Auto refinancing myths, debunked
Quick insights
- Auto loan refinancing involves applying for a new loan with the intention of getting better terms, like a lower interest rate.
- You can potentially save a significant amount in interest costs if you refinance your auto loan.
- Despite common myths, auto refinancing can benefit those with lower credit scores and can be worth applying for.
Auto refinancing involves replacing your current auto loan with a new one, typically to make it more affordable, such as with lower installments or interest rates. Thinking about refinancing your car loan but overwhelmed by what you’ve heard about the process? Let’s bust a few common myths that could be impacting your decision to refinance your auto loan.
Myth 1: Auto refinancing won’t save much money
Depending on the terms of your new loan, you may or may not see much in the way of immediate savings. However, improved terms such as a lower interest rate can save you a substantial amount of money over time.
Consider using an auto loan refinance calculator to see how much you could save if you were to refinance and receive better terms.
Myth 2: Refinancing fees make it too expensive
While some financial institutions may charge fees for refinancing, others, such as credit unions, can make it affordable with a simple application fee. If you compare the amount you could be saving on interest in the long run against an initial processing fee, you may find that refinancing is worth it.
Myth 3: Refinancing significantly hurts your credit score
As part of the application process for a new loan, lenders run a hard credit check. This may lower your credit score by a few points, but this typically has a small impact on your score and is temporary. Credit scores recover from a hard credit check usually within 12 months. As long as you continue to make your payments on time and practice other healthy credit habits, you can continue to keep or even improve your credit score over time.
Myth 4: Only people with high credit scores can refinance
Auto refinancing is not exclusive to those with higher credit scores. While having a high credit score may make the process of refinancing smoother (and come with more improved terms), auto refinancing can also benefit those with lower credit scores. Your first auto loan may have come with significantly high interest rates. By applying for refinancing, you might be able to lower those rates. Even a small reduction in interest can potentially lead to significant refinancing savings over time.
Conclusion
When you make a financial decision like refinancing an auto loan, it can be helpful to get the facts straight. Don’t be discouraged by the myths out there—with the right information, you can consider your options carefully before making a choice that best fits your financial goals.
