Auto loans are a big investment, and it's easier than you might think for that investment to turn a bit sour. There may come a point when you end up owing more on your vehicle than it's currently worth. This is known as being upside down on your loan, and it comes with its own unique set of problems.
While being upside down is never good, there are a few ways to get out of the situation and keep your finances as secure as possible. One of the most effective ways is to refinance your car loan. This effectively replaces your current car loan with a new one that operates under a different agreement. The nature of the new agreement typically involves lowering your monthly payment or your interest rate, and it may reduce the overall amount you end up paying for your car. Some auto refinance loans even do all that and more.
Compare Auto Loans Here
The nature of your auto loan refinance depends on several factors, such as your credit score and credit history, but another major factor to consider is which auto loan refinance company you want to work with. The requirements for car loan refinancing aren't set in stone, with nearly every financial institution and lender using different standards even if the general trends are the same. Take a look at some of the most reliable auto loan refinance companies and discover the best place to refinance a car.
Know Your Goal
Before you look at auto loan refinance companies, it's important to understand your goal going into it. The circumstances that created the need for you to refinance your car are directly related to the entity you should be pursuing for refinancing. Keeping your circumstances in mind as you begin exploring your options will make it easier to find the right fit whether it's a bank, financial institution, or one of your local credit unions.
For example, someone with a prime credit score may be better off at one company, while someone with a subprime credit score could benefit more from another. Some drivers may simply want to work with a company that has a streamlined and straightforward process. Whatever your motivation is, have a goal in mind before looking through the auto refinance company options.
Auto Approve
Auto Approve is a unique kind of lender that specializes in auto loan refinancing. They don't even work with financing new cars, restricting themselves solely to refinancing auto loans. With that specialization come some benefits that you won't find anywhere else.
Low Average Rates
On average, Auto Approve has some of the lowest auto refinance loan rates available for borrowers with subprime credit. The annual percentage rate, or APR, starts at just 2.94%, which is considerably lower than just about every other car refinance company out there.
No Application Fee
Unlike some companies, Auto Approve doesn't charge application fees when you apply for refinancing with them. This is the case whether you're looking to refinance a car, motorcycle, boat, RV, or ATV.
Soft Credit Pull
Every hard credit pull will lower your overall credit score a bit, which can be costly if you're already in the subprime area. When you apply for refinancing with Auto Approve, they do a soft credit pull to show you offers, with the hard pull coming later after you pick a particular offer for final approval. The company has a minimum credit score requirement of 575 for its standard rates, but a lower score doesn't bar you from applying — it just means you should expect higher rates.
No Prepayment Penalty
Unlike many other car refinancing companies, there's no penalty if you decide to pay off your loan early. The earlier you pay off your loan, the less interest you have to deal with, which is why some companies have penalties to make up for their loss. Auto Approve doesn't have these penalties.
Easy Process
The process of refinancing is simple and straightforward with Auto Approve. Given that they don't do a hard credit pull until final approval, you don't even risk anything by seeing what they have to offer you. You can select the auto refinance loan amount and term, between 12 and 84 months, that work for you.
Loan Origination Fee
While Auto Approve skirts a lot of other fees common in the industry, you still have to pay a loan origination fee. While this fee doesn't outweigh the savings in most cases, it's still significant enough to consider when seeking the best option for your needs.
Refinancing Limitations
Although you can refinance a variety of personal vehicles, Auto Approve does not offer refinancing services for commercial vehicles. No vehicle used for commercial purchases will ever qualify for refinancing with them.
$8,000 Minimum
The minimum auto refinance loan amount available from Auto Approve is $8,000, so keep that in mind when determining which company is the best fit for your refinancing needs.
Caribou
Caribou represents a network of lenders, banks, and credit unions that operate fully online, letting you access its services from wherever you are. Their required minimum credit score is relatively high compared to a lot of other companies, but if you qualify, you could enjoy some of the best benefits on the market.
Low Starting APR
The starting APR for Caribou is just 2.32%, and that can work for loan amounts ranging from $5,000 to $150,000. Just keep in mind that you have to have a pretty good credit score to get a rate that low from Caribou.
