Costs to Refinance a Car Loan

Many consumers look to obtain an auto refinance loan to repay an existing car loan. The new loan will typically be offered with a lower interest rate, a longer term, or both. The concept of refinancing a car loan is extremely similar to home refinancing, although nowhere near as complicated. In fact, a customer should be able to refinance a loan on their car far quicker than on their home.

Unfortunately, it is fairly common for someone to leave a car dealership finding that they have a fantastic car, but not such a good loan. If the truth be told, car dealer’s finance departments are not known for offering the cheapest or most favorable car loans, and customers are often more excited about purchasing their new car, as opposed to the interest rate they are receiving on a loan.

There are two main reasons that consumers may wish to refinance their car loan. Firstly, if they are able to reduce the interest rate charges, without extending the term of the loan, this will save money over the life of the loan. Secondly, by simply lowering their monthly payments, a borrower will find that they have more money in their pocket at the end of each month. This can usually be achieved by extending the term of the loan, although this will also cost more over the entire life of the loan.

There may be fees or costs associated with refinancing a car loan and these include:

  • Refinancing fees – some, but not all, lenders will charge a refinancing fee. However, if a consumer is willing to shop around they should find a lender who doesn’t charge, or is willing to waive, this fee. A refinancing fee can either be a fixed percentage of the loan amount or a flat fee regardless of the size of the loan.
  • Application fee – some lenders choose to charge an application fee if a customer wishes to apply for a loan. Simply inquiring about a car refinance loan should not justify a lender charging a fee, as this really isn’t good business. However, once again, by shopping around a customer can discover which lenders charge this type of fee.
  • Early repayment fee – It must said that early repayment fees are far less common nowadays, but this doesn’t mean that certain lenders will not include it in the car loan terms. This would require a potential customer to check the terms of their original loan to see whether they would be charged a fee for paying off the loan earlier than stated in their original agreement.

This is actually how lenders ensure that they still make the money from interest charges that they would have made if the customer continued to pay the loan for the full term. The early repayment fee will typically be a percentage of the outstanding loan amount.

Car loans and refinancing loans have become extremely popular in recent years, and many lenders choose not to charge any of these fees to customers. Car dealers and auto loan lenders realize how competitive the market is, and therefore if a consumer takes the time to shop around they should find the perfect refinance deal that has no hidden costs or fees.

One of the main questions that people have who are looking to refinance their car is how much money this could possibly save them. Unfortunately, this is difficult to calculate and it will depend on many factors. The main concern is for consumers who have a bad credit rating and a high interest car loan, as they realize refinancing their loan to a better interest rate should save them hundreds, if not thousands, of dollars over the life of the loan.

The largest amount that can be refinanced on a car loan is typically $75,000, but the maximum will vary from lender to lender. The minimum amount for a car refinance loan tends to be $7500, as an auto lender will want to make it worth their time and expenses to pay off an old loan and issue a new one.

Many industry experts suggest that consumers should actually borrow a loan greater than their existing loan when refinancing. This will allow for a fair amount of flexibility, and can be used for repairs or even for purchasing an extended warranty. In reality, a customer would still want their car to be running by the time they make their last loan payment and this especially true if they choose to extend the term through an auto refinance.