How to Compare Auto Refinance Rates Like a Pro

We’ve got some good news for you. When you purchase a vehicle, whether it be new or used, and you take out a loan? You’re not necessarily stuck with that high interest rate forever. Many borrowers choose to refinance their auto loan in as little as 30 to 90 days, while others might wait a year or so to get the best possible refinance rate.

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But here’s the thing. When it comes time to refinance your vehicle, avoid the temptation to jump on the first offer that comes your way. The better strategy is to take some time to do your due diligence and compare auto refinance rates. And in this article, we’ll tell you how to do just that.

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Step 1: Know Your Credit Score Before Shopping

Before we get too deep into how to compare auto refinance rates, let’s talk about your credit score. Did you know that over 25% of Americans don’t check their credit reports at least once per year? And who knows how many people don’t even know what their credit score is. We’re here to tell you that staying on top of your credit score, and your credit report, is a super important part of maintaining your financial health. 

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Why does it matter? Great question. Your credit score is a leading factor when it comes to a lender deciding what interest rate to offer you. The better your credit score, the lower your interest rate will likely be. And if you’re credit score isn’t quite up to snuff, taking some time to give it a little boost before applying for your next loan can make it well worth the wait.

Step 2: Understand the Key Factors That Affect Auto Refinance Rates

Aside from your credit score, borrowers should understand what goes into auto refinance rates. Yes, your credit score is a biggie, but it isn’t the only influencer. Lenders look at several factors. Check out the following for what can influence your auto refinance rate.

• Length of the loan: The shorter the loan, the lower your interest rate will probably be. But, this will also mean higher monthly payments so there is a bit of an opportunity cost here.
• Remaining loan balance: Your auto refinance lender will consider how much you still owe on your existing vehicle. If you don’t owe very much, some lenders won’t consider offering you a refinance loan.
• Vehicle age and mileage: Lenders are more likely to favor newer vehicles with lower mileage. Why? These cars tend to be in better condition and will likely be driven for a longer period of time.
• Debt-to-income (DTI) ratio: Lenders aren’t in the business simply to make a quick buck. Most are big advocates of responsible lending. As such, they want to make sure you are not biting off more than you can chew. Aim for a DTI of 36% or less.
• Income stability: It is possible to get a loan when you are unemployed. But in most cases, your lender will want proof of income stability. 

Step 3: Compare Rates from Multiple Lenders

We can’t stress this point enough. Avoid the temptation to jump at the first offer you see. Yes, it might be a great offer, but that doesn’t mean it is always the best offer. As a rule of thumb, we recommend that potential borrowers collect three to five quotes. And, be sure to diversify where you get those quotes from. Consider banks, credit unions, and online lenders as well. Each lender will likely have something advantageous to consider when making your decision.

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Here are a few things to look at when making your lender comparison. 

• Annual Percentage Rate (APR)
• Loan term (length of the loan)
• Monthly payment amount
• Total interest paid over the life of the loan
• Fees or prepayment penalties
• Customer service options (make sure there are multiple options such as phone, email, text, chat, etc.)
• Lender reviews

Step 4: Look Beyond the Interest Rate

Though a low interest rate might entice you to seal the deal, we encourage you to look more broadly before applying or signing on the dotted line. There are other factors that you might want to consider. And all of these can impact the total cost of your loan over time.

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Here are the factors to consider.

• Length of the loan term
• Refinancing fees such as application fees, title transfer fees, and other lender charges
• Prepayment penalties (this is a fee that is applied if you pay off your loan early)
• Lender reputation
• Payment flexibility

Once you have this information, factor that into the total loan cost. Start by multiplying your monthly payment by the number of months in your loan. That gives you the total amount you’ll pay over time. Then, subtract your original loan amount. The amount left is how much you’ll pay in interest.

Step 5: Use Rate Comparison Tools Wisely

If math isn’t your strong suit or you want to double-check that you are calculating everything right, there are various rate comparison tools that you can use. Consider calculators from Bankrate, PNC Bank, and our own tool we offer on the RateWorks website. 

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Also, be cautious about how many loans you apply for at one time. Some sites might allow you to apply for multiple loans as part of one application, but typically, every application that you submit will appear as a hard inquiry on your credit report. Multiple hard inquiries in a short period of time can cause a dip in your credit score.

Step 6: Consider Timing and Market Trends

Interest rates can fluctuate over time. They shift based on the economy, seasonal patterns, and decisions made by the Federal Reserve (The Fed). When the Fed raises the benchmark rate, it becomes more expensive for banks to lend money, and lenders often pass that cost along to you through higher interest rates.

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That’s why timing is such a big deal. If rates are going up, you may want to refinance sooner rather than later. You might also find better offers during certain times of the year, like around holidays or the start of a new quarter.

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Refinancing sooner can make sense if:

• Your credit score has improved
• You’re paying more than the current average rates
• Most of your payment is still going toward interest

Step 7: Negotiate and Ask Questions

Lastly, you may wonder if you can negotiate your auto refinance rate. And the answer is yes, kind of. While lenders don’t always have a lot of wiggle room, if you have done your homework, you may have more leverage than you think.

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That said, make sure your credit score is in good shape, you have a steady income, and you have quotes on hand from other lenders. This information can best position you for a better rate. And, we’d be remiss if we didn’t also suggest the importance of being polite, confident, and clear as to your expectations.

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Here is what you can do.

• Share your competing offers with your preferred lender
• Ask about any promotions or discounts they might be offering (they might not share this information with you outright)
• Choose a shorter-term loan, which will help you get a lower rate right off the bat 

Use Our Tips to Compare Auto Refinance Rates Like a Pro

We all want the best possible interest rate on any loan we consider, and auto refinance loans are no exception. By following the tips in our article, you’ll position yourself for success. So, don’t be surprised to get a better rate, possibly lower than the average car interest rate, than you might have had you not followed these suggestions.

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Are you looking to refinance your auto loan? Get a free quote from RateWorks today.