In a nutshell, a car refinance allows you to end your current deal and start a new one. However, it’s usually with a different lender.
Does It Restart Your Auto Loan?
When you refinance a vehicle, you choose a loan with rates and terms different from your current one. The goal is to replace your current loan with something that improves your financial situation.
In short, it does restart your auto loan, but this time you can choose better rates, duration, and suitable terms. However, remember that a longer loan will typically carry a higher interest rate.
What Do Lenders Require?
Every lender has certain requirements when it comes to a car refinance. Typically, it’s not possible to refinance an auto loan if the original loan hasn’t been open for at least three months.
This way, there’s enough time to transfer the vehicle’s title from the manufacturer to the existing lender. Other lenders may also specify a certain amount of time that should be remaining on the loan before they can proceed with an application.
However, to get the best out of a car loan refinance, you should have at least two years on your original loan. This is because there’s no use refinancing later when you’ve already paid the maximum interest, and it hardly leaves any room for savings.
How Long Does the Approval Take?
Once you have your documents sorted and research done, the application approval shouldn’t take long. Unless the hard inquiry complicates the process, you should have your application approved within a few days. Some lenders even approve it on the day you apply.
What Benefits Can You Expect From a Car Loan Refinance?
It’s possible to expect benefits in the following situations:
- When your credit score and finances have improved significantly
- If the interest rates have decreased since you got your first loan
- If you think you have better chances to qualify for a lower interest rate with a different lender
- Your current loan is making it hard for you to make monthly payments on time
The Bottom Line
While refinancing is a great opportunity to start over with regard to your loan, you must not rush into it. Take your time to apply with different lenders before you land a deal that gives you the flexibility to make the right choices. Remember, the longer the duration of the loan, the more interest you’ll end up paying on it in the end.