Auto refinancing has become a popular way for most people when it comes to purchasing cars. This is because a majority of people can’t afford to buy vehicles in cash. The good thing about auto financing is that you can get the car you want and pay the lender in installments.
The most important thing is to choose a lender who understands your needs and offers the best interest rates. There are several companies that offer auto financing options and each one of them has different terms and conditions. It is therefore up to you to carry out your research and make the right decision.
Below are some of the factors that affect auto loan refinancing:
1. Your purpose or motive for refinancing
Before you consider refinancing your auto loan, one of the first things is to understand your motive. The main goal for refinancing should be the driving factor. For example, you may want to refinance the auto loan simply because you want to reduce your monthly payments. This could be as a result of reduced income or probably because you want to properly manage your finances. Alternatively, you can opt to refinance a shorter loan with a lump sum.
2. Credit score
A credit score is one of the major factors when it comes to auto loan refinancing. Most banks and other financial institutions start by looking at your credit score before considering whether to issue you with a loan. Those with a good credit history have higher chances of being considered for the loan compared to those with poor credit.
Other than improving the chances of your loan being approved, a credit score also determines how much interest you will be charged. If your credit score is good, then your interest is likely to be lower compared to someone with a poor credit score.
3. The value of the vehicle
Another important factor that affects auto refinancing is the current value of your vehicle. It will be difficult to find a lender if the value of the vehicle is higher than what you owe the bank. According to Lantern by SoFi , most lenders shy away from underwater vehicles since they cannot recover the loan in case the loan defaults. In case you want to refinance your car, ensure it doesn’t go underwater.
4. Changes in once credit profile
As mentioned earlier, your credit score is one of the most important factors when applying for an auto loan. It is the one that tells a lender your ability to repay a loan. As such, it is important to start by checking your credit report before approaching any lender for auto refinancing.
5. Pre-tax income
Lenders always want to ensure that the new loan repayment is not more than what you earn every month. In case your new loan is high compared to your monthly income, then the lender might decide to make adjustments to ensure that you don’t default.
In general, there are several factors that affect auto loan refinancing. The most important thing is to understand why you want to refinance.