.
  • Does your car qualify for refinancing?
    Generally, if your car has fewer than 100,000 miles and is younger than seven or eight years old, it will qualify for refinancing. The vehicle must also be worth more than the loan balance. (Determine the current value of your auto by consulting KBB.com.)
  • Do you qualify?
    Is your credit good (+670), which will enable you to qualify for a competitive refinancing loan? (If you’ve been paying your auto loan on time, you should qualify). If you have a low credit score, consider an auto loan lender that caters to borrowers with bad credit.
  • Does your existing loan qualify for refinancing?
    Usually, the outstanding balance on your auto loan must be at least $10,000 to refinance.
  • What are your new loan details?
    What will your monthly payment, interest rate and length of the loan be? And are there any extra fees? These specifics will help you determine if refinancing is the right option for you.

Negotiate a better auto refinance interest rate

Don’t assume the lender has your best interest at heart when it comes to refinancing your auto loan.

You are your own best advocate.

Keep the following in mind during negotiations to ensure that you get the best auto refinance loan possible.

  • Know your credit score.
    Being aware of your credit score before seeking a new loan for your car can help during negotiations.
  • Do your homework.
    Go online and research the various interest rates, terms and payment amounts, so you’ll know what is fair when you receive a refinance offer.
  • Have all paperwork on hand.
    Information needed to refinance a car loan can include proof of income, proof of insurance and proof of identity. You will also need the car’s make and model and vehicle identification number (VIN), as well as the auto’s current mileage.

Find the best car loan refinancing companies

If you decide to refinance your auto loan, opt for a company that offers a desirable interest rate and length of loan. Consider the following car loan refinancing companies, which feature competitive interest rates and cater to borrowers with a wide variety of credit types.

Alternative loans

There are other options to consider when it comes to paying for your car, such as paying off your car with savings or a personal loan.

If you have enough savings, it may make sense to use the money to pay off your car loan now. You may save thousands of dollars in interest over the life of the loan. Paying off the car loan also gives you the added security of knowing that the car is yours should you experience financial trouble.

You may also find it advantageous to use a credit card to pay off your car. Pay the auto loan balance with a credit card, then do a balance transfer to a 0% interest credit card. As long as you pay off the credit card within the promotional period, you won’t owe any interest.

To help you choose the best auto loan refinance lender for your situation, check out SuperMoney’s auto loan reviews page.

How To Refinance Mortgage

How to Refinance Your Mortgage

You already have a mortgage, but you’re wondering whether you can qualify for a better deal. Good. Complacency isn’t a good strategy for saving money. Refinancing your home loan could be a smart move. Read on for a step-by-step guide of how to refinance your mortgage.

Figure out why you want to refinance

Your first step should be to determine why you want to refinance your mortgage. Although most people refinance because they want smaller monthly payments, the best reason is to save on interest. A rate reduction of just 0.5 percent can save you more than $20,000 on a 30-year mortgage of $200,000.

Add a term reduction to the same $200,000 mortgage and the savings could be huge. For example, shortening it from a 30-year to a 15-year mortgage could save you more than $137,500 in total interest. (Source)

Check your credit score

Homeowners with higher credit scores qualify for better, lower interest rates. According to FICO, the company that generates the most widely used credit scores among lenders, someone with subprime credit (620 to 640) can expect to receive a mortgage interest rate 1.6 points higher than a person with excellent credit (760 to 850). (Source) That’s huge. It equates to a $200 hike in your monthly payments, on a $216,000 30-year mortgage.

If your credit has improved since you first got your mortgage, you may qualify for a better rate.

Find out what your property is worth

Use free online services, such as Zillow  and Trulia, to get an estimate. The current value of your home will determine whether refinancing is even an option. Lenders prefer to refinance mortgages on homes with a large equity. Equity is the difference between the value of your home and the balance on your mortgage.

If your home is not worth as much as your mortgage balance, you will struggle to find a lender. The same issue applies to mortgage loans that have a negative amortization – meaning your monthly payment is less than the interest you owe – because unpaid interest is added to the mortgage balance.

Shop around

Don’t settle for the first offer (or denial) you receive. Refinance rates and costs vary widely from one lender to another depending on several factors, such as their risk assessment model and how hungry they are for new business. Reach out to at least three lenders. More is better in this case. Here are some options you may consider:

  • Quicken Loans is one of the largest mortgage lenders in the United States with a streamlined application process. If you apply now, you could get a reply in less than 10 minutes.
  • USAA is another excellent source of refinance loans. However, it is only available to members of the armed forces and their relatives.
  • Blackhawk is an option if you don’t qualify for traditional bank refinance loans. Blackhawk is a peer-to-peer lending platform that connects investors directly with borrowers, which allows for borrowers to fund projects traditional lenders won’t consider.

