If you’re new to the world of refinancing a car loan, there’s plenty to learn and understand. One of the most common questions is simply “what is refinancing a car?” and the answer will help financing newcomers get up to speed.
Refinancing a car means a new loan is used to pay off an existing one, with the vehicle as collateral. The refinanced loan is a new contract between lender and borrower with agreed upon terms like interest rate, monthly payment amount and loan duration.
How these terms are different from the current loan may vary according to the aims and circumstances of the individual borrower.
Let’s look at some common scenarios.
- Reduced monthly car payments – A refinanced auto loan might lower your monthly car payment as a result of a lower interest rate or a longer loan term, or both.
- A lower interest rate – If you qualify for a lower interest rate than that of your existing loan, then you may end up paying less in total interest when the loan amount has been paid off. This may occur when the duration of the loan is not extended to a longer term.
- Longer loan term – If the loan term is lengthened, and there’s a greater amount of time to pay back the loan amount, the monthly payments could be smaller. This situation might result in the borrower paying more for the car in total when interest charges are taken into account.
- Shorter loan term – A shorter term may increase the monthly payment but possibly reduce the amount of interest paid overall.
Bear in mind that if you’re approved for auto refinancing you may have to pay transaction fees. The lender could make a charge for these upfront or offer the option to include them in the total loan amount, on which interest is charged as part of the annual percentage rate (APR).
Now that we’ve talked about what refinancing a car means and how it works in some situations, consider using an auto refinance calculator to help you understand if refinancing is right for you, and what you might save. Our articles “Should I refinance my car?” and “How do I refinance my car?” may also help you here.
Choosing a lender
When looking for an auto lender, the Consumer Financial Protection Bureau recommends shopping around to compare terms.
At RoadLoans, it’s free to apply, and we accept auto refinance applications from consumers with all types of credit. We don’t, however, accept refinance applications from Santander Auto Finance and Chrysler Capital customers. Applying online takes just minutes and we provide instant decisions.
Apply for auto refinancing with RoadLoans to see if you can save.
† These statements are merely informational suggestions only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance.
RoadLoans is not a credit counseling service and makes no representations about the responsible use of or restoration of consumer credit.