The invention of the car is one of the technological revolutions that changed the world for the better. Since then, many things have become easier and more accessible because mobility has become a standard. At first, four-wheelers were reserved only for the upper class and the rich. Over time, cars became available to everyone.
You were probably overjoyed when you were able to buy a car. Even though you bought it with the help of a loan, you managed to achieve a big goal because life without a car today is almost unthinkable. On this page, you can learn how to get the best car loan.
These financial arrangements ease the purchase for future owners who don’t have enough cash or simply don’t want to pinch from their savings for such a large purchase. If you choose wisely, you can find excellent deals that suit your needs and current financial possibilities.
However, many things in life are uncertain, so you might experience some financial issues at some point. Your budget can become stretched, so the smartest thing you can do at that moment is to review your current situation and make well-thought-out decisions. For instance, in case you have too much debt on your back, so car loan installments have become a burden, the solution may be refinancing.
What Is Refinancing?
If you’ve borrowed money to buy a vehicle, whether new or used, you’re probably already familiar with how loans work. Refinancing means taking a new loan that will replace your current financial arrangement with the lender under lending conditions that are currently more suitable for your situation.
In the case of the already mentioned situation, when your income decreases and your debt increases, you want to take some steps to relieve your budget a little. Then, you can replace the existing car loan with a new arrangement that has lower installments and interest but a longer repayment term. You can refinance as many times as you want. However, it’s not recommended to be constantly in debt, but only when necessary.
There might be times when the opposite happens, that is, your financial situation improves, so now you can afford higher installments. In that case, you can afford to refinance a car loan with a new one with higher monthly payments, but its repayment period is shorter. By making those extra payments, you can get rid of this debt as soon as possible.
If you don’t rush with this decision and carefully choose a new loan and the moment when you will refinance the existing one, you can save a lot of money. Most borrowers decide to take this step when they are given the chance to pay a smaller amount of interest each month, which will bring them significant savings during the loan lifetime.
Should You Refinance?
The decision whether to refinance a car loan should be made after a detailed review of your financial situation and your current debts. You need to see how much you want to refinance, how much you currently pay per month, as well as how many more months you need to pay off the current car loan. Also, it’s good to know if you’re only refinancing the debt or want to cash out your car equity to get some extra money.
As you decide to refinance a car loan, the first step is to examine the market, that is, the offer of refinance loans. Each lender may have a different set of rules for their financial products, and it is up to you to accept them or not. Of course, depending on your credit ability and score, you can always try to negotiate better lending terms.
Be prepared for the option that the lender can reject your refi application. That’s why it’s good to know what can influence the decision of lenders. For example, if your credit score is poor, you can still get a loan, but under fairly strict conditions. Also, there is a chance you can get a ‘no’ for an answer. If that’s the case, it might be wiser to work on your credit score first and then apply for refinancing.
How to Refinance a Car Loan
Refinancing isn’t mandatory, and it often happens that people pay off the original loans in full without changing the lending terms. However, if a favorable opportunity arises or the market moment is simply good, you can benefit from refinancing a lot.
For example, a good moment for refinancing is when global APRs fall. At that moment, interest rates on current loans are more favorable than the one you’re currently paying off. In that case, you might want to check out besterefinansiering.no/refinansiering-av-billån for the best deals.
There’s no legal limit on how many times you can refinance the car loan during its lifetime. What is important is to maintain good creditworthiness, that is, to pay your obligations on time and find a reputable lender with a good offer. That might seem like a lot of work, but a good refinance deal is worth it.
Determine Your Car LTV
Even if you are eligible for a refi arrangement, a lender can turn you down because of the value of your car or its mileage. Namely, the vehicle’s LTV should be as low as possible, that is, the car itself should be worth more than the amount you want to refinance. As for mileage, it shouldn’t be more than 150,000, regardless of the vehicle’s age.
When determining the LTV, the amount of your debt may be greater than the value of your car. This is called negative equity and can significantly reduce your chances for a favorable refinance. In that case, if you plan to get a refi loan, you must have excellent credit and do your best to turn this ratio in your favor (timely payments for the current car loan, extra loan repayment principle, etc.).
Think of Your Credit Score
Regardless of what type of loan you are applying for, the golden rule is that the better your credit score, the better the lending terms. Lenders might have different eligibility criteria regarding this parameter. In most cases, it has to be at least good (600 or more). If it’s 720 or more, you can land even better interest rates.
By checking out your credit score, you get to know your standings, so you can apply only for loans with a high chance of approval. When you ask credit agencies for a free report, that doesn’t affect your credit score. If this parameter is good, you can count on favorable refi. However, even if it’s fair or even poor, some lenders might be willing to lend you money, but the lending terms might not be better than your current car loan.
Find Reputable Lenders
When looking where to refinance your car loan, it’s good to have options. That means looking for several deals and prequalifying with multiple lenders. This might be a good move, as it doesn’t affect your credit score. A loan prequalification serves to determine whether you’re eligible to refinance and which terms you might get.
If you opt for lenders who offer prequalification, you can use it to compare several loan offers and their lending terms. By doing that before submitting a formal application, you can avoid hard inquiries that can lower your credit score. Also, by getting to know lending terms earlier, you can learn about fees that you can expect when applying for a loan.
Before you set on a quest for a refi lender, you might want to push your luck with the current one. If they find you a worthwhile borrower, they might be willing to offer you more favorable refinancing arrangements. Therefore, before negotiating better lending terms, you can shop around to find out which interest rate you can expect.
Nowadays, most lenders operate online, so you can find application forms on their websites. Before filling any, you might want to check the details with the lender to prevent mistakes that might cost you loan approval. You can submit all documents in a digital form, which speeds up the entire process.
After your application, the lender will do the credit check, appraise your vehicle, and ask for additional papers, like car insurance. If everything is fine, you can expect their final answer in no more than two weeks. You can refi even with a bad credit score. Just make sure not to sign anything before you’re all clear with refinancing terms.
Upon approval, your new lender is in charge of paying off your car loan. You might want to be familiar with this process to ensure it goes smoothly. In case of money left after refi (for example, you made some extra payments in the meantime), you can take it or give it back to a new lender to lower the principal amount.
Refinancing a car loan might be a good decision if it can actually save you some money or help you get rid of this debt faster. You should shop around for favorable deals and do your best to get the most favorable loan terms.