The factors affecting your car loan interest rate are very similar to what influences your annual percentage rate when drawing out a loan. If you end up with a loan with high interest, you can lower it by refinancing the auto loan. In this way, you can save up from your monthly car payments.
Factors affecting car loan interest rate
A number of factors influence the interest rate of your car loan when you decide to refinance. We have handpicked a few common ones:
· Loan term
In most cases, the loan term decides what interest rate you will end up getting. It is the time for how long you will be paying the monthly payments. The shorter the loan term is, the lower is the loan interest rate.
- Credit score
The second major factor that influences the potential interest rate is your credit score. If you have a good credit score, you are most likely to get a loan with a lower interest rate. You can increase your credit score by paying all the monthly payments on time. It will positively affect your payment history as well and leave a good impression on the new lender.
- Car’s condition
Vital aspects of the car, including age, mileage, and equity, determine the interest rate. Interest rates are higher on cars that are older than the new ones. The same goes for the vehicles that have traveled more miles. Besides, you should also find out how much your vehicle is worth and the amount you owe. You will not be able to refinance if you have negative equity.
- The overall market rate
Other than the factors mentioned above, interest rates also fluctuate at the federal government level due to the Federal Reserve. Besides, each lender has set varying interest rates through its refinancing programs. It is why it’s beneficial to apply to several lenders and choose the one that suits you the best.
FAQs about refinancing a car
What is the qualification criterion for refinancing?
To get accepted for refinancing, you have to fit in the following set of requirements:
- Have a good credit score
- Have equity in your vehicle
- Your loan amount must fall into the lender’s limit
- The car’s mileage and age must follow the lender’s requirements
- You must be paying the current loan actively
How do I refinance with a bad credit score?
There is no way to refinance while having bad credit. It is because a good credit score is one of the requirements for refinancing. However, you can refinance if you took the original on bad credit BUT have improved since then.
If lenders see a consistent improvement in your credit score and the potential to pay off the balance, they may consider you for refinancing.
Do I have to pay a refinancing fee?
If you decide to change your lender, you’ll have to pay a title transfer fee and a state re-registration fee as well, conditional to where you live. There are slim chances that your current lender may charge you a pre-payment penalty.
Conclusion
People who choose to refinance have the sole motive to lower their monthly car payments. It is also the perfect way to get a loan with a low-interest rate. We have explained the factors that are essential for qualifying for refinancing. In addition, we have also laid out a guide about aspects that determine your interest rate on loans.
An alternative option to refinancing is trading in your with something more affordable. With CarLoanRefinancing, you can refinance and trade-in through reliable dealerships throughout the nation.
Get started on the process right away by filling our auto loan request form!