Many people refinance auto loans for various reasons. Refinancing can help you get a lower interest rate, reduce your monthly payments, or adjust your loan term. But, no matter the reason for refinancing, you may be asking yourself, can I refinance my car with the same lender?
For many lenders, the answer is yes. But there’s more to refinancing than simply refinancing a car loan with the same lender, even if you’ve had a strong, long-lasting relationship. Many things go into deciding whether to refinance your auto loan with your current lender. For one, not all lenders offer refinancing. Even if your lender does, it’s always good to double-check if you’re getting a better deal.
Different lenders offer different interest rates, loan terms, and fees, so it’s wise to shop around and compare before you enter into an agreement with your existing lender. Shopping around for a new lender is recommended because you may end up with a good deal that can save you money over time.
Find out when it makes sense to refinance with the same lender and when to shop around for a new lender.
When Does It Make Sense to Refinance?
Refinancing isn’t meant for everyone. While it may be the best option to refinance for another person, it may not be ideal for you. Knowing when to refinance will give you a better idea of when the time is right. Here are a few situations where you may want to consider refinancing your car loan.
Lower Interest Rates Available
If you have a chance to get a lower interest rate, refinancing might be advantageous. A lower interest rate could mean lower monthly payments, which could eventually save you money that you can use for other financial obligations.
Lenders look at several factors to determine an auto loan’s annual percentage rate (APR). One of the most apparent aspects is your credit score. If your credit score has improved since you took your first loan, you may qualify for lower rates when you refinance.
But if your credit isn’t good, refinancing with a co-signer could help you get the best interest rates.
Better Personal Finance Situation
Maybe you took a car loan when your financial situation was terrible and got unfavorable terms from your lender. If you’ve improved your credit score and lowered your debt-to-income (DTI) ratio, refinancing may help you qualify for better interest rates and terms.
Looking for a Better Car Loan Offer
You may have received an offer that’s not suitable during your first loan application, especially if you got your original loan from a car dealership. Car dealerships often charge high interest rates compared to online lenders, banks, and credit unions.
Refinancing may help you get a better car loan offer in such a circumstance. This can include lower interest rates, fewer fees, and even lower monthly payments.
Want to Lower Your Monthly Payments
Perhaps you’re in a situation where keeping up with your monthly payments and bills has become a challenge. In that case, you may want to consider refinancing your car loan to get lower monthly payments. This will help free up some cash that you can use to cover personal expenses.
Even if your credit score or DTI ratio doesn’t qualify you for a lower rate, you can adjust your loan term to reduce how much you owe each month. However, extending your loan repayment term comes with trade-offs 一 you may end up paying more overall than you would if you took a shorter-term loan.
Your Car Is Aging or Has High Mileage
Another reason to refinance your auto loan is if your car is aging or has high mileage but has not yet reached any relevant limits. What do we mean by that? Most lenders do not refinance car loans on vehicles that have reached a certain age and mileage. While these restrictions may vary from one lender to another, lenders generally do not refinance vehicles older than ten years (sometimes seven years) with more than 100,000 miles on them.
If your car is approaching the mentioned age and mileage, it might be a good time to refinance.
Pros of Refinancing with the Same Lender
- Familiarity and Convenience: Working with your current lender can be simpler since they already have your loan details and payment history. This might mean a simpler paperwork process and possibly faster approval for your new loan.
- Potential for Better Terms: If you’ve proven to be a reliable borrower, your lender might offer you a lower interest rate or better terms on your refinanced loan. This could save you money over the loan term.
- Loyalty Perks: Some lenders offer benefits for loyal customers, which could include discounted fees or more flexible loan terms.
Cons of Refinancing with the Same Lender
- Limited Options: Your current lender’s refinancing options may not be the most competitive on the market. Shopping around with multiple lenders could reveal opportunities for a lower monthly payment with another lender.
- Credit Score Impact: While this applies to refinancing in general, your lender will likely run a hard credit inquiry to make a new loan offer, which can temporarily lower your credit score.
