Refinancing means borrowing money from another lender to pay off a loan. You receive a check from the new lender to clear your old debt. You then make loan payments to the lender under new terms.

If you have the right circumstances, refinancing your truck or car loan could save you some money. It is important to be familiar with loan terminology and concepts before you get a refinance car loan. This is a complete guide to vehicle refinancing.

Understanding Interest Rates

Fixed-rate loans have an interest that does not change over the term of the loan. Variable rate loans are subject to changes in the economy, such as changes in the prime rate. While variable rates may be lower at the time you take out a loan, they can rise over time to higher rates than fixed rates. Fixed-rate loans are easier to manage your finances.

Lender Terms And Timing Questions

The term of the loan is the amount of time it takes to repay the loan. You will pay more interest if the loan term is longer than the monthly payments. You should refinance with the shortest terms possible.

Refinances with lower interest rates will result in a smaller loan amount. Consider maintaining the same monthly payment to help pay down your loan faster and at lower interest rates. You may be able to negotiate with your lender to reduce the term of your loan without paying any fees or penalties.

Refinancing is not the best option if you plan to sell your vehicle shortly. If you have to pay an early termination fee, any savings in interest could be lost.

Sources Of Auto Refinancing

Before you choose a provider, make sure to compare several lenders. Do not submit a formal refinance application immediately. This is because too many formal inquiries could cause credit scores to be negatively affected. Ask them about their current prime interest rate. Once you have a list with 3-4 lenders that offer low APRs you can start refinancing.

There are many sources of refinancing, including:

  • Auto dealers
  • Banks
  • Credit unions
  • Online banks/lenders
  • Your current lender

Refinancing may be more difficult for auto dealers who typically charge higher finance costs or margins.

One of the most popular lenders is banks. You can choose to have them be either local or national, with different benefits. Subprime loans are not available from banks.

Credit unions serve a specific community or sector of the economy. Credit unions