Make sure you apply to all lenders within a two-week window. Every time you apply for a loan, a lender will make an inquiry on your credit score, which will ding your credit score. However, credit score algorithms consider multiple inquiries within a short period as a single inquiry, which won’t have much of an impact on your credit scores (Source).

Include all costs when comparing refinance loans

The APR on your loan does not include all the costs triggered by a refinance loan. You may have to pay for application fees, appraisals, credit report charge, title research, tax transfer fees and recording costs, to mention a few.

Ensure you’re not comparing apples and oranges. Ask for an estimate of all application and closing costs. Note that lenders are required to provide you with a Good Faith Estimate (GFE) within three days of receiving your loan refinance application (Source). The only fee lenders can charge before sending your GFE is a credit report fee.

Once you have GFE from all the lenders you plan to use, compare the overall cost of each offer.

No-cost refinance loans

There is no such thing as no-cost refinance loan. It’s a marketing trick. Instead of charging you up front, they include the costs into the loan. If you’re short on cash, they may be your only option. Just make sure you calculate their real cost when comparing them to other offers.

Lenders who offer no-cost refinances cover the closing fees by either charging a higher interest rate or adding the costs to the balance of the loan. Either way, you will be paying for the fees with interest for the life of the mortgage. Ask the lender to provide a comparison of the refinance loan costs, principal, and monthly payments using the regular and the no-cost options (Source).

Calculate your break-even point

Once you determine which is your best offer, it’s time to decide whether refinancing makes sense in your case. One way is to calculate how long it will take for the monthly savings of the new refinance loan to pay for the closing costs, also known as the break-even point.

For example, let’s say you have a $200,000 refinance mortgage that costs $2,128 in closing fees and reduces your interest rate by 0.5 percent. Incidentally, $2,128 was the average closing cost in the United States for a $200,000 mortgage, as of June 2016. (Source)

First, add up all the refinance loan closing costs. In our example, $2,128.

Deduct your current monthly payment from the monthly payment of the new loan. $57 (rounding up).

Divide the total closing costs by the monthly savings you will enjoy with the refinance loan. $2,128 / $57 = 37.33 months.

In this example, it would take roughly 37 months for the refinance loan to pay for itself. If you were planning to sell your home in less than 3 years, refinancing is probably not a good idea. On the other hand, if you’re planning to stay for 5 years or more, refinancing seems like a no-brainer.

This method only works with refinance loans where the new loan has lower monthly payments.  If you are refinancing for a loan with a shorter term, you will usually save a lot of money in interest over the life of the loan, but your monthly payments will go up. In that case, calculate your overall interest savings and divide by the number of months in the new term to get the monthly savings. Then use the same method above.

Organize your documents

Save yourself time and stress by preparing a file with all the documents lenders will request. Once you do that, you just make copies for every lender you apply with. The specific documents you’ll require vary depending on the lender and your source of income. However, you typically need:

  • Pay stubs or some other proof of income
  • Tax returns, W2s and 1099’s (if you’re self-employed).
  • Credit report
  •  A detailed statement of all your outstanding debts. Some lenders also require alimony and child support payments.
  • A detailed statement (and proof) of all your assets, such as savings accounts, stocks, retirement accounts, and other real estate properties.

The bottom line

Just because you can refinance your mortgage, doesn’t mean you should. Unless you can’t afford your current mortgage payments, resist the temptation of refinancing a loan just for a lower monthly payment.

Remember that shopping, comparing, and negotiating the terms and rates of your refinance could save you thousands of dollars over the life of the loan.

Check out the terms of these leading mortgage providers and read what other users say about their customer service.

mortgage refinance

Back in the day, you may vaguely remember your parents throwing a mortgage-burning party to celebrate finally owning their home free and clear. Now you’re a homeowner but you’re a long way from burning your mortgage. In fact, you’re considering refinancing your mortgage, but you’re wondering if this is the right time to do so.

The goal of refinancing is to reduce the amount that you pay in order to own your home outright. Several factors come into play in determining whether and when refinancing your home moves you toward that goal. Some factors, such as plunging interest rates, are obvious reasons to refinance.Other good reasons to refinance relate to your personal circumstances, such as getting a new job. Other factors, such as the length of your mortgage or eliminating private mortgage insurance have more potential impact on how much you ultimately pay for your mortgage than you might initially realize.

