Thinking of refinancing your car loan in Canada? For many people, owning a car isn’t simply a preference, it is a necessity. Whether that vehicle requirement is related to your work commute, your family situation, your hectic schedule or a lack of alternative public transportation options, sometimes there simply is no other choice. However, not everyone who needs a car can afford to buy one straight out.
For those who chose to finance their latest vehicle purchase (as opposed to leasing) knows that there is a bright light at the end of the loan repayment tunnel: the eventual ownership of the vehicle. That said, sometimes the repayment plan you originally started out with no longer works for you. In these cases, you might want to consider refinancing your car loan.
Read on below to find some useful information that may help steer you in the right direction regarding any upcoming auto refinancing decisions. But first, let’s deal with some of the basics.
What Is Car Refinancing?
It stands to reason that if financing your car involves taking out an auto loan to help you purchase a vehicle, refinancing your car involves taking out a new loan to help you pay off the balance of your current auto loan.
The bottom line is that refinancing your car only makes sense if it saves you money. This can be accomplished if refinancing your auto loan reduces your existing interest rate, thereby lowering your monthly payments. However, everyone’s situation is different, and there are a number of factors that might allow someone to refinance their car. Perhaps you:
- Recently received a lump sum of cash and would like to pay off the loan sooner
- Have recently improved your credit score and can get a better interest rate
- Want to remove a co-signer from your original loan
- Started a new, higher-paying job and can afford to speed up you loan repayment
No matter the case, before making any concrete decisions, consider the following important pieces of information and apply them to your situation to see if refinancing is the right option for you.
What Are The Potential Costs of Refinancing?
Depending on your financial situation, there may be costs associated with taking out a new loan and paying off your old loan.
For example, if you are refinancing to remove a co-signer from your original loan, you may have to register the vehicle again under your own name. This may involve certain fees, and these fees will vary depending on where you live. Transferring the vehicle title to your name might also cost you. Our advice is to check with the appropriate state or provincial authority before moving forward, making sure to take note of each individual cost so you can add them up later.
Refinancing your car loan necessarily means you will be paying off your old loan. For this reason, you should check with the original lender to see if there are any prepayment penalties. If there are financial penalties related to an early loan payment, you’ll need to factor that into your decision.
What Might Prevent Me From Refinancing?
In the end, the central reason a person should refinance their car is to acquire better financial terms to their loan, improving their financial situation and freeing up cash that can be used elsewhere. However, certain conditions may prevent you from refinancing.
One involves the age of your car. Certain lenders will not allow refinancing on cars that are more than ten years old, and others have mileage requirements. It’s always best practice to ask these questions first, before other considerations.
Another factor that might prevent you from refinancing is the value of your car. If the value of your current loan is larger than the value of your car, you might have difficulty finding a lender willing to refinance. The best way to find out the value of your car is to check reputable online sources such as Carfax, Canadian Black Book or the appropriate provincial CAA website. That said – even if the lender does allow you to refinance – with a loan value greater than the current value of your car, you may not receive terms that make it a worthwhile financial choice.
Another reason you might find it difficult to refinance is if your credit score has not improved since you last took out a car loan. Checking your credit report and comparing it to your score when you last took out a loan is a good place to start.
I’ve Decided To Refinance – What Will I Need To Provide?
There are a few common documents and pieces of information most lenders will want to collect before they make the decision to help you refinance your vehicle. They will use these items to determine what interest rate they can offer you. You may need to provide:
- Car insurance
- Information on your current loan (the balance, the rate, the lender, etc)
- Proof of income (such as a pay stub or tax return)
- Other financial info (such as your monthly rent or mortgage payment)
- Info on your car (such as mileage, make, model, etc)
The End Game
In the end, the best advice we can give is to do your research. Shop around for the best deals, just as you would when you did your original car search. The ultimate goal is to save yourself and money and lower your monthly bills. The best offer is not simply going to land in your lap – you’ll have to work for it.
A final piece of advice is to work with reputable lenders. You need to have confidence that when you make your choice and decide to apply for a refinance loan, you’re working with a group that has a history of success in the marketplace, and that you’re working with professionals that know the business inside and out.
As always, when you have questions or need more information, you can always trust Lendforall to provide it to you. Contact us today if you have any questions, large or small. We’re always happy to help steer our clients in the right direction, connecting them with solutions that make sense for their specific financial situations.