- Potential for Higher Costs: Without comparing offers from other lenders, you might miss out on a chance to further reduce your total borrowing costs. Some lenders may offer a significantly lower interest rate, which could result in substantial savings.
Should You Use the Same Lender to Refinance Your Car Loan?
In most cases, you probably can. But that doesn’t mean it’s the right decision for you. The only upside of using the same lender to refinance your car loan is that you’ll have less paperwork since you are already their customer.
While it may seem easier to stick to your current lender, it’s prudent to shop around as you may find a better deal elsewhere. Finding the most favorable loan terms 一 better interest rates, and suitable loan terms 一 should be your priority. In addition, most lenders have a streamlined application process, so switching to a new lender shouldn’t be an issue.
However, it’s crucial to review your loan terms with your current lender because paying off your existing auto loan early may result in a prepayment penalty. And if it does, compare the penalty to the amount you’ll save on better terms when you refinance.
The bottom line is that it might be worth it to shop around for a new lender.
Steps to Refinance Your Car with the Same Lender
If you decide refinancing with your same lender makes financial sense, here’s how to move forward:
Step 1: Evaluate Your Financial Situation
Begin by assessing your current financial situation. Take a look at your credit report and score to know where you stand. The most competitive auto loan rates are generally reserved for borrowers with good or excellent credit scores, so it’s worth improving yours if needed to ensure you get the best deal on a new auto loan.
Step 2: Understand Your Current Car Loan
If you haven’t yet done so, familiarize yourself with the basics of your current auto loan. Take note of your current monthly payment, the interest rate and the remaining loan balance. You’ll need this information to compare your current loan to a new loan offered by your lender.
Step 3: Reach Out to Your Current Lender
Contact your lender to start the refinancing process. In most instances, it can be done online, but it’s worth asking if refinancing in-house is an option. It’s equally important to find out if any mileage restrictions or payment history guidelines apply.
Step 4: Evaluate the New Loan Terms
If you qualify, review the refinance offer in its entirety. Ensure the terms align with your financial goals and check if there are additional fees that could affect your potential cost savings.
Step 5: Decide and Proceed
If the terms are acceptable, fill out any required documentation and follow your lender’s process to finalize the new agreement. Promptly complete all steps to ensure a smooth transition to your new auto loan.
Things to Consider When Refinancing with the Same Lender
Before deciding to refinance your car with the same lender, consider how this decision could impact your credit score, potential prepayment penalties and any discounts or promotions that may be available to you.
Credit Score Implications
As previously mentioned, your credit score plays a pivotal role in refinancing. A higher credit score could get you a lower rate, which determines the price you pay for the loan. If your credit score has improved since you took out your original loan, your lender may offer you a better deal. However, be aware that refinancing can initially lower your credit score due to the hard inquiry on your credit report.
Prepayment Penalties
Refinancing could result in prepayment penalties from your current loan. Read your loan agreement to find out if you’ll be charged for paying off your existing loan early. These fees can negate the potential savings of a better interest rate, so it’s vital to factor them into your decision.
Discounts and Promotions
Your current lender might offer discounts and promotions to existing customers who refinance. You may have the opportunity to lower your fees or interest rate, especially if you’ve been a reliable borrower. However, even with these perks, it’s worth shopping around to ensure you’re getting the best possible rate and terms for your loan term extension or rate reduction.
Where Can You Compare Lenders to Refinance Your Car Loan?
The best place you can compare lenders to refinance your auto loan is online. Typically, online lenders offer competitive interest rates and lower monthly payments. However, choosing the right online lender can be overwhelming, given that there are several options out there. You’ll be glad to know that we’ve done the heavy lifting for you.
Conclusion: Is It Better to Refinance a Car with the Same Lender?
When deciding whether to refinance with your current lender, weigh the benefits and drawbacks. Also, contact the lender to determine if it’s indeed an option and compare the proposed terms of the new loan to make an informed decision.
