03 Mar How Veterans Can Refinance Auto Loans
In order to qualify for an auto loan, you have to agree to make payments at a fixed rate of interest. Refinancing an existing loan for one with a lower interest can end up saving you a lot of money. To ensure that your refinance goes smoothly, prepare ahead of time just as you did on your original loan by monitoring and improving your credit score.
In this article, you will learn how to refinance auto loans as a veteran.
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Why You Might Want to Refinance Your Auto Loan
Refinancing an auto loan is the process of replacing your existing loan with a new loan from an alternative lender. Refinancing an auto loan opens up favorable terms even for those who already have a loan. The refinancing option will provide you with a loan with new features, benefits, and terms that you may not have received with your previous loan.
Veterans can refinance a car loan in the following circumstances:
Modifying a Co-signer Agreement
A Co-Signer can be added to your loan, or your previous Co-Signer can be removed when you refinance the auto loan. You can withdraw your Co-Signer’s obligation by getting a new loan from a different lender if your current co-signer no longer wants to provide a guarantee for your repayment.
Changing the Terms of Your Auto Loan
You may not have been too happy with the loan offer when you originally applied. You may have chosen this loan because it was more affordable than the alternatives. Refinancing can reduce late fees, hypothecation, insurance, application fees, etc. and provide you with a more favorable auto loan.
Improved Credit Score
Lenders will check your credit score and credit history to refinance your loan. The hard inquiry may temporarily decrease your credit score by a few points. Still, the positive impacts of refinancing outweigh the potential adverse effects of a slight drop in your credit score. Since you have a strong payment history, your credit scores will likely improve as you pay off the loan.
Need a Lower Monthly Payment
You can extend or shorten your loan term when you refinance your auto loan. The longer the loan term, the lower your payments will be. If you refinance your loan, you can extend the period over which you repay the loan. Your EMIs (equated monthly installments) will be reduced as a result. Keep in mind that you may end up paying a higher total at the end of the term (including your interest). In contrast, if you refinance your loan to decrease the term, you will be able to pay off your loan quicker and lower your interest payments. The EMIs may be higher in this case.
Lower Interest Rates
If you find a new/refinancing loan option with a lower interest rate, you may be able to pay less on your vehicle in the long run. It’s as simple as paying off your current loan and approaching the new lender. If you plan to refinance, make sure the prepayment penalty on your old car loan is lower than the benefits of refinancing.
If your credit score has improved over the life of your loan, you may also consider refinancing your car loan. It is possible to obtain a loan at a lower interest rate and better terms.
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What Is the Goal of Refinancing an Auto Loan
When you refinance a car loan, you take out a new loan to pay off the balance you still owe on your existing loan. It is common for most of these loans to be secured by a car and paid back in the form of fixed monthly payments over a predetermined period – usually a few years.
Refinancing your auto loan is usually an option people take to save money, as refinancing could significantly lower your interest rate. As a result, it may reduce your monthly payments and allow you to free up some cash for other financial responsibilities.
Even if you cannot find a better rate, you may find a loan that has an extended repayment resulting in a less expensive payment each month (although the total amount you pay might increase over the life of your loan).
Benefits of Refinancing an Auto Loan
There are numerous benefits to refinancing an auto loan, including the following.
You Could Get a Better Rate
You may find that your interest rate impacts your monthly payment and what you pay in interest over the life of the loan. If your interest rates are higher than what you can afford, you may be able to refinance. It may be possible to save money on your monthly payments by lowering them by a percentage point or two.
You Can Lower Your Payment
There are a couple of ways to lower your car payment by refinancing: lower monthly payments with a lower interest rate and/or a longer loan term. Your monthly payment will be lower if you extend the term from 48 months to 60 months. However, it’s important to be aware that you may need to pay back more if you extend the term.
You Could Borrow Extra Money
There is a possibility that veterans could be approved for a cash-out refinance loan. * This type of loan gives you the option of refinancing your auto loan and borrowing extra money, depending on how much equity you have in the vehicle. The extra funds available to you can be used to pay other expenses such as credit card bills or to have extra cash in your pocket.
