Refinancing is a fast and easy process that allows you to save money and lower your monthly payments. However, people often hold back from auto refinancing as they tend to believe in certain myths (thanks to misinformation). Here are five myths that we would like to debunk so that you can make a well-informed decision.
Myth #1: It’s Impossible to Refinance Your Car With a Low Credit Score
While it's true to some extent that your credit score is the first thing most lenders check when considering your application, it's not the only thing. Many lenders also take other factors into account. Therefore, you stand a chance of getting auto loan approval even with a bad credit score, given that you can meet other requirements.
Myth #2: Only High Credit Scores Can Get Your Application Approved
As debunked earlier, credit scores are not the only determinants of you getting approval to refinance your car. If you have a strong score, that's great, but many car refinancing companies have additional requirements, regardless of your credit score. For instance, some don’t refinance a vehicle if it’s more than a few years old.
Myth #3: You Won’t Be Able to Save Enough Money by Refinancing
Even though every situation varies, refinancing can still save you a lot of money. It’s even better if the interest rates have recently dropped.
Therefore, even if you're only saving $25 every month, four years down the line, it will be $1200. Regardless of all the factors, always keep a check on your monthly payments by using a refinancing calculator. There might be times where you incur fees that may complicate your calculations.
Myth #4: You Can Never Refinance With an Underwater Auto Loan
You can refinance even with an underwater auto loan. The moment you drive a vehicle for the first time, it loses 10% of its value. Moreover, high mileage plus accidents can also reduce it further.
So, if a car’s worth is less than the loan you’re paying off on it, it is considered an underwater loan. You can become upside down on a loan if you pay more interest on a lengthy loan.
In the end, auto refinancing makes sense if you’re looking to save money or have a lower interest rate. However, you must evaluate your circumstances and do your research before refinancing with a new lender. Make sure to shop around and check the rates everywhere before setting foot into a deal.