Pre-Qualification Requires Soft Credit Check
To get pre-qualified for refinancing from Caribou, you only need a soft credit check. That means you can get an idea of what kind of terms are on offer without having to worry about lowering your credit score.
No Barriers to Rate Comparisons
If you're looking to compare potential rates based on your finances, you can do so at no risk. Not only do they only take a soft credit check, you also don't have to give out your Social Security number. Just fill out their form and you can start comparing rates risk-free.
Numerous Add-Ons Available
In addition to refinancing, you may also explore options for add-ons with Caribou. Sometimes drivers merely want to add some extras like total loss protection or key replacement to their loan. Guaranteed Asset Protection, or GAP, is also quite popular with those looking to refinance, and Caribou can provide it all.
High Credit Requirements for Best Deals
Caribou has some of the best rates on the market, but you'll need to have a credit score of at least 650 to qualify for them. While they'll still work with people who have scores in the 500s, the top deals come to those with prime or super-prime credit.
Allows Co-Borrowers
If you're looking to refinance your car with subprime credit, you can always apply with a co-borrower who has good credit. This can get you more savings compared to applying alone.
Costly Processing Fee
While you may be able to find significant savings with Caribou, especially if you have excellent credit, you'll still be subject to the $399 processing fee. This fee gets added at loan closing, so it's unavoidable if you're refinancing with Caribou. If your budget can't handle that, it may be best to look elsewhere for refinancing.
iLending
At iLending, you'll find one of the best options for loans if you have a subprime credit score. While there are several disadvantages to iLending, it can be an alluring option if your credit isn't exactly where you'd like it to be.
Minimum Credit Requirements
While the best rates generally go to people with higher credit scores, this lender is willing to work with borrowers with credit scores as low as 510. It's important to keep in mind, however, that most of their customers have scores of at least 640 or so.
Personal Consultant
When you apply for refinancing with iLending, you'll have a personal consultant assigned to you to guide you through the entire process. This makes refinancing considerably easier here than with other lenders and companies.
$7,500 Minimum
The minimum auto refinance loan amount you can get from iLending is $7,500, but they're willing to go much higher depending on your unique needs. These generally range from 36- to 84-month auto loans under normal circumstances.
Low Income Requirement
A lot of car refinancing companies have minimum income requirements when it comes to getting auto loans. At iLending, the income requirement is $1,800 a month, which is much lower than many other companies.
Spanish-Speaking
To make refinancing easier for its diverse client base, iLending has Spanish-speaking representatives who can assist customers through the entire process if needed.
High Document Fee
The document fee for iLending is much higher than a lot of other refinancing companies. The amount required to complete the process is $499, and it's an unavoidable fee.
Restricted Payment Deferral
Payment deferral is generally a feature a lot of people looking to refinance are searching for. If you run into financial troubles, several companies exist that can help you by deferring your monthly payment for a certain amount of time. While iLending is willing to do this, their standard deferral is only 30 days. Other companies offer deferrals that are much longer.
RefiJet
RefiJet is a popular lender, as the company is open to working with virtually any type of credit situation. The average monthly savings and annual percentage rates are fairly competitive, making this an attractive company for people with poor credit.
Full-Spectrum Lender
At RefiJet, you can apply no matter what credit tier you're on. Of course, you're going to get the best rates if you have good credit, but it's rare for an applicant's credit to be bad enough that RefiJet won't work with them. The minimum credit score required here is generally 500.
$5,000 Minimum Amount
With a $5,000 minimum loan amount, RefiJet will work with you even if you don't have a relatively large loan left to pay off. Of course, the lender can offer refinancing for much larger loans as well. Your rate and monthly payments will depend on factors such as your credit score and initial loan size.
Potential for No Payments for Two Months
Unlike most other lenders, RefiJet offers the potential to some customers to not have to make any payments on their refinanced loan for two months after it's finalized. This gives you a lot of breathing room to get your finances in order before you start paying down the loan.
Heavy Insurance Requirements
It's not uncommon for auto loans to have insurance requirements, but RefiJet's requirements are fairly substantial. In order to get any kind of refinancing from them, you'll need to have full-coverage insurance. Anything less, and you won't be able to qualify.