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Things to Look Out for When Refinancing an Auto Loan
When it comes to an important decision like auto refinancing, many factors come into play. Therefore, in the following instances, you may want to take it into account more seriously:
Reduced rates on refinancing auto loans:
As interest rates fluctuate regularly, you may have already experienced a rate drop since taking out your original auto loan. Therefore, it is possible to save significantly even by reducing your rate by 2 or 3 percentage points over the term of your loan.
Generally, the interest rate on a car loan will fluctuate based on the prime rate and other factors. It is possible that auto loan rates have decreased since the time you purchased your car a while ago.
Financially, Your Situation Has Improved
Your auto loan rate is determined by several factors, including your credit score and your debt-to-income ratio (DTI), calculated by dividing your monthly income by your debt payments. Consequently, improving your credit score and decreasing your DTI ratio can improve the terms of your refinanced loan.
When You First Applied, You Weren’t Offered the Best Deal
In most cases, many people who refinance their auto loans go to dealers rather than going to banks or credit unions. Normally, dealers tend to charge higher rates than banks and credit unions. You may have taken out your first loan through a dealer-arranged financing arrangement. However, you may not get the lowest interest rate if you refinance directly with a lender. Therefore, you need to do thorough research before refinancing an auto loan to ensure you get the best deal.
Each Month, You Have Trouble Paying Your Bills
Regardless of whether you’re able to find a loan with a longer repayment period, you may still be able to reduce your monthly car payments if you’re able to secure a lower interest rate.
The repayment period of your existing loan could also be renegotiated if you cannot find a suitable loan. You may not realize it, but the longer it takes you to repay your loan, the more interest you will pay. As a result of the longer loan term, you will pay more total interest.
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How to Refinance Auto Loan: Who Offers Car Refinancing for Veterans
The car refinancing process is essentially the same as applying for a new car loan. It will be your responsibility to provide documentation, including proof of income, that the financial institution will need to see you’re a low-risk borrower. Ensure that you grant the lender permission to check your credit history; then, you can apply for a loan to refinance your car.
Below is a list of some of the credit unions and banks that provide loans for veterans to refinance their vehicles:
PenFed Credit Union
Pentagon Federal, or PenFed, provides credit to military personnel and civilians who belong to different associations. PenFed’s car-buying service may enable you to obtain attractive loan terms if you put $5 in a savings account to join.
Navy Federal Credit Union
If you’re considering refinancing a car, you may qualify for a low-interest auto loan if you’re an NFCU member. You may also be eligible for an additional 0.25 percent interest rate discount if you opt for a direct deposit. If you qualify, contact NFCU directly.
USAA – United Services Automobile Association
You may be eligible for USAA membership if you are a former military service member. Military credit unions have offered competitive interest rates for refinancing cars.
USAA offers a “rate lock” option for auto loans if you apply for one and are approved. The loan can be repaid within 45 days if you decide not to proceed.
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Auto Loan Refinance: When It’s a Bad Idea
It can be beneficial to refinance your car, but it’s not always the most economical choice. Here are some situations in which you should avoid refinancing your vehicle:
When You Have Paid a Major Part of Your Current Loan
You may not be able to save much on interest if you wait too long to refinance your auto loan. At the beginning of the loan tenure, a large portion of the interest would have already been paid off.
When Refinancing Fees Exceed the Advantages
Analyze the fees you might have to pay for this process before refinancing your car loan. If you have to pay a high prepayment penalty or a processing fee, check whether you can afford it. Refinancing is not a good idea if the fees are too high.
If You Are Planning to Apply for New Credit
If you plan to apply for a new credit card or loan, refinancing your auto loan may not be the best idea. The reason for this is that refinancing may negatively impact your credit score.
A refinance is a good idea if you get a lower interest rate or if your credit score or financial condition improves during the term of your current loan. Unfortunately, the existing loan with the same bank cannot be refinanced.
Typically, refinancing involves obtaining a new loan from a new lender. Those who want to stick with the same lender will either have to apply for a top-up loan or have to close their existing loan and apply for a different loan at the same bank.
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