You didn't use to worry about your car payment. Now, it weighs on you like the world on Atlas' shoulders. And, since you are more than an hour to work (like 20-percent of all Canadians), it's not as if you can just sell the car. If this situation sounds familiar, it might be time for car loan refinancing.
Though the process seems daunting. Car Loans Canada is here to answer all your car refinancing questions.
Auto refinancing is the process of replacing your current loan with a new one. This second loan often, but not always, comes from a different lender. Refinancing is usually done in the hopes of lowering one's monthly payment or interest rate.
Whether or not you're successful depends on a myriad of factors, including your credit score and payment history.
First things first, you should never go to the dealer for refinancing. For those few dealers that offer it, it's less about saving you money and more about making another sale. This leaves you with three options:
A word of warning: don't go with the first quote you receive! Take your time and get pre-approvals from three or four different lenders before making your final decision. Even $5 a month can save you over 400 dollars on an 84-month loan.
The process of refinancing your car loan looks almost identical to the process of financing it. You provide your would-be lender with things like your proof of income, your address, and access to your credit history. Unlike the first time, however, you also need to supply information about your current payment amount and interest rate.
Typically, your new loan balance will be equal to your old one. Though some lenders will let you take out cash during the refinancing process, this is not a good idea. Adding onto your principal can leave you drowning in negative equity. So, unless it's an emergency, avoid increasing the principal on your loan.
But, that's just an average! If any of the below situations apply, your savings can be much higher:
Refinancing isn't a cure-all. It's not right for everybody and can sometimes harm you. Below are three reasons you might want to reconsider applying for a new loan:
How Much Will Refinancing My Car Cost Me?
Refinancing your auto loan usually costs you nothing but time. In most cases, it actually saves you money. Unlike other types of financing, car loans rarely come with prepayment penalties. To secure an even lower interest rate, opt for paperless billing and automatic payment options.
How Long Should I Wait Before Refinancing My Car?
Generally, you need to wait six to twelve months after getting a car loan to refinance it. This gives you time to reap the benefits of making regular monthly payments. In that time, it's likely that your credit score will increase, leading to lower interest rates and smaller monthly payments. If your credit has fallen since you've gotten your vehicle, it might be time to review your finances. Even one missed payment can cripple your reputation with lenders.
Should I Extend My Loan Term When I Refinance My Car?
It's rarely a good idea to extend the length of your loan. While this will lower your monthly payment, it will cost you more in interest. So, unless it's an emergency, avoid doing so. And, unless someone's holding a gun to your head, don't be one of the x percent of Canadians stuck with an 84-month loan.
Now you should understand how refinancing your car works in Canada. If things don't work out the first time you try, there's nothing stopping you from waiting a little while and trying again.
And, whether it's your first time refinancing your car or your fifteenth, Car Loans Canada is here for you.
Click here to kickstart the refinancing process.