Processing Fee
To move forward with refinancing from RefiJet, you'll have to pay a processing fee of $395. There's no way around this fee, so make sure your budget can handle it before moving forward.
LightStream
LightStream is the online lending branch of Truist, which is the bank that came out of the BB&T and SunTrust merger. It's a unique source for auto loan refinancing since the lender offers unsecured personal loans. While that comes with plenty of benefits, there are some downsides to be aware of before actually moving forward with refinancing here.
No Vehicle Limits
Most car refinancing companies put limits on the kinds of vehicles they're willing to cover, but LightStream does not. Since you're technically applying for an unsecured personal loan, you can refinance a vehicle regardless of its age or mileage.
No Fees
LightStream is focused solely on refinancing auto loans without trying to get extra money from fees. When you work with them, you'll be paying off the value of the refinanced car loan and that's about it.
Works With a Variety of Vehicles
While you can refinance a car loan with LightStream, the company also offers services for motorcycles and ATVs, among other kinds of vehicles. With that kind of flexibility, it may be one of the best options available if you're trying to refinance a vehicle that's a bit atypical.
Allows Co-Borrowers
Getting auto loan refinancing with LightStream requires pretty good credit. If your credit isn't strong enough on its own, you can apply with a co-borrower to boost your rating up to the necessary threshold.
Need Excellent Credit Score
An excellent credit score is necessary to secure auto loan refinancing from LightStream. They only work with people at the upper end of the spectrum, so this route may not be an option if you have less-than-excellent credit and no one with great credit who will co-borrow with you.
Requires Hard Credit Check
Applying for auto loan refinancing with LightStream includes a hard credit check, which will lower your credit score a bit. If you get this check and don't end up with auto loan terms you like, that hard check is still going to affect your overall credit score.
Types of Auto Refinancing
Now that you have an idea of some of the best places to refinance your car, it's important to understand exactly how refinancing works. Two different types of refinancing are available: traditional refinancing and cash-out refinancing. For the most part, you'll likely be dealing with traditional refinancing, but you'll want to be aware of the alternative as well to ensure that you've considered all possibilities.
Traditional Refinancing
Traditional refinancing is what most refinancing is like, and it simply involves taking out a new auto loan under new conditions to pay off the remaining balance on your existing auto loan. Most of the time, the refinanced auto loan is at a lower rate than the old car loan, but it will always get a new APR and a new term length.
Cash-Out Refinancing
With cash-out refinancing, your new auto loan not only covers your existing auto loan balance but includes an additional amount of money as well. The benefit of this is that the interest rates may be lower than those for unsecured personal loans, but the monthly payments and the total payment will be higher than you'd get with a traditional refinance. This kind of refinance also has a higher chance of going upside down, which is one of the top reasons people seek refinancing in the first place.
Should You Refinance?
Refinancing comes with several benefits and may help you avoid the pitfalls of your current auto loan deal. Even so, there are disadvantages too, so it'll take some serious consideration to determine whether or not refinancing is right for you.
Advantages
When you refinance, your ultimate goal likely is to decrease your monthly car payments. Most of the time that's exactly what happens. You may even be able to save money in the long run, too. It's possible to get lower interest rates, and the vast majority of auto refinance companies don't require a down payment for refinancing.
Disadvantages
While the advantages of refinancing are significant, there are still some downsides to be aware of. If you extend your auto loan term, that will increase the amount of total interest you'll have to pay unless you get a significantly reduced rate. Plus, opting for a shorter auto loan term can increase your monthly payment. Your original auto loan may also have prepayment penalties to deal with, and the refinancing lender can charge large origination fees.
What to Look For in an Auto Refinance Company
When looking for the best lender for refinancing, keep your eye on a certain few factors. With these things in mind, it's relatively easy to shop around and make sure that you're getting the best deal possible.
APR
The annual percentage rate is how much interest you'll be paying on a refinanced auto loan. The best deal in this regard is one that gets the APR as low as possible. Just remember not to look solely at this figure, as auto refinance companies could have you end up paying more by offsetting a low APR with long auto loan terms and extra fees.
