{"id":1496,"date":"2022-12-30T19:52:00","date_gmt":"2022-12-30T19:52:00","guid":{"rendered":"https:\/\/www.freeway.com\/knowledge-center\/?p=1496"},"modified":"2025-04-29T23:36:00","modified_gmt":"2025-04-29T23:36:00","slug":"what-does-refinancing-your-car-mean","status":"publish","type":"post","link":"https:\/\/www.freeway.com\/knowledge-center\/auto\/auto-tips\/what-does-refinancing-your-car-mean\/","title":{"rendered":"What Does Refinancing Your Car Mean? Pros and Cons"},"content":{"rendered":"\n

It simply means replacing an existing loan with a new one.<\/p>\n\n\n\n

You\u2019ve probably heard of refinancing. It\u2019s commonly more known in relation to a home purchase or mortgage, but it\u2019s possible to refinance your automobile loan, as well. It\u2019s important to understand what taking this step means and how the repercussions could affect other areas of your financial life in the long run.<\/p>\n\n\n\n

For some, it\u2019s a good idea. For others, it might not be the best choice.<\/p>\n\n\n\n

Having the best car payment means being able to afford other necessities, such as your car insurance<\/a>.<\/p>\n\n\n\n

What is an Auto Loan?<\/h2>\n\n\n\n

Most people get financial help when they purchase a big ticket item, such as a home or a new car. For an auto, a repayment term (or length of your loan) is usually 36, 60, 72 or 84 months. The good news is you can shop around to find different terms that provide benefits for you.<\/p>\n\n\n\n

Traditional methods include financing through the dealership or direct lending through a financial institution, such as a bank or credit union. And it\u2019s now possible to cast your query to a pool of online lenders to get the best financial offers, in terms of interest rate and more.<\/p>\n\n\n\n

The Federal Reserve sets a standard interest rate that most private lenders follow, so your financial decisions could be served by keeping an eye on \u201cthe Fed\u201d and what they are doing. When they lower interest rates, it could be a great time to buy.<\/p>\n\n\n\n

Dealership Financing<\/h3>\n\n\n\n

As with most things, there are pros and cons to this type of situation. Even though a bank will most likely service it, the contract is with the dealer. Car shoppers can sometimes find stellar deals when auto manufacturers offer very low interest rates to spur sales. However, if this is not the case, you may not have the same freedom to determine your rate as you would when shopping around with a lender.<\/p>\n\n\n\n

Lending Institution<\/h3>\n\n\n\n

Those who walk into a dealership with a pre-approval typically have not only found a lender that will give them the rate they want, they have the ability to walk away from a dealership that isn\u2019t giving them the best deal. Dealers understand this, so you may get more favorable terms (plus upgrades thrown in) when you use direct lending for your current car loan.<\/p>\n\n\n\n

Whether you are getting a new loan or refinancing an old one, you\u2019ll still have to provide important things such as personal information, including proof of income, and go through a credit check. If you have poor credit, you may not be able to get a palatable interest rate from anyone. Your annual percentage rate (APR) may seem higher than your interest rate, because the APR includes fees associated with purchasing an auto, such as document, title and registration, destination and insurance<\/a>.<\/p>\n\n\n\n

When is the Best Time to Consider Refinancing Your Vehicle?<\/h2>\n\n\n\n

For the most part, people refinance<\/a> in order to get better deal on their terms. So, it\u2019s important to wait until your credit report has had time to rebound after you purchased your current vehicle \u2013 and hopefully, had time to increase by a few points.<\/p>\n\n\n\n

Refinancing has many pros, like lowering your monthly rates, shortening the time left on your loan to pay or the opportunity to pay less interest overall. If your credit report is healthy, your financial institution or company may offer you a lower interest rate that will help you pay off your debt faster.<\/p>\n\n\n

\n
\"Happy<\/figure><\/div>\n\n\n

Should I Consider Refinancing?<\/h2>\n\n\n\n

Refinancing your vehicle is a big decision and there are several factors to consider in order to determine if it\u2019s right for you. You may just want to get out of your original loan and that could be a good move, depending on the reasons. Interest rates could have dropped or your credit score could have improved significantly, which could give you better terms, help you pay off debt faster and save you money.<\/p>\n\n\n\n

You can take advantage of this free auto loan refinance calculator<\/a> to see how taking this action may affect your monthly payment, as well as the bottom line of your loan. Using financial calculators makes the most sense when trying to determine is this is the right time for a move.<\/p>\n\n\n\n

Let\u2019s take a look to determine if refinancing your car is in your favor:<\/p>\n\n\n\n