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Page Sections -
Real world auto refinancing
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Tips to ensure a speedy auto refinance loan approval
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The car dealer credit score scam
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How to increase your chances on getting approval
on a car loan | Driving Records
Fact:
You don't need an appraisal to refinance your car loan
Many people erroneously think an appraisal is required for to
refinance their auto loan. Unlike your home, which does require an
appraisal because it is based on your equity in the home, auto
refinancing is based on how much you need to pay off your current
car loan, not on the value of the car..
What is auto refinancing? How do I
benefit by auto loan refinancing?
Auto refinancing is one of the best kept secrets around for saving
you money, but most people never thought of refinancing their cars
before. Car refinance is the same as home refinance. When
refinancing car loans, you pay off your current car loan with a
refinancing car loan from a different lender that has a lower APR.
This is good for you because refinancing auto loans makes your
monthly car loan payments much less, and your interest rate drops,
which can allow you to pay off the balance of your car loan even
quicker. Record numbers of homeowners refinanced in 2001 and 2002,
and now many car owners are realizing you can save thousands by
refinancing auto loans too. Car refinancing has become a very
popular trend with dropping interest rates. It's like finding a wad
of cash you didn't know you had in your clothes after doing the
laundry. Use the money you save to pay off credit card debt, or
accelerate your car loan payoff. You don't want to be paying off
your Camry for the next 5 years do you?
It's
the absolute most important priority that people with bad credit who
are paying a high APR need to refinance car loans to a lower APR.
It's true, most bad
credit borrowers can indeed refinance to a lower APR, but many don't
think to try because they were "programmed" or duped by the dealer
into thinking they are stuck at 21-25% APR.
Real world auto
refinancing example
Suppose you borrowed $16,500 for 60 months on your new Honda
Accord. Let's assume your credit was bad, or you had no previous
credit, or the dealer lied about your credit and charged you more
APR than you should have paid. This happens quite a bit. Greed is
good. Suppose the dealer "got you approved when no one else would"
at 21% APR for a 60 month car loan. Sound familiar? So you start
paying off your car loan for a few months, then refinance your car
loan with another lender at 6% APR:
|
Interest
Rate (APR) |
Monthly
Payment |
Total Interest
On Car Loan |
|
21% |
$446.38 |
$10,282.83 |
|
6% |
$318.99 |
$2,639.47 |
Your current
payment at 21% APR would be: around $446
Your new car loan payment at 6% APR is: around $319
You save $7,643.
Send in an extra $50
monthly principle more than the $319, and your loan will pay off
even quicker. See how powerful auto refinancing can be for you?
Most people have no concept of the time value of money, and just how
bad high interest car loans are for your bank account, and what a
difference 1% makes. That $7,643 is better off in your bank
account, not theirs. Of course your actual APR would depend on your
credit rating. Not everyone gets the 6% or lower APR, but I'm sure
it's got to be lower than what you're paying now.
It's very important to
refinance your auto loan early, because with car loans, the interest
is mostly paid in the earlier payments. The earlier your car loan
is refinanced, the more money you save. Our examples here are based
on savings only if you refinance during the first couple of months
of a car loan. If you wait until the 4th year to refinance your car
loan, your savings will be a lot less.
Who should
refinance their auto loans? What APR % should you look to refinance
a car at?
Anyone who did not get a 0% to 3% APR car loan from the carmakers
should consider a car loan refinance. Even if you got a decent APR
auto loan, you should consider car refinancing. I like to use the
1% rule. After you buy your car, start watching the auto
refinancing interest rates at sites
like
Capital One Auto Finance and
E-LOAN
and look for refinancing auto loan rates at least 1% less than your
current car loan interest rate. Use the calculators on these car
refinance lender sites to see how much it saves you to refinance
your car. You'll be astounded at how much money you just found, and
you'll stop the hemorrhaging in your bank account.
Tips to ensure a speedy auto refinance loan approval
Pay special attention to these important points, because you
would hate to get rejected for making a stupid clerical error.
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Auto
refinance loan applications need to be in the same names (with
exact spelling) as the names on your current auto loan. This is
important because that is how your current auto loan is identified
and found. Have your car loan account number ready. If you give
them a name with a different spelling, they cannot find your
current loan, and you get rejected. Sounds like a no brainer,
but...