Fees
Refinancing can come with a variety of fees you'll have to cover in addition to the new auto loan terms. They can charge fees for documents, origination, and more. Legal fees set by the local and state governments are set in stone, but the rest may not be.
Loan Total
Since auto refinancing companies have limits on the amount they're willing to finance most of the time, you'll need to make sure that they can approve a loan big enough to cover your old auto loan. It's more common for the refinancing minimum to be too high compared to what's left on your vehicle rather than the other way around.
Transparency
A car refinancing company needs to be transparent in its dealings. In addition to checking their terms, policies, and conditions, do some research into their reputation. When talking with them, ask a lot of questions and gauge their willingness to answer them. Remember, the Truth in Lending Act demands that these companies give you a written disclosure of every detail of your auto loan agreement.
What Does It Take to Refinance?
Refinancing your vehicle usually involves you meeting a few requirements first. These requirements vary quite a bit, but it's best to be aware of all of them to see if your situation warrants refinancing or not. After all, a vehicle is a big investment, and refinancing will change the nature of that investment significantly. It's up to you to figure out whether it's for the better or for the worse.
Consider the Prepayment Penalty
A lot of auto loan terms include what's known as a prepayment penalty. This is a fee you must cover if you decide to pay off your auto loan early. A lot of lenders put these in place to ensure they don't miss out on the additional money they would've gotten if you paid your car loan over the full initial auto loan term period.
Check your current auto loan agreement to determine whether or not you have a prepayment penalty in place. If you do, you'll have to do some calculations to see if the penalty will offset the savings from refinancing. If it doesn't work out in your favor, you may want to reconsider refinancing altogether.
The Upside Down
One of the most common reasons to try and refinance an auto loan is being upside down on the auto loan. A vehicle's worth depends on a variety of factors, but sources like Kelley Blue Book can help you determine if you currently owe more on your loan than your car is worth.
It's important to remember that some lenders won't consider you for refinancing if you're already upside down on the car loan. Other lenders specialize in helping people get out of the upside down on their auto loan when refinancing. It's all a matter of who you decide to work with.
Vehicle Restrictions
Refinancing typically comes with vehicle restrictions. Some lenders, like LightStream, don't have any restrictions like this, but the vast majority of auto refinance companies do. For the most part, you'll have a tough time finding refinanced auto loans for cars that are more than 10 years old or have more than 120,000 miles on them.
Loan Status
Your car loan status can have a direct impact on whether or not you're able to secure refinancing. The vast majority of auto refinance lenders will require your current loan payments to be up-to-date. If you're no longer able to make payments, lenders will expect you to approach them about refinancing before you fall behind on payments.
Loan Balance
Most auto refinance lenders have a minimum car loan balance that they're willing to work with, and some even have a maximum balance. If your current loan does not fall within these amounts, they won't consider you for a loan. Look into what the minimum and maximum values are for any lender you're considering for refinancing.
Branded Vehicle Restrictions
Most lenders don't allow for the refinancing of branded vehicles. "Branded" can take on a few different meanings here, so you'll need to consider them all. A vehicle branded with a company logo or that's simply used for commercial purposes may not qualify for refinancing. Additionally, lenders may not offer refinancing on a vehicle with a title branded as salvage or rebuilt.
Should I Refinance?
Refinancing your auto loan is a big step, so you should make sure that it's in your best interest before moving forward with any new lenders. There are three central and fairly common reasons why you may want to refinance. If you're dealing with any of the following, refinancing your auto loan is something you should seriously consider.
You Got a Bad Deal
Getting a bad deal with a car loan is fairly common. After all, most lenders are for-profit institutions looking to make as much money from you as they can get away with. If you feel like you didn't get the best conditions for your loan term or APR, refinancing can help turn that around.
Interest typically gets charged the most during the beginning of your loan period. If you switch after that period is over, you may be able to get a better rate from a different lender by refinancing.
Your Credit Score Improved
Lenders tend to look at your credit score as the primary factor when it comes to determining the interest rate on a loan. If your credit score has significantly improved since you got your initial loan, you may be in a good position to get a better deal. Barring any prepayment penalties you may have to contend with, refinancing with a better credit score can be an easy way to save money.
