Automatic Refinance Calculator – Forbes Advisor
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If you took out a car loan to buy your car, you may be considering refinancing. Refinancing can help you get a better interest rate to save money or pay off your loan faster by reducing the repayment period. Use this automatic refinance calculator to determine if it’s time to refinance and how much you could save.
How to Use This Auto Refinance Calculator
You will first need to enter your current loan amount, interest rate and the number of months remaining on the loan. Next, you will need to enter the total amount you wish to refinance and for how many months. You can also estimate a refinance rate based on the rate you are likely to be approved for or select the default rate to get an idea.
The calculator results will give you a rough estimate of your new monthly payment and the interest you’ll pay if you refinance your existing car loan. Keep in mind that exact results are based on factors such as the type of vehicle you’re refinancing, the lender, and your personal financial profile.
What you need to use this calculator
To get started, you’ll need to gather the following information for the calculator to most accurately determine if refinancing your car loan is the best option.
Your current loan information
- Loan Amount: This is the total amount you borrowed from your first lender.
- Current Interest Rate: The interest rate on your existing loan.
- Current Loan Term: The terms, or repayment period, of your current car loan in total number of months.
- Outstanding Loan Balance: This is the amount you still owe on your existing car loan.
- Months Left on Current Loan: How much time is left until your car loan is due.
New loan information
- Refinanced Loan Amount: This is the amount you want to borrow to pay off your existing car loan.
- New loan term: If your goal is to pay off the new car loan faster, enter fewer months than you have left on your existing loan. It also means you pay less interest. If you want to lower your monthly car payments, you can extend the loan for several months, but you’ll pay more interest for the life of the loan.
- New Interest Rate: Depending on your credit history and whether it has improved since your first loan was approved, you may qualify for a lower interest rate.
What is an automatic refinance?
When you decide to refinance your auto loan, you apply for a new loan with different terms that replaces your original loan. So you’re essentially swapping your old loan for a new one with ideally lower monthly payments or a better rate. It can help you free up money on a monthly basis or put more money in your pocket in the long run.
How to refinance your car loan
Here are the basic steps to refinance your car loan:
1. Prepare documentation
You will need to submit information about your car and current financing, as well as personal information such as your legal name, address, social security number, and proof of car insurance. You may also need to provide recent pay stubs or W-2 forms to assure the lender that you can make the monthly payments.
2. Choose a refinance lender
You can choose to refinance with your current lender or shop around with different lenders to compare their fees, interest rates and special offers. You can often take advantage of the different offers you receive to get the best rate and terms from your preferred lender.
Related: Best Auto Loan Refinance Lenders
3. Submit an application
The auto loan refinance process typically takes less time than a mortgage refinance, such as less than two weeks from start to finish.
The lender will do their own appraisal of the car. If the value is too low, you may not qualify. The lender will also calculate the car’s loan-to-value (LTV) ratio, which generally must be less than 125% of the car’s value to qualify. They will also do a credit check, as well as your employment and income.
It’s also worth remembering that when you apply for a car loan refinance, it will show up on your credit report as a serious request. A serious inquiry will impact your credit score, so be sure to submit all inquiries within 14-45 days of each other. This way they will only count as one request.
4. Get Approved and Finalize the Loan
Once you are approved, carefully compare the different offers. A loan with a longer life will come with a higher interest rate and lower monthly payments. A loan with a shorter term will have the opposite: higher monthly payments and a lower interest rate. Look at your budget and decide how much you can comfortably afford each month.
After selecting the lender, you will need to finalize the car loan. Your new lender is responsible for repaying the loan balance from the old lender, but you must confirm that it is proceeding correctly.
5. Track your payments
Once the loan is finalized, it’s important not to fall behind on your existing car loan payments during the transfer process. Once the first lender is repaid by the new lender, the original lender must repay any additional payments you made during this time.
Once the loan is paid off, you can start making payments to your new lender. Consider setting up automatic payments so you don’t have to worry about remembering your new due date.
When should you refinance a car loan
Here are some scenarios where it would make sense to refinance:
- Your credit has improved. You may qualify for a better auto loan rate if your credit score has improved significantly since you first took out the loan. Or you can refinance using a co-signer with a strong credit history to improve your chances of getting a better rate.
- You want a lower monthly payment. Refinancing for a lower payment can be a good option if you’re struggling to meet debt repayments and need some extra room in your budget. Remember that if you choose a longer term to get this lower payment, you will pay more interest over the life of the loan.
- Interest rates are lower. Another reason to refinance is if you have a high interest rate on your current car loan and interest rates are now lower.
When You Shouldn’t Refinance a Car Loan
On the other hand, here are some situations where refinancing might not make sense:
- You owe too little or too much on your current vehicle. You should not refinance your car loan if you have a low outstanding balance on your existing car loan. It also doesn’t make sense to refinance if you owe more on your current vehicle than it’s worth, which means you have negative equity.
- You will have to pay a prepayment penalty. It’s also not a good idea if your current lender includes a prepayment penalty in your loan agreement that costs more than any potential savings.
- You apply for another large loan. It’s not a good idea to refinance your car loan if you’re also applying for another loan, such as a mortgage. Your credit score would be negatively affected, making it difficult to get the loan, or you might be stuck with a higher interest rate.
It’s important to remember that the longer you delay paying off your loan, the more interest you’ll have to pay over time. So use the automatic refinance calculator to see how much refinancing will save you before making your final decision.
Is it a good idea to refinance a car loan?
It’s only a good idea to refinance your car loan if the results show you’ll save money. This can either be by reducing the terms of the loan so that you pay off your car loan sooner and avoid paying long-term interest; or by lowering your current interest rate.
Some lenders will also offer discounts or promotions to entice you to refinance your car loan through them. This often happens when a bank tries to attract more customers, such as offering a lower interest rate if you set up automatic monthly payments by also opening a bank account. You can compare different lenders to see who might offer a better deal.
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