-
You must refinance
more than $7500. Any less and it's not worth the auto refinance
company's time.
-
It's
also important to have all the vehicle information accurate so
that
Capital One Auto Finance or
E-LOAN
can price out the car to make sure it meets Loan to Value
guidelines. Enter the year and model and enter the 17 digit VIN
(Vehicle Identification Number), found on your dashboard or
registration.
-
Your auto refinance
loan amount should not be higher than the value of the car. Just
like home refinancing, where the bank won't lend you more than the
value of the house. You might want to check your values first to
make sure your car has retained a reasonable amount of value
relative to the amount you still owe on it.
What about loan
fees and early payoff penalties?
The "gentle" lenders that we recommend here like
Capital One Auto Finance and
E-LOAN
do not have any fees. No
loan application fees, no points, no origination fees, and no early
termination penalties. It's even in writing on their web sites. The
only cost you might see is the small fee from your state to change
the name of the lien holder on your car's title to the new lender.
Other than that, there's no scams, the only thing you pay is the
loan balance and interest. It's very seamless, completed in a few
days, like you never even left your loan. The only difference is
now your monthly car loan payments will drop, and the checks become
payable to the new lender instead. You should be cautious about
other auto loan refinance lenders not reviewed here who might have
hidden fees or charge to process your loan.
Can I refinance my
car through the same lender that I used for my car loan?
No you can't. If your car loan is with GreedyBank USA, they will
never refinance your car loan to a lower rate APR. Why would they?
They already have you trapped. When you are auto refinancing, you
must always do it through a different lender than your current car
loan.
If your original car loan was
through
Capital One Auto Finance, for example, you cannot refinance
through them, you have to use
E-LOAN.
Likewise,
If
your original car loan was through
E-LOAN,
you cannot refinance through them, you have to use
Capital One Auto Finance.
I have bad credit
and I am paying 21% APR now. Who in the world would approve me for
auto refinancing?
Good question. Even though you have bad credit, someone took
a chance on you, even though you're paying 21% for that honor. Once
you have paid on time for 3 to 6 months, you can start shopping
around for auto loan refinancing. The beauty here is you are not
taking on more debt, you are swapping one car loan for another car
loan with less APR. The banks should not have a problem with that.
Submit one free application to a bad credit auto loan site
like
AutoCreditFinders,
that finds bad credit car loans
for people with bad credit. Send in extra principle payments to buy
down the APR and pay off your car loan faster. They can find you car
financing from
high risk underwriters. Even if you have a discharged
bankruptcy, tax liens, or bad credit, as long as your credit score
is 525 or above, your chances are good. You should be working at
least 6 months, and no bad credit the last 6 months. Many banks,
once they see you have paid on time for a few months, will then take
a chance on you. You might not pay as low APR as someone like me
with perfect credit, but you'll almost certainly pay as much as 10%
less APR than your current 21% APR car loan rate. Remember, car
dealers tend to jam all questionable credit people into 21% APR,
while gentle lenders sort you out better into "good", "fair", and
"poor", buckets, charging you lower APR than car dealers. This way
is much better for you, because you will then be charged a lower APR
that more accurately reflects your credit rating. You can also try
Capital One Auto Finance and
E-LOAN,
but your credit must be "fair" or better. Remember, even if you end
up saving only 1% APR, it's still a lot of money over the life of
the loan, and it still lowers your monthly payment. With gentle
lenders like
Capital One Auto Finance and
E-LOAN,
you might expect to pay in the 7% range if your credit is average,
8% if it's fair, and 9% on up if it's poor. If you can save 10% off
a 21% APR, 60 month loan of $16,500, your payments will drop nearly
$100 per month, and you'll save over $5200! That's why it's the
absolute most important priority that people with bad credit who are
paying a high APR need to refinance car loans to a lower APR.
People with bad credit don't realize that they can never get out of
their credit crunches because they are stuck in the 21% APR range on
all their loans and credit cards. By paying only the minimum
payments, they will NEVER pay off their debt, because they have no
concept of the time value of money, and don't realize the high APR
is what is preventing them from paying off the principle. Most of
them are brainless, with no common sense, and go buy new expensive
cars at high APR when they have no business doing so, and should be
buying a cheap used car if anything at all. Auto loan refinancing is
your only salvation if you fall into this paredo bucket.
