Is it a good time to refinance an auto loan?
With auto loan insurance rates low due to the COVID pandemic slowing down car purchases, now is the time to consider refinancing. If consumers aren’t sure their auto loan is the best deal, there are ways to check if an auto loan is too expensive. From a low down payment to buying through a dealership, there are numerous signs that consumers are paying too much for an auto loan.
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Travis Thompson
Licensed Insurance Agent
Travis Thompson has been a licensed insurance agent for nearly five years. After obtaining his life and health insurance licenses, he began working for Symmetry Financial Group as a State Licensed Field Underwriter. In this position, he learned the coverage options and limits surrounding mortgage protection. He advised clients on the coverage needed to protect them in the event of a death, critica...
Licensed Insurance Agent
UPDATED: Nov 27, 2023
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Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Nov 27, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
- Currently, auto loan interest rates are lower than normal, making it an excellent time to refinance
- Consumers who choose to pay less on down payments and monthly payments might end up with higher interest rates
- Shopping around for auto loans can ensure consumers are getting the best deal, rather than just signing up for whatever a dealership offers
Buying a car can be a stressful process, especially if consumers end up stuck with expensive auto loans. Currently, auto loan interest rates are low due to the dropoff of car purchases during COVID. In an effort to encourage sales, many auto loan lenders and dealerships are competing against each other by offering great deals on auto loans.
So if you are thinking of refinancing your auto loan, now may be the time. To make sure you don’t waste your time with paperwork only to find out you already have the cheapest loan, it’s smart to look at your current auto loan before refinancing.
Read on for five signs that your current auto loan is too expensive.
#1 – You paid a low down payment on the car
Often, one of the first inclinations that you have overpaid on a car loan is paying a low down payment. Paying a low down payment means that a larger sum of money needs financing, resulting in you paying more in the long run, even if you paid a low sum to take the car home in the beginning.
It is best to pay as large a down payment as you can afford to avoid a long-term, expensive financial commitment. Otherwise, interest rates will add a significant sum onto an auto loan with a low down payment.
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#2 – You got your loan through a dealership
Getting an auto loan through a dealership is quick and convenient, but it’s not always the best deal for customers. You are limited to the options provided by the dealership, and they may be charging a fair bit more in interest rates for the convenience compared to if you got your auto loan through a bank.
Unless you shop around for a loan, you won’t know if you received the best deal at the dealership or fell prey to clever marketing and salesmanship. Do your research beforehand on the best lenders or the best auto insurance companies that refinance auto loans to make sure you pick a reputable company.
#3 – You have multiple hidden fees
It is essential to read through the loan agreement carefully. For example, if you don’t take your time to go over all the costs at a dealership, there may be unnecessary warranties, and other hidden fees tacked on that raise your prices significantly.
Keep your eyes out for things like a documentation fee, where dealerships charge for filing paperwork, on your auto loan. If you see multiple hidden fees, it may be time to refinance.
#4 – You have a low monthly payment
Many consumers are tempted to sign up for an auto loan with a low monthly payment, as it seems like a cheaper option.
However, paying less each month ultimately results in consumers paying more over time due to interest rates.
If you have a low monthly payment and want to refinance, it is usually best to pay a larger sum each month if you can afford it.
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#5 – You have a high Annual Percentage Rate (APR)
Do you know how much you are paying in interest every year? A high APR equals a bad deal. If you have a high APR despite a good credit score, your auto loan can be considered too expensive. You should calculate your APR to determine its range and make sure you are getting a lower APR when you refinance.
If you currently have an expensive auto loan, don’t despair. Refinancing and avoiding the five pitfalls above can help you save on your auto loan.
Frequently Asked Questions
What is auto loan refinancing?
Auto loan refinancing is the process of replacing an existing auto loan with a new loan, typically with better terms and conditions. It involves obtaining a new loan to pay off the remaining balance on the original loan, often resulting in lower monthly payments, a reduced interest rate, or an extended loan term.
Is it a good time to refinance an auto loan?
Determining whether it is a good time to refinance an auto loan depends on several factors. These include current interest rates, your credit score, the remaining balance on your existing loan, and the potential savings or benefits of refinancing. It’s recommended to carefully evaluate these factors and consider consulting with a financial advisor or lender to determine if refinancing makes financial sense in your specific situation.
Can I refinance an auto loan with bad credit?
While it may be more challenging to refinance an auto loan with bad credit, it is not impossible. Some lenders specialize in working with borrowers who have less-than-perfect credit. However, keep in mind that refinancing with bad credit might result in higher interest rates or less favorable terms. It’s essential to compare offers from different lenders and carefully consider the potential impact on your financial situation before proceeding.
Will refinancing an auto loan affect my credit score?
Refinancing an auto loan can have an impact on your credit score, both positively and negatively. When you apply for refinancing, the lender will typically perform a hard inquiry on your credit report, which can temporarily lower your credit score by a few points. However, if you make timely payments on the new loan and manage it responsibly, it can have a positive long-term effect on your credit score. Additionally, refinancing can potentially improve your credit utilization ratio if it reduces your monthly payments or overall debt.
How long does the auto loan refinancing process take?
The duration of the auto loan refinancing process can vary. It typically takes a few weeks from the time you submit your application to the closing of the new loan. The exact timeline depends on factors such as the lender’s processing time, the complexity of your application, and how quickly you provide the required documents. It’s advisable to inquire with the lender about their estimated timeline and plan accordingly.
Free Auto Insurance Comparison
Enter your ZIP code below to view companies that have cheap auto insurance rates.
Secured with SHA-256 Encryption
Travis Thompson
Licensed Insurance Agent
Travis Thompson has been a licensed insurance agent for nearly five years. After obtaining his life and health insurance licenses, he began working for Symmetry Financial Group as a State Licensed Field Underwriter. In this position, he learned the coverage options and limits surrounding mortgage protection. He advised clients on the coverage needed to protect them in the event of a death, critica...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.