Does It Cost Money to Refinance a Car Loan?
Let's face it, cars cost a whole lot of money. The cost of financing a car alone can easily make it nearly impossible to afford. Throw in a bankruptcy or no credit history and you could be paying outrageous interest fees. However, what happens to your auto loan rates when you overcome the bankruptcy or finally build up some credit history? Refinancing could be the number one solution to the problem, but do you know how much it costs?
Is refinancing a car like refinancing a house?
When most people think of refinancing they think of refinancing a home mortgage. Refinancing a home mortgage is racked with fees. Home appraisals, title fees, and other closing costs can easily total thousands of dollars when it comes to securing a lower rate.
Fortunately, cars usually don't need appraisals for refinancing. Lenders usually do not require large fees and the only closing cost usually comes from changing the title.
Cost of Refinancing a Vehicle
- Lender Fee: Approximately $10
- Title Fee: Usually Under $75
Sounds pretty good right? Well, hopefully, if you are looking into refinancing your savings will be much greater than $85. One thing to double check though is the terms of your current loan. The last thing you will want to do is pay off a loan that has a stipulation requiring you to pay all remaining interest. In which case, there is no point in refinancing.
Verify there are no penalties for paying off your current loan before following through with refinancing.
Who should refinance their car loan?
Has your credit score improved since you purchased your vehicle? Do you have a willing cosigner which you did not have before? Really a better credit score or a good cosigner is what triggers getting a lower loan rate.
The best time to refinance is a year or two into a four or five year loan with an improved credit score in hand. Check a couple of different car loan sources to see where you can get the best rate. Keeping your loan in the same term or shorter will benefit you the most with the overall savings of your loan. Extending your loan term is good for lowering your payment, but you will not likely save on the overall cost of your loan. It depends on your financial goals. If you are trying to save money on the overall cost of your loan verse being able to lower your payment in order to keep your car, will be the deciding factor in what type of auto refinance you are looking to select.
Even a small improvement in your credit score can save you money. Check your credit score at a minimum of once a year. If your score has improved more than 50 points, it is worth the effort to check into refinancing. Maybe you can even hit the gold mine of savings and get a lower payment along with a shorter loan term. It is possible for credit scores to change rapidly. Knowing your score and taking the time to look into available rates could save you hundreds and sometimes even thousands of dollars. The cost of refinancing should not have much of an impact on your overall savings.