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Common Car Refinancing Mistakes and How to Avoid Them

Common Car Refinancing Mistakes and How to Avoid Them

If you’re having trouble making your current loan payments, refinancing — replacing your current car loan with a new one — can be a great way to save money and stay behind the wheel of your vehicle. But there are some common mistakes to avoid to ensure you don’t end up in yet another precarious financial situation.

Top 6 Car Refinancing Mistakes

Avoid these common pitfalls when refinancing your car loan.

1. Not checking refinancing requirements

Lenders have specific requirements when it comes to refinancing. Pay attention to criteria ranging from the age of the vehicle, mileage and even the amount you have left on the loan.

Bank rate tip: You can find specific refinancing requirements on lender websites or on Bankrate’s ratings.

2. Do not contact your current lender first

While your current lender may have the most competitive rates, it’s still the best place to start. So before exploring refinancing options outside of your current lender, it’s a good idea to get in touch and explain your situation to see if they can help.

Bank rate tip: Even if you still go ahead with refinancing your loan, they may be able to offer you a better deal than a new lender.

3. Extending your loan term too long

The purpose of refinancing is to save money, but extending your loan too much can leave you spending more money over the life of the loan. A longer term means a lower monthly payment, but you also pay more interest.

Bank rate tip: Before adjusting the term, use an automatic refinancing calculator to confirm that you are saving money.

4. Not taking your credit into account

As in most cases when it comes to financing, your credit is the most important approval factor. So work on improving your credit before refinancing your loan. This way you will receive the most favorable terms available and generally go home with a better loan.

Bank rate tip: Check your credit before loan applications using AnnualCreditReport.com.

5. Only one lender shop

Just as you would when shopping for your first car loan, it is advisable to compare at least three different lenders. So while it may be tempting to sign up for the first loan you come across, not all options are created equal.

Bank rate tip: Compare the current rates of different lenders. Pay close attention to the approval requirements, repayment options and how they relate to your current loan.

6. Getting upside down with your loan

Before refinancing, check where your vehicle’s equity is with a negative equity calculator. If you owe more than your car is worth, or have negative equity, refinancing probably isn’t a good idea.

Bank rate tip: Don’t refinance a car you can’t afford. Check where your budget might be too big and calculate the expected costs before taking out a new loan.

it comes down to

While refinancing your car loan can come with risks, it’s a great way to reduce your monthly costs and keep paying for your vehicle. Keep these common mistakes in mind and keep up to date with current refinancing rates to ensure you get the best loan for your needs.

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