This article talks about the 10 biggest misconceptions for auto refinancing. Car loan refinance is a great way to save money and is relatively easy to do. There aren’t any fees to refinance and consumers with less than perfect credit can get a refinance. Learn more about auto refinance today!
#1: I cannot refinance because I am upside down on my loan.
Being upside on your car loan is not something to fret over. Most auto refinance loans have a loan-to-value (LTV) that is above 100%+. Lenders recognize that automobiles depreciate more quickly than the loan amount. Moreover, the lender is more interested in your ability to make payments when compared to LTV.
#2: I have bad credit therefore I am ineligible to refinance my loan.
Consumers with FICO scores below 650 usually have trouble getting access to credit. However, many auto lenders consider “non-prime” consumers who have made steady payments on their current auto loan excellent candidates for refinance. Furthermore, if you have a stable job with verifiable monthly income that is above $3,000, then your chances of being approved are good.
#3: Shopping around for a loan does not make sense.
Price shopping for a good interest rate is similar to any other type of price shopping. Getting a better rate is the objective. Applying to several lenders is advantageous because the rate that one bank offers can be dramatically different than the rate offered by different bank. The rate disparity can be as high as 7%. The bottom line is that it pays to shop around for the best rate.
#4: It costs too much to refinance my vehicle.
There are very few out of pocket expenses for auto refinance. Most lenders have a free online application and do not charge document handling fees. Upon changing the lien, consumers will need to pay tax, titling, and license fees with the DMV. Those fees range between $5 and $65, depending on the state.
#5: I am self employed and will not be approved.
While lenders are inspecting self-employed applicants with greater scrutiny, you can still get a loan. Banks will require copies of prior two years federal tax returns and ask for references to verify your income.
#6: Having a good credit score always means that I will get approved.
There are 2 components that the auto refinance lender will evaluate on your application: credit and vehicle. It is advantageous to have a good credit score, low levels of debt, and enough income to meet the lender’s requirements. Just as important, consumers need to have a car that meets the lender’s requirements. High mileage, older cars, and some makes and models will be excluded from refinance.
#7: I will probably get the “low as” rate offered by the bank.
The reality is that very few people qualify for the lowest rate advertised by the bank. Only the super-prime consumers with FICO scores higher than 720 will be considered for the low as rate. While you may not receive the “teaser” rate, you may still qualify for an attractive refinance rate.
#8: I need to get my car appraised.
Unlike mortgage refinance, auto refinance does not require hiring and paying for an appraiser to come on site to do an appraisal. The lender will use Kelly blue book, NADA or similar agency to value your car.
#9: I had a bankruptcy and cannot get a loan.
Lenders will consider applicants with a bankruptcy. Chapter 7 or Chapter 13 bankruptcies must be discharged. Typically having multiple bankruptcies will result in a declined application.
#10: Now is not a good time to refinance
Refinance rates are at historical lows. The reason is because Federal Reserve has cut the Federal Funds Rate to 0.25%, which means that the bank’s cost of money is cheap. Thus lenders can offer rates around 4% to prime customers. Lock in your rate before interest rates rise.