Can I Lower My Interest Rate Without Refinancing My Car Loan?
If you want to change the terms of your car loan, you are going to have to refinance. However, if you can’t refinance, there are ways to lower your interest charges on an existing car loan.
Lower the interest rate on your car loan
If you want to lower the interest rate on your car loan, refinancing will likely be your only option once you already have a loan. If you were initially entitled to a higher interest rate than you wanted, waiting until you can refinance is usually what you need to do to lower your interest rate.
Refinancing replaces your current loan with a new one, usually with different and nicer terms. In other words, the remaining balance of your auto loan is reworked into a new contract.
When borrowers refinance, they usually do so to reduce their monthly payment or interest rate. If you originally took out a bad credit car loan and want to lower your interest rate to save money in the long run, you may be able to qualify for refinancing – if your credit score is higher. has improved since the start of your loan, ie.
What is refinancing?
With refinancing, you usually have two options. You can either lower your interest rate or extend your loan. A lower interest rate saves you money over the life of your auto loan and lowers your monthly payment. Extending your car loan reduces your monthly payment, but it costs you more in the long term.
Sometimes you can do both, but you have to calculate a few numbers to see if you are saving money overall or not.
To qualify for refinancing, you must meet certain conditions. Lenders vary, but they typically require their borrowers to meet these general requirements before they can refinance:
- The vehicle must be less than 100,000 miles.
- The car must be less than 10 years old.
- The auto loan must be at least one year old.
- Your credit rating is good or has improved since the start of the loan.
- You owe less than the value of the vehicle (equity).
- You don’t owe too little or too much (varies by lender).
If you think you and your car meet these conditions, talk to your current lender or a new lender about the possibility of lowering your interest rate. However, if things for refinancing don’t seem to match your current situation, there are still ways to lower your interest costs without refinancing.
Reduce interest charges on your car loan
However, you don’t need to refinance to save money on interest charges. Auto loans are generally low interest loans, which means you are charged daily interest on what you owe. This means that after each payment there is less interest to pay. The faster you pay off the vehicle, the less interest you pay.
Making lump sum payments lowers your loan balance and lowers the amount you owe interest on. What’s more, you can also pay a little extra each month when you can. Or, you can make additional car payments whenever you can. Anything you can do to reduce your car loan balance faster is helpful.
If you’re about to take out auto credit and don’t have the best credit, you can be proactive. One way to reduce the amount of interest you will be charged is to prepare a large deposit and go for the shortest loan term you can afford. Bad credit and long loan terms can result in a lot of interest charges – and often long loan terms mean paying far more than the value of the vehicle!
Ready for your next vehicle?
If you are preparing to apply for a car loan, try to improve your credit rating as much as possible. Your credit is an important factor in the interest rate for which you will be eligible. Moreover, a large down payment can also get you a lower interest rate because the loan amount will be smaller with a large down payment.
Another way for borrowers with bad credit to improve their chances of getting a lower interest rate is to have a co-signer. Co-signers lend you their good credit to help you qualify for a car loan, and possibly a lower interest rate than if you had to apply on your own.
If you don’t think refinancing your current car loan is your next step, then perhaps swapping your vehicle for something more affordable could be for you. Even if your car doesn’t quite qualify for refinancing, if your credit rating is good or better than it was when you took out the auto loan, you may be able to get another car loan with it. better rates now.
With bad credit, it can be difficult to find a lender who can work with you. We want to help with this! Here has Auto Express Credit, we have created a nationwide dealer network providing loan options to borrowers in unique credit situations. To be matched with a dealer in your area, complete our auto loan application form.