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Sarah T.
Navigating the world of car refinancing can feel like driving through a thick fog of fears—shady dealers, hidden fees, fluctuating interest rates, and contracts dense with legal jargon. Misinformation and rumors only add to this haze, spreading myths many drivers take as truth.
Yet, what if these myths are just roadblocks to better financial opportunities? This article shifts gears to address and debunk the most common car refinancing myths, answering your burning car refinancing questions with clarity and simplicity. Get ready to clear the air and discover the truth about car refinancing in 2024.
Debunking the 5 car refinancing myths
For many Americans, the monthly vehicle financing expense ranks just behind housing costs, striking a significant blow to their budget. Experian's latest automotive finance report reveals that drivers are shelling out over $700 monthly for new vehicles and more than $500 monthly for used ones.
But here's a twist in the tale: the payment and interest rate set at the time of purchase doesn't have to be set in stone. Refinancing your car can unlock better terms, ease the strain on your wallet, boost your credit score, and bring many other benefits. Ready to shift your perspective on car financing?
Let's drive through the fog of misconceptions and debunk the car refinancing myths you've heard about
Myth # 1: It is time-consuming & costly to refinance my car
Myth #1 often deters drivers with its false narrative: the belief that car refinancing is a lengthy and expensive process. In reality, it's quite the opposite. Refinancing your car is neither time-consuming nor costly; in fact, it could lead to substantial savings over time.
The process from application to approval can be surprisingly fast. If your new lender gives the green light on the same day you apply, you could settle your old loan and sign off on the new agreement within just a few hours. Far from being a financial burden, refinancing could be a smart move for your financial future, debunking the myth of it being a drawn-out and costly ordeal.
Myth # 2: The fees may outweigh my car payment savings
Myth #2 often stops car owners in their tracks with the fear that the fees associated with refinancing their auto loan might not justify the potential savings on their car payments. While it's true that some lenders charge fees for refinancing—such as termination fees, application fees, registration fees, and title transfer fees—not all do. And even for those that do, these fees typically amount to far less than the savings you could enjoy each month on your payment and by securing a lower APR.
Let's break down the numbers: imagine you owe $25,000 on your car loan with a monthly payment of $680 at a 7% interest rate. Refinancing to an interest rate of 4.5%, you could reduce your monthly payment by almost $110. With 48 months remaining on your loan, you're looking at a total interest saving of $5,280. Clearly, the potential savings can dwarf any refinancing fees you might encounter.
Myth #3: Dents or dings in your credit can affect your chances for auto loan approval
Believing that a less-than-perfect credit score will automatically disqualify you from refinancing your auto loan is a common misconception. Lenders consider a range of factors beyond just your credit score. Even with a few blemishes on your credit report, bad credit car refinancing and approval is still within reach. Moreover, refinancing could be a smart move if your credit has improved since you secured your initial loan.
Concerns about credit inquiries adding dings to your credit score are often overblown. In reality, many lenders perform what's known as a soft pull—a preliminary check that doesn't impact your credit score—to determine your eligibility for refinancing. This means exploring your refinancing options can be a low-risk step towards better loan terms without the worry of harming your credit.
Myth # 4: It's too soon to refinance my car
The notion that it's premature to seek refinancing for your car could be costing you valuable savings. Contrary to popular belief, there's no mandatory waiting period for how soon you can refinance your vehicle to secure lower payments or a better rate; you're eligible to explore refinancing options immediately, even before your first car payment is due.
However, practicality dictates a waiting period of 60 to 90 days post-purchase, necessary for the car title to be officially transferred into your name. While some advice leans towards waiting six months to a year to allow your credit score to recover from the initial loan impact, the critical factor is ensuring refinancing leads to a more favorable financial situation without extending the overall cost of your vehicle. This approach can make refinancing not just an option but a strategic financial move.
Myth # 5: Now is not a good time for an auto refinance
While it's true that interest rates are currently on the higher side, attributing this to decisions made by the Federal Reserve is key. These choices directly impact the benchmark rate, subsequently influencing the cost of vehicle financing. As of February 2024, the average interest rate for a new car loan for individuals with credit scores between 700 and 749 stands at 12.52%, and for used cars, it's slightly higher at 12.77%. Despite these figures, dismissing the idea of refinancing might be premature. Refinancing could still be a financially sound decision if your goal is to reduce your monthly payments. Exploring your options can reveal opportunities to alleviate financial pressure, even in a high-rate environment.
Refinance your car loan with RateWorks
From understanding that refinancing isn't necessarily costly or time-consuming to recognizing that your credit score isn't the sole factor lenders consider, we've highlighted the potential benefits of reevaluating your car refinancing rates. It's important to remember that the right time to refinance is deeply personal and varies by individual circumstances.
Before making a decision, we encourage you to research thoroughly and, if necessary, consult with financial experts to address any auto refinance questions. The landscape of car refinancing offers a variety of choices, and selecting the one that aligns with your financial goals and needs is a must.
Don't let car refinancing myths hold you back. Take control of your financial future and consider whether refinancing your vehicle could offer the financial relief or improvement you seek. Ready to see what options are available to you? Get started today by visiting our application page.
