In a recent blog post, we talked about the basics of refinancing your auto loan. Here is a quick overview of some of the takeaways from that post:
- When you refinance an auto loan, you replace your old loan with a new one.
- This can be especially useful if you need to change your payoff terms, your financial situation has changed significantly since you got the loan or you want to switch lenders.
- The terms of your loan are affected by several factors, including your credit score, income, current debts, the amount left on your loan and the terms of your loan.
Let’s talk about some of the ways to get a great rate when you refinance your auto loan.
The main reason you want to get a low-interest rate is that the lower your interest rate, the less money you will pay over time on your loan.
The average car interest rate depends on a few factors. For example, the interest rate for a new car tends to be lower than the rate for a used car. Business Insider reports that “the average auto loan interest rate in the last quarter of 2019 was 5.76 percent for a new car and 9.49 percent for a used car, according to Experian data.”
Sometimes it feels like getting a good interest rate is completely outside of your control. There are definitely things you can do in order to get a better rate. These include:
- Work on bringing up your credit score.
- Reduce your debt-to-income ratio.
- Put money towards your principal.
- Shop around to compare lenders.
Your Credit Score
This is one of the most important factors that determines your interest rate.
Your credit score is a number between 300 and 800 that is essentially a summary of your credit history, debts, savings and income. When a lender looks at your credit score, they like to see a higher number because the higher the number, the more likely you are to fulfill your financing obligation.
One of the main reasons why people refinance their auto loan is because the original loan was accompanied by a high interest rate due to a low credit score. Improving your credit score will help you get a lower rate.
One of the best ways to raise your credit score is to improve your debt-to-income ratio. This number, sometimes referred to as DTI, compares your total debt to your consistent, provable income. The higher your DTI ratio, the lower your credit score will be.
A very common way of improving your DTI is to pay off as much debt as possible. Another option is to earn more income.
Pay Towards Your Principal
Perhaps you didn’t have much money for a down payment when you first financed your auto loan. If you are refinancing because your financial situation has improved and you want to lower your monthly payments or your interest, you could do so by making a large payment towards your principal when you refinance.
That would allow you to be financing a lower amount, which means your monthly payment will be lower.
Remember, when it comes to refinancing, you have options! You can compare lenders to find the one that offers you the best deal. Prioritize what is most important to you when working with a new financial lender and then look for financial institutions that meet your specific lending needs.
Is your priority to get the lowest interest rate possible or to shorten the term of your existing loan? To work with a local lender who contributes to your community in meaningful ways?
Shop around and find the lender that works for you.
Want to learn more about refinancing an auto loan?
We would love to talk! Here at WEOKIE Federal Credit Union, we offer great rates on auto loans and auto loan refinancing. Plus, we work with our members to ensure that they feel informed, supported and prepared to take on the financial responsibility of a new loan.
Give us a call today at (405) 235-3030 or 1-(800) 678-5363 or set up an appointment today to talk with a financial representative. We look forward to working with you!
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