Your Monthly Payments Are Too High
If your payments each month are too high due to a change in your financial situation, such as a job loss or an unexpected expense, refinancing to a longer loan term can lower that monthly payment. While you will be paying more in the long run since interest accrues for the extended term period, you'll at least be able to keep making your payments on time. That's typically better than defaulting, so it may be the best option.
Documents Needed for Refinancing
When refinancing your car loan, you'll need several different documents to complete the process. Before you start pursuing your refinancing, it's best to gather these documents and have them on hand for easy reference throughout the process. The necessary documents are as follows:
- Social Security number.
- Residence information.
- Driver's license.
- Employment information.
- Car registration and exact mileage.
- Proof of insurance.
How to Apply for Auto Refinancing
Applying for auto refinancing is less difficult than you might think. A lot of lenders have streamlined the process to make it easier than ever before, and all you have to do is follow seven simple steps to complete it all. While each particular lender may have small details that differ, these steps will get you through the process just about every time.
Check Your Credit Score
Your credit score is among the first things any lender will check, and it directly impacts the kind of rate and loan terms you're able to get. If you see any incorrect information on your credit report, you'll need to dispute it and get your credit report updated to make your credit score as high as possible.
Get Your Current Loan Information
Refinancing will require the lender to examine the terms of your existing loan. Gather all the relevant information in advance to make this step easy for them and speed up the process.
Do Your Research
This step will take the longest, but it might just be the most important, especially if you got stuck with a bad deal the first time around. Research different lenders to see which can help you get the best rate.
Just make sure they only do a soft credit check if they need to get your credit score before offering an estimate. Additionally, take a look at your current lender to see if they can help. Some companies won't refinance an existing loan that they already own, but others have refinancing options available.
Get Preapproved
Not all lenders offer preapproval, but if you can get preapproved, that will put you in a good position for getting a final deal. A preapproval from one company can also be used to leverage your financial position at another company, so don't hesitate to keep shopping around after getting preapproved.
Apply
With a preapproval in place and your research done, it's time to finally apply for refinancing. This is often done online, and some lenders operate exclusively online. The process tends to be relatively straightforward these days, as lenders benefit from it being easy just as you do.
Check the Terms
After you've submitted your application, the lender will present you with terms if they approved the loan. Look through these terms thoroughly to ensure you know exactly what you're getting into. Don't forget to check the insurance requirements too, as refinancing may require you to get a different kind of insurance policy than what you currently have.
Make It Final
The last step is to finalize the loan. Agree to the terms, and your new loan term will go into effect at the agreed-upon time. Keep in mind that you'll need to continue making any required payments on your current loan until the lender completes the refinancing.
What If I Have Bad Credit?
Having a poor credit score often leads people to believe that they can't secure a decent loan. While it may be true that those with low credit scores will likely miss out on the best rates, it's still possible to get refinancing of some kind in a lot of cases. Be sure to consider the following even if you have a credit score that's less than 640.
Fluctuating Auto Loan Rates
Auto loan rates, like home loan rates, will fluctuate over time. You may be able to take advantage of a generous period, but don't assume that this will always be the case. While there is some obvious crossover, new car loans and car loan refinancing work differently.
Lower Monthly Payments
If all you need is lower monthly costs, that's typically something you can accomplish even with a bad credit score. While you'll end up paying more overall due to the extended loan term, being able to make your monthly payments on time is often a priority when debating the available options.
Co-Signer
A lot of loan refinancing companies are open to co-signers when you're refinancing. If you have someone with a good credit score who's willing to be a co-signer, that can put you in a much better position than you'd be in by using your own credit score alone. Just make sure your co-signer understands their responsibility when agreeing to the refinancing loan.
Fix Your Credit
Of course, the obvious solution to having bad credit is to fix it. This takes time, however, and if you're in a bad financial spot and have a costly car payment every month to contend with from your existing loan, fixing your credit can be tough. You may want to consider a credit repair company or repair your credit score on your own if you still have some wiggle room before you become unable to make your payments.
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
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July 21, 2023 at 02:45AM
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Everything You Need to Know About Car Refinance Companies - Car and Driver
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