Lower Interest Rates

mortgage-ratesIf you obtained your mortgage when interest rates were high, refinancing can save you a significant amount of money once interest rates fall. Obtaining a $200,000 mortgage with an interest rate reduction of 1.5 percent translates to a savings of $3,000 over a single year. You can obtain a mortgage with a one percent lower interest rate. You may also save money by refinancing from an adjustable-rate mortgage to a fixed-rate mortgage during sustained periods of low interest rates. But watch out for points and lender fees, which can take big chunks out of any savings you might otherwise gain.

Reduced Mortgage Length

All other factors being equal, you will save significantly if you can manage a mortgage with a shorter mortgage term, even if your monthly payments are higher. The differences lie in interest savings. Mortgage rates for 15-year fixed-rate mortgages average about 1 percentage point lower than 30-year fixed-rate mortgages, according to Interst.com For a $200,000 fixed-rate mortgage at 4.5 percent interest; you’ll pay about $165,000 in interest. With a 15-year fixed-rate $200,000 mortgage at 3.5 percent interest, you’ll pay only $57,000 in interest – a savings of 65 percent.

Improved Credit Profile

refinanceHave you just received a promotion or a big raise? While income does not directly determine your credit score, your asset to debt ratio plays a big factor in how lenders view your creditworthiness. If you finally paid off your student loans or that monster credit card bill, your asset to debt ratio may qualify you for refinancing at a significantly lower interest rate. Cleaning up late payments or other credit blemishes may also improve your financial profile. If your credit report and FICO score have improved recently, refinancing your mortgage is definitely worth consideration.

Increased Equity and Value of Your Home

If you bought your home during the depths of the Great Recession, you may have paid a rock bottom price. Depending on where you live, the value of your home may have increased significantly, making it more likely that you could be approved for refinancing. Likewise, if you’ve built significant equity in your home through years of payments, lender may be more likely to approve an application to refinance your mortgage.

Dumping Private Mortgage Insurance

home-refinanceYou may have purchased your home with less than a 20 percent down payment. Unless you were able to qualify VA financing, you were probably stuck with purchasing PMI. But if you have accumulated at least 20 percent equity in your home, either through several years’ worth of monthly payments or an increase in your home’s value, consider refinancing to obtain a mortgage without PMI. Especially if your current lender refuses to cancel PMI, refinancing your mortgage can be a good idea.Getting rid of PMI means that more of your monthly payment goes directly toward reducing your principle, allowing you to pay off your home faster – definitely a smart move.

Available FHA and VA Financing

If you qualify for an FHA-guaranteed mortgage, you can refinance your home with as little as 2.25 percent accumulated equity. If you or a member of your family is eligible for a Veterans Administration loan, you are not required to have accumulated any equity in your home. Especially if your present mortgage interest rate is high or if you have an adjustable rate mortgage, an FHA or VA loan can make sense. If your mortgage is 78 percent or less than your home’s present value, you should not have to pay mortgage interest on an FHA loan. VA loans do not require mortgage interest even if you have no equity in your home.You may qualify for an FHA or VA loan with a lower FICO score than would be required for a conventional loan.

Getting Out from Underwater

refinanceMaybe you would like to refinance your home, but you’re presently underwater on your mortgage. You may still qualify for refinancing under the Home Affordable Refinance Program (HARP). If your mortgage was purchased by Fannie Mae or Freddie Mac before June 2009 and your loan to value ratio is greater than 80 percent, a HARP loan may allow you to ease the burden of your mortgage at least somewhat. If you’re presently current on your mortgage payments and have maintained a good payment history for at least the previous 12 months, you have a good shot at being approved. Best of all, if you don’t have PMI for your present mortgage, you won’t be required to purchase PMI to qualify for a HARP loan, either.

Shop Around for the Best Deals

If you’ve determined that this is a good time to refinance your home, make preparations to get the best possible deal on your new mortgage. Hold off on making other big purchases and maintain current status on your credit cards, car note and other financial obligations, especially your mortgage. Credit reporting agencies consider several inquiries of a single type made within a brief window – generally about two weeks – to count as a single inquiry, which has a minimal detrimental impact on your credit score. So go ahead and shop around to get the best deal, but don’t drag out the process too long to prevent your credit score from taking a big hit.