For many, owning a car isn’t simply a preference but a necessity. Whether needing a vehicle is related to getting to work, your family situation, a hectic schedule, or a lack of public transportation options, sometimes there simply is no other choice. However, not everyone needing a car can afford to buy one straight away.
Those who choose to finance their latest vehicle purchase (as opposed to leasing) know there is a light at the end of the loan repayment tunnel: eventually owning the vehicle. That said, the repayment plan you originally started out with sometimes no longer works for you. In these cases, you might want to consider refinancing your car loan.
Read on below for useful information that may steer you in the right direction regarding auto refinancing decisions. But first, let’s deal with some of the basics.
What Is Car Refinancing?
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 pay off the balance of your current auto loan.
Why Refinance?
The bottom line is that refinancing your car only makes sense if it saves you money. If refinancing your auto loan reduces your interest rate, lowering your monthly payments, you save money. However, everyone’s situation is different, and many factors might make refinancing their car a reasonable choice. 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 your loan repayment
No matter the case, consider the following before deciding if refinancing is the right option for you.
What Are The Potential Costs of Refinancing?
Depending on your financial situation, taking out a new loan and paying off your old one may incur costs.
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 name. Re-registering the vehicle may involve registration and other fees, which 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 provincial authority before moving forward, taking note of each cost so you can add them up later.
Refinancing your car loan means you must pay 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, a person should refinance their car mainly to get better financial terms for their loan, improve their financial situation and free up cash that can be used elsewhere. However, certain conditions may prevent you from refinancing.
One involves the age of your car. Some lenders will not allow refinancing on cars over ten years old, and others have mileage requirements. It’s always best practice to ask these questions before other considerations.
Another factor that might prevent you from refinancing is the value of your car. If your current loan exceeds your car’s value, you might have difficulty finding a lender willing to refinance. The best way to see the value of your vehicle 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 of greater value than your car’s current value, 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 and comparing your credit report 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 documents and pieces of information most lenders will want to collect before they approve your loan to refinance your vehicle. They will use this information 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
Ultimately, the best advice we can give is to do your research. Shop around for the best terms, just as you would when you did your original car search. The ultimate goal is to save money and lower your monthly bills. The best offer will not simply 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 apply for a refinance loan, you’re working with professionals who 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.
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