Are you thinking of exchanging your old car for a new one, but have a bad credit history? If so, you can opt for refinancing your auto loan. This option is available for those with bad credit, making it possible to not only buy a car of your dreams but also improve your credit rating.
Auto refinancing is nothing but taking a new loan, typically at a lower interest rate, which pays off your previous loan for buying a car. If you apply for this, it is likely that either the interest rate would be less or the repayment duration would be more, or it may even be both. This concept is similar to refinancing your home mortgage, the only difference is, it doesn’t take that long for the process to be completed.
Other than the excitement of buying a new car, the two most important reasons for you to opt for refinancing are – improving credit score and saving some extra bucks. For those with bad credit, no doubt the rates would be high, but you can opt for a shorter duration for paying back your loan.
Think long term, calculate the amount you would save by the time you payoff the loan. This would not only provide you some extra money to spend at the end, but you would also get into the good books of credit bureaus. However, if you don’t have the kind of money required for a shorter duration loan, you can always opt for a longer time period. Look at the pros and cons before you decide, but keep in mind that the priority should be to improve your credit rating.
Applying for an auto refinance doesn’t cost you anything. Most of the well-known finance companies may charge a small fee, but that’s negligible compared to the amount you save. There are some companies which may charge a fee to apply, so ensure that you avoid them.
There are several factors that determine the amount you save. If you have a bad credit, it means a higher interest rate. In such a case, lowering the rate of interest is the key. Since the other factors are the same for every loan, lowering the interest rate will help you save a few hundred dollars. Moreover, try extending the term of the loan if possible, as monthly payments would be lesser. Combining lower interest rates with a longer repayment duration will help you save some extra money for other expenses. Some lenders require a down payment. In such a case, the lender would inform you about it before approval.
Limit of Refinance
There is a minimum and maximum limit, which is usually USD 7,500 and USD 75,000 respectively, but this may vary among lenders. Most of the time, the criteria set by the financing companies would fit into your payoff amount. The duration of the loan would depend on the terms of agreement. Usually, it does not take more than 24 hours for it to be approved. You can also provide a cosigner so that in case you can’t pay the loan in time, the cosigner may be able to pay it.
Firstly, you need to be a citizen of the US, more than 18 years old, and should have a valid driver’s license. Moreover, you should provide a proof that your annual salary is more than USD 26,000 besides proof of a current auto insurance policy. This is required in case your car is stolen or damaged in a crash, you would still be required to pay the loan. Here, it is the insurance company who pays the remaining amount so that you as well as the lender is protected from any unforeseen circumstances.
Disclaimer: This article is for reference purposes only and does not directly recommend any specific financial course of action.