December 20, 2022
Most borrowers refinance their car in order to save money each month on their auto loan. If you're considering refinancing you may be wondering what the best way to go about it is and if there are any costs associated with refinancing your vehicle. Here's what you need to know about the cost to refinance a car.
Refinancing Costs
Refinancing means replacing the current loan on your vehicle with a new one that has different terms. Many people refinance with their current lender, though seeking someone new often gives borrowers more options.
There's typically no cost to refinance your vehicle unless the lender you're working with charges an application fee. Depending on where you live, some parts of the process may also incur a fee, such as retitling the car, but there's no set flat fee in the U.S.
Not only can there be fees involved in applying to refinance, but some borrowers may also experience having to pay early termination fees, depending on how their original auto loan is set up. Always check the fine print in your contract before you start applying to refinance your car.
Why Refinance?
When you refinance, the goal is usually to save as much money as possible on your monthly car loan payment by either lowering your interest rate or stretching out your loan term. Keep in mind that if you take out a longer loan without getting a lower interest rate, you're not saving money, just paying a smaller amount for more time.
If you want to keep your current vehicle, but are finding it difficult to pay for, refinancing might be for you. However, refinancing isn't always a sure bet. Typically, you need to meet a number of requirements in order to qualify, especially if you're struggling with credit issues.
Refinancing With Bad Credit
If you're suffering from bad credit it may be more difficult to find a refinance lender. But, if you initially took out a bad credit car loan and your credit situation has improved you may still be able to refinance your vehicle.
Besides a good or improved credit score, refinancing typically requires that:
- You've had your loan for at least one year.
- Your vehicle fits into the refinancing age range
- Your car doesn't have excessive miles
- Your loan amount is acceptable to the new lender
- You don't have negative equity
- You're current on your loan
If you qualify for refinancing, you could save money each month by lowering your auto loan payment. If you don't qualify for refinancing, you may still be able to save by trading in your vehicle for something more affordable.
If Refinancing Isn't Right
If refinancing isn't for you, getting into a more affordable vehicle might be the answer. Typically, this means finding a subprime lender to work with if you have poor credit. Subprime lenders know that there is more to a borrower than their credit score and often look at additional factors to help determine auto loan eligibility.
These factors include looking at your ability, stability, and willingness to take on an auto loan along with factors such as your employment history, income, and ability to make a down payment. In some cases, you may also be required to have a cosigner if your credit isn't in top shape. All these factors can go a long way toward helping you get the more affordable loan you need.
