If you have an older car that you are struggling to pay off, then refinancing your car loan may be the answer to your problems. While it may be tempting to quickly refinance your car loan by asking family and friends for money or taking out a loan against the equity in your home, those options could potentially backfire and leave you in more debt.
Minimum Monthly Income
According to Lantern Credit, you must make at least $1,000 per month for a lender to consider your request. Some lenders will require even more income. A good place to start is by looking at your credit report. It contains information about your income and employment history, which lenders can see. This can help you estimate what kind of loan you’ll qualify for if you want to do it yourself.
How Much Do You Owe On Your Current Auto Loan
If you have an existing auto loan, one of your first steps is to figure out how much you currently owe on it. This can be done by looking at your most recent monthly statement. It’s important to include any fees (like a prepayment penalty fee) in your calculations. If you are not sure what that number is, call up your lender and ask them to calculate it for you. This will help give you a baseline of how much money you could potentially save if you decide to refinance.
There are two main credit-scoring models in use today: FICO and VantageScore. FICO score (850-990) consists of information from your credit report, including payment history, debt load, and length of time you’ve had a credit card account open. VantageScore (300-850) considers these same things but also looks at income, whether you have a savings account open, rental, or utility payments, and types of inquiries made on your report.
Other Debts You Have
If you have any other debts that need paying off, do they come with a lower interest rate than your car loan? Can you afford to pay them off before you refinance your auto loan? If you can make extra payments towards these debts and prepay those loans, then refinancing should be in your near future.
Vehicle History Report
Having complete knowledge of your vehicle’s history is vital when considering how to refinance your car loan. A thorough vehicle history report can uncover any major issues that may pop up in the future. Vehicle history reports are available for free, but you can also purchase them for a small fee.
So, what are the refinancing auto loan pros and cons?
- Pros of refinancing your auto loan include lower interest rates, decreased monthly payments, and increased credit history (depending on whether you decide to go with a longer loan term).
- Cons of refinancing your auto loan include higher interest rates and added pressure if you have poor credit or less than perfect financing history.
Interest rates, fees, and taxes make new car financing more expensive than before. So if you want to save some cash on your next purchase or refinance your current loan, you might want to look into purchasing a used vehicle instead of an older one.