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Common car refinancing mistakes to avoid Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by providing you with interactive financial calculators and tools that provide objective and unique content, by enabling you to conduct research and evaluate information for no cost and help you make financial decisions with confidence. Bankrate has partnerships with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that appear on this website are provided by companies that pay us. This compensation could affect how and where products appear on this site, including for instance, the order in which they be listed within the categories of listing and other categories, unless prohibited by law for our mortgage, home equity, and other home lending products. This compensation, however, does have no impact on the information we provide, or the reviews you read on this site. We do not include the universe of companies or financial offerings that could be available to you. Tom Werner/Getty Images
3 min read Published on February 24, 2023.
Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers to navigate the ways and pitfalls of borrowing money to buy an automobile. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain confidence to control their finances by providing precise, well-researched, and well-written information that breaks down otherwise complex topics into manageable bites. The Bankrate promise
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You can find refinancing requirements on lender’s websites or Bankrate’s .
2. Do not contact your current lender initially. Although your current lender may not offer the lowest interest rates, it’s the most effective place to begin. Before looking into refinancing alternatives outside your current lender, it is wise to contact them and explain your situation and see if they could help. Certain lenders provide this service , which changes the terms, the due date for payments or the interest rate to provide borrowers with financial relief. Bankrate tip
Even if you still follow through with refinancing the loan, it is possible that they can offer you more than an existing lender could.
3. Extending the loan term too long Refinancing aims to reduce costs, however when you extend the term of your loan too much and you are spending more over the loan’s lifetime. Although it will result in a lower monthly payment but you’ll also be paying more interest. Tips from Bankrate
Prior to term adjustment, take advantage of an auto refinance to make sure you are saving money.
4. Do not take your credit into consideration Like most situations with loans, the credit score is used as the main factor for approval. So, work to improve and before you refinance your loan. You’ll have a better chance to get the loan you want and walk away with more money in the end. loan overall. A credit score of 670 or higher typically qualifies borrowers for the best interest rates. Tips from Bankrate
Check your credit ahead of loan applications by using AnnualCreditReport.com.
5. Shopping with just one lender As you would in the process of obtaining your first auto loan, we recommend comparing at least three different lenders. So, while signing off on the first loan offer might be appealing, not all loans are created equal. In the end, the lower your interest rate the more you’ll save on your car payment. You want to ensure you’re getting the most competitive rate that is available. Tips for Bankrate
Compare current rates provided by a variety of lenders. Pay close attention to the conditions for approval, the repayment options and how they compare to your current loan.
6. Being upside down on your loan Before refinancing, make sure you know what equity in your vehicle is by comparing it to a . Equity is the sum by which the value of your vehicle is greater than the amount you have to pay to the car loan. If you owe more than your car is worth, or hold negative equity, refinancing is likely not a good idea. The bankrate advice
Do not refinance a car you’re not able to pay for. Find out where you may be overextending and estimate the costs prior to signing an additional loan.
7. Refusing to accept your initial rejection loan refinancing guidelines differ from lender to lender, so even if you’ve been rejected by one doesn’t necessarily mean that you’ll be rejected at all. If you’re asking, “Why can’t I refinance my car?” you have the right to ask for the lender in accordance with the (ECOA). They have to explain why the application was rejected. Bankrate tip
Knowing why you were denied can help you improve your chances of being approved in the future. For example, if the credit rating of yours is too low, you can work towards improving it prior to applying next time.
The bottom line: While refinancing your vehicle loan could be risky but it’s a great option to reduce the monthly costs and to continue financing your vehicle. Be aware of these mistakes common to all in mind and be up-to-date on the latest trends to ensure you walk away with the right loan for your requirements.
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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers with the ways and pitfalls of borrowing money to purchase cars. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to control their finances by providing concise, well-studied details that cut complicated topics into digestible pieces.
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