Car loan refinance is gaining popularity as more people are looking for savings in this difficult, post-recession period of time. The mortgage refinance has been tempting lenders already for years, but the relatively new process of refinancing the purchase of a motor vehicle is still not very clear to the large part of consumers searching market for a good deal. Read on to discover what to take into consideration before you commit to any transaction.
High credit score
First of all, take care of your credit score. This part is usually largely underestimated but plays an important role in negotiations with lenders. High credit score will give you access to preferential interest rates and the best deals, whereas bad credit history can only lead to premium interest rates and generally worse conditions. The best advice regarding credit history is: as soon as you decide to refinance car loan, check your credit score and try to improve it if it's not up to scratch.
Value of the car didn't drop significantly
It's a well known fact that value of a car depreciates rapidly, especially a car purchased from new. The way refinancing works is that lender secures loan against an asset - in this case, the car. If you fail to repay your loan, car will be repossessed and sold to recover due money.
If your car's market value is now lower than the amount of loan you wish to take - bank will reject the refinance, simply because it will not provide enough security.
Low exit fees for previous lender
Lenders are well aware of the fact that car loan refinance can save you a lot of money - money that is never going to the lenders pockets. In order to discourage you from moving elsewhere and, in case you did, at least recover some of the projected profit, exit fees where introduced.
The idea behind these fees is simple. You decide to move on, but the bank tells you that release from your current contract will cost you a certain amount of money. You then have to calculate whether savings from the refinance minus exit fees will still create enough savings for you to carry on.
Good market conditions
It goes without saying that favourable market conditions can help any financial operations significantly, or to the contrary - lose you quite a lot of money. By market conditions we mostly mean current interest rates, which tend to change very quickly, even daily. It's important to keep an eye on the banking sector and find the right time to strike with your refinance.
High credit score
First of all, take care of your credit score. This part is usually largely underestimated but plays an important role in negotiations with lenders. High credit score will give you access to preferential interest rates and the best deals, whereas bad credit history can only lead to premium interest rates and generally worse conditions. The best advice regarding credit history is: as soon as you decide to refinance car loan, check your credit score and try to improve it if it's not up to scratch.
Value of the car didn't drop significantly
It's a well known fact that value of a car depreciates rapidly, especially a car purchased from new. The way refinancing works is that lender secures loan against an asset - in this case, the car. If you fail to repay your loan, car will be repossessed and sold to recover due money.
If your car's market value is now lower than the amount of loan you wish to take - bank will reject the refinance, simply because it will not provide enough security.
Low exit fees for previous lender
Lenders are well aware of the fact that car loan refinance can save you a lot of money - money that is never going to the lenders pockets. In order to discourage you from moving elsewhere and, in case you did, at least recover some of the projected profit, exit fees where introduced.
The idea behind these fees is simple. You decide to move on, but the bank tells you that release from your current contract will cost you a certain amount of money. You then have to calculate whether savings from the refinance minus exit fees will still create enough savings for you to carry on.
Good market conditions
It goes without saying that favourable market conditions can help any financial operations significantly, or to the contrary - lose you quite a lot of money. By market conditions we mostly mean current interest rates, which tend to change very quickly, even daily. It's important to keep an eye on the banking sector and find the right time to strike with your refinance.