Questions To Ask Before Refinancing Your Car Loan
Refinancing a car loan can save borrowers quite a bit of money if they can secure a good deal with a lender. Asking a few questions before refinancing a car loan can ensure that the consumer makes the best choice for their finances and doesn’t fall prey to any scams.
Why Was My First Loan the Best Choice?
While there are car insurance companies that don’t run your credit, most car loan financers do, and consumers that have less than stellar credit can end up paying higher rates.
Furthermore, dealerships may apply markups that prove costly to car buyers that don’t carefully examine the terms of their loan. A host of poorly disclosed markups and fees can make a dealership car loan more expensive than the consumer bargained for.
Understanding the fine print associated with car loans can make the consumer more aware of pitfalls to avoid in the future.
What Be Will My New Payment?
One of the most common reasons for pursuing car loan refinancing is to lower monthly payments. Borrowers may have a tough time making ends meet and shaving a few dollars off a monthly car payment can be very helpful.
The ability to secure a lower monthly payment will rely on several factors. The interest rate of the new loan, the current vehicle value, the loan term and the borrower’s credit score will all be weighed by the lender.
The consumer needs to balance the monthly payment savings they achieve against the additional interest their loan will accrue due to refinancing. Reducing a monthly payment by a few dollars only to add a sizable amount to the overall interest the borrower will be required to pay may not be worth it. Asking for a quote and comparing it against their current car loan is advisable for those considering refinancing.
What Will the New Interest Rate Be?
The interest rate of the new loan will affect the new monthly payment. If the original car loan had a high-interest rate, you could get a considerably lower monthly payment if you can find a lower rate. The best way to secure a lower interest rate is for the borrower to have a better credit score than when they took out the initial car loan.
The lender will consider the consumer a lower lending risk and offer better terms. If the opposite is true and the borrower’s credit score has dropped, a higher interest rate may deter the consumer from accepting a costlier loan.
What Is the New Loan Term?
A lower monthly payment can mean more money paid to the lender over the lifetime of the loan. The longer it takes for the borrower to repay the loan, the more interest accumulates over time. If the consumer is fine with paying more as long overall as long as their monthly payment is reduced in the short term, refinancing over a longer term may not be an issue.
Borrower Due Diligence
Borrowers should do their due diligence to ensure that they are getting a good deal on their car loan refinancing. A vehicle refinance calculator offered by Lantern by SoFi is a useful tool for comparing the original car loan against the refinancing options. As per Lantern, “No email or credit check required” for using the tool.