If you’re having trouble making your current loan payments, refinancing — replacing your current car loan with a new one — can be a great way to save money and stay behind the wheel of your vehicle. But there are a few common mistakes to avoid to make sure you don’t find yourself in another precarious financial situation.
Top 6 Auto Refinance Mistakes
Avoid these common pitfalls when refinancing your car loan.
1. Not checking refinance requirements
Lenders have specific refinancing requirements. Be on the lookout for criteria ranging from the age of the vehicle, the kilometers and even the amount you have left on the loan.
Discount Rate Advice: You can find specific refinancing requirements on lenders’ websites or on Bankrate notices.
2. Not checking with your current lender first
Although your current lender may have the most competitive rates, they’re still the best place to start. So, before exploring refinancing options outside of your current lender, it’s wise to reach out and explain your situation to see if they can help.
Discount Rate Advice: Even if you continue to refinance your loan, they may be able to give you a better deal than a new lender.
3. Extending the term of your loan too much
The goal of refinancing is to save money, but if you extend your loan too long, you might end up spending more money over the life of the loan. Although a longer loan term means a lower monthly payment, you will also pay more interest.
Discount Rate Advice: Before the term adjustment, take advantage of an automatic refinance calculator to confirm you’ll save money.
4. Disregarding your credit
As with most things in financing, your credit is the primary approval factor. So work to improve your credit before refinancing your loan. This way, you’ll get the most favorable terms available and walk away with a better loan overall.
Discount Rate Advice: Check your credit before loan applications using AnnualCreditReport.com.
5. Only shop with one lender
Just as you would when purchasing your initial auto loan, it is recommended that you compare at least three different lenders. So while it may be tempting to sign the first loan offer you come across, not all options are created equal.
Discount Rate Advice: Compare current rates offered by a range of lenders. Pay close attention to approval requirements, repayment options, and how they compare to your current loan.
6. Being upset about your loan
Before you refinance, check where your vehicle’s equity stands with a negative equity loan calculator. If you owe more than your car is worth or have negative equity, refinancing is probably not a good idea.
Discount Rate Advice: Don’t refinance a vehicle you can’t afford. Check where your budget may go over the limits and calculate expected costs before signing a new loan.
The bottom line
Although refinancing your car loan can be risky, it’s a great way to lower your monthly costs and keep paying for your vehicle. Keep these common mistakes in mind and stay up to date on current refinance rates to ensure you walk away with the best loan for your needs.