Top 10 Auto Refinance Myths Exposed
There are many misconceptions floating around the Internet about refinancing a vehicle. Believing these myths keep people from taking advantage of a service provided to them that may save them hundreds, if not thousands of dollars on their current car loans.
I want to clear the air about ten of the most common auto refinancing myths. Take the time to read through them and then you decide if refinancing your car is the right choice for you.
Refinancing a car loan can have great benefits to you financially. Do your own research before taking someone else's word if you should refinance your vehicle.
What you don't know can affect your wallet, there are many myths out there about refinancing your car. The truth is refinancing your car can get you out of paying a higher interest rate and lower your car payment. Find out the answers to ten of the most common auto refinance myths below:
1) It's Not a Good Time to Refinance My Vehicle
FALSE - Although banks are being cautious with who they approve for loans, it's very easy to see that interest rates are very low and auto refinance interest rates are at historical lows.
Banks cost of capital is very cheap right now. Banks, lending institutions and online auto lenders can borrow short term money at very low rates and still make money by offering long term loans with rates attractive to consumers. Refinancing your current car loan now will lock in a low interest rate before interest rates start to rise.
Read more tips and information on how to refinance your car here.
2) Having My Vehicle Appraised is a Hassle
NOT APPLICABLE - Unlike your home, where the loan is based on your equity. When you apply for an auto refinance loan, you do not have to have your vehicle appraised.
You also don't have to worry about paying for an on-site appraiser or dealing with a car dealership to get your vehicle appraised. Auto refinance lenders will use NADA, KBB or other books to value your current car based on the year, make, trim, features, mileage and vehicle identification number.
3) Comparison Shopping is a Waste of Time
NOT TRUE - Comparison shopping is the best way to get the lowest price or best deals on anything your looking to purchase. What's funny is most people will shop around for days for the best price on a new car but will pay whatever interest rate is offered to them.
A lot of people are under the misconception that rate shopping will hurt their credit score and in turn decline their approvals for filling out several applications. Credit bureaus will count all of your credit pulls for seeking an auto loan in one month as just one pull. This means your score will not change very much and your overall goal is to get a better rate and save anyway. So get out there and shop.
Each bank has different algorithms when determining the credit risk of an individual. You may be approved by one bank to refinance your current loan for a 9% APR and the next bank you apply with may offer you a better APR of 4%. Don't go crazy but definitely shop around and explore your options.
4) I Won't Save Enough Money Refinancing My Vehicle
FALSE - Most lenders advertise an average savings of anywhere between 2-5% when you refinance your vehicle. Lowering your rate by 2% on a $25,000 loan, from 6.95% to 4.95% will save you $1,393.93 over the life of a 60 month loan. Some of our readers have told us they've received discounts of up to 7% or more when refinancing.
Not only will you save on the total interest charges but you will also save on your overall monthly payment. The average customer may save anywhere from $20 to $150 a month depending on the term of your refinanced loan.
5) Lenders Won't Refinance Me if I have Negative Equity
NOT TRUE - The sad thing is, most people are currently upside down or have negative equity on their current car. The main reason is the actual vehicle's value depreciates at a much faster rate than you're able to pay down the principle on the loan.
During the early years a vehicle can depreciate as much as 10%-25%. The cars value can drop as much as 80% or more of the original value and the loan has only depreciated approximately 10%-20%. Making this problem even worse, people tend to listen to car dealerships advertising and only put the bare minimum down or no down payment at all when buying a car.
Auto refinance companies understand this situation and this is why they provide refinance loans up to 120%-130% loan-to-value. The reason for these loans is they're relying on your liability to repay your loan payments on time and less on the loan-to-value ratio on your current car loan.
6) I Can't Refinance My Car Because I Have Bad Credit
FALSE - Bad things happen to good people. Lenders will consider individuals that have had bad credit in the past and have recently proven to make their payments on time.
Your approval chances will dramatically increase by having stable residence history, job history, verifiable income and you're currently in good standings with other credit accounts and financial obligations.
You have already been approved at a higher rate with your current car loan. If you've been paying on time and you're current with your other obligations, you're proving you will pay back your loan. Your credit may not be perfect but you should still attempt to refinance. The worst thing that could happen is you save a few thousand dollars.
You can see how your current car loan has helped your credit by reviewing your credit report and score from a reputable company such as FreeScore360. FreeScore360 offers credit monitoring products so you can keep an eye on your credit report and make sure there hasn't been any fraudulent activity dragging your score down.
7) It Costs too Much to Refinance My Vehicle
FALSE - Unlike mortgage refinance, most online auto refinance lenders such as myAutoLoan offer no-cost auto refinancing. They also provide you with the ability to submit your information online to receive free, no-obligation auto refinance quotes. After you've received your quote and you don't see a benefit, you're under no obligation to do anything further, just walk away.
If you decide to move forward. There may be a DMV charge of anywhere between $5 and $75 (depending on your state) to handle the tax, title and licensing to change over the lien. This fee is nominal compared to the savings you will incur by refinancing your car loan.
For more information about auto refinance loans, read our section on how to lower your car payments and save money on interest rate charges.
8) I Cannot Refinance Because I Have a Prior Bankruptcy
IT MIGHT - If you have a prior bankruptcy it's not the end of the world. Some banks and lenders will consider approving you for an auto refinance loan as long as you've been recently proving yourself with your financial responsibilities.
Multiple bankruptcies will pretty much seal your fate when applying for a loan, more than likely your application will be turned down instantly. Chapter 7 and Chapter 13 bankruptcies must be discharged before an auto finance lender will consider approving you.
9) Good Credit Guarantees I'll Be Approved
FALSE - Having a great credit score, good income, and low levels of debt are just a few components a lender looks for. However, the other component is the vehicle you want to refinance.
The vehicle has to meet the lender's requirements. This keeps the lender from loaning money on a vehicle that isn't worth anything if the debtor defaults. Some makes and models, older cars or cars with high mileage may be excluded from a lenders refinance requirements.
10) I Can't Refinance My Car Because I'm Self Employed
NOT TRUE - Back in the day lenders were providing self-employed people with car loans without any documentation of their income. A lot of these loans turned into repossessions after the consumers were unable to satisfy the loans. This caused banks and lenders to pay closer attention to self-employee applicants and treat them a little stricter when it came to approving them for a loan.
Recently applicants that have 1099 income and make a legitimate living are easily approved when applying for a refinance loan. Banks and lenders will generally ask for more information before approving a self-employed individual. This information may include proof of income and be the prior two years of federal tax returns and professional references to verify your income.
Learn how to increase your chances on being approved for a auto refinance loan and use our step-by-step guide on how to apply for an online auto refinance loan. It's easy, fast and best of all FREE.
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My Recommended Sites for Car Shoppers
MyAutoLoan and InstantCarLoan are the quickest way to apply for an auto refinance loan online. These trusted sites will provide you with free no-obligation quotes and the interest rates quoted are normally very competitive.
Share Your Tips - If you have any tips or advice about auto refinance myths that will help other car buyers save money. Please tell us about it in the comments below, so we can share it with everyone.