The car dealer credit score scam
This scam happens all the time and explains why thousands of car
buyers are paying way too much APR than they should be, and don't
even know it. All because they did not know their own credit score
before going to the car dealer. One guy emailed me to say his score
was 780 (Excellent rating) from 3 credit bureaus. He negotiated the
deal at the car dealer, filled out the paperwork including a credit
application. Four finance people came out of the finance office with
"concerned looks" on their faces. They had a piece of paper that
said "credit score" on it with the number 580 circled in red. That's
all that was written on it. They stated they could get him financed
at 10.9% but not at the special 0% interest rate. When asked how
they calculated that score and where they received it from they just
mumbled and said he can only get financed at 10.9%. He pulled out
his credit reports and asked them why they were different from
theirs. Three out of the four scattered immediately, the last guy
lied and stated that credit agencies like to give better credit
scores to consumers than to business that actually lend money. Our
friend just started laughing and got up and left, and bought the car
elsewhere with the low 0% advertised APR. But you can see that
quite often car buyers are suckered into paying a much higher APR by
dealers because they did not know any better. Don't let this happen
to you!
What A Low Credit
Score Means To You
Your credit score is the most important factor determining if you'll
get approved for a car loan, and what your APR will be. If your
score is low, you'll pay extremely high interest rates on a car
loan, up to 23%. If your score is below 750, you can forget about
getting that elusive 0% car financing we hear about once in a while.
Are you aware your credit score affects how much you'll pay for
car insurance rates? Maintaining your credit score
should be an ongoing process, not a task you rush into when buying a
new car. In fact, that's the worst time. The reason is banks will
reject you if you have disputed items on your credit report, until
it resolves. It can take 60 days to clean up your credit score, so
don't apply for any credit until all disputes are resolved and you
verified your FICO Score. You have been warned! I have seen people
get rejected for applying while closing accounts. Right now, you
should be asking yourself "How good is my credit score?"
A high credit score
does not guarantee your car loan approval
Lenders verify if you have had an auto loan before. If not, even
with a high credit score, you may end up paying a higher APR, or you
can get rejected. You can have a high score and if your current
debt load is high, they might reject you.
How to increase
your chances on getting approval on a car loan
-
If you're a recent
college grad, don't apply until you're at your new job at least 6
months.
-
Don't apply if you
have moved in the last 6 months. Lenders hate nomads and most
verify address and income.
-
A previous car loan
or home mortgage on your record helps.
-
Pay off your credit
card balances as low as possible.
-
Have a reasonably
stable occupation like engineer, architect, finance, etc. No self
employment.
-
Other examples of
credit extended to you should appear on your credit report.
-
Don't apply for a
car loan for at least 3 years after a bankruptcy.
-
Don't keep a high
debt load or credit card balances.
-
No charge off's on
your credit report.
Credit card companies
say it takes 60 days for a change (such as paying off your credit
cards) to show up on your credit report/score, but who wants to wait
2 months before buying a car? One
of our visitors filed
a request for investigation of her
report stating that the balances on these cards were
incorrect, and the investigator looks up
your correct balances and changes it. She
checked 2 weeks later and it was changed. Also,
by paying off 2 credit cards from 70% max credit level down to 0%,
increased her credit score 100 points. That's the difference
between paying 6% APR for a car loan, and 21%.
These are the
steps to take before you apply for a car loan:
-
Get
your  Credit
Score so dealers can't lie to you about your score.
-
Close old accounts,
they are excess luggage dragging down your credit score.
-
Remove erroneous
previous addresses and other errors off your credit report.
-
Try to get any
"Charge Offs" removed by negotiating with your creditors.
-
Wait until your
score goes up to 680 if you're applying for a prime car loan.
Driving Records
Driving Records are
state driver's license reports containing details about a
driver's history including accidents and violations. Each state
maintains records of their registered drivers' activities
occurring only in that state.
Driving records can be
obtained by insurance companies to determine your rates as well
as by companies during their employment screening procedures
when hiring. Some employers may even require that you submit
your driving
record along with your employment application. A single
typo on your
driving record can cost you hundreds of dollars in insurance
rates. It can even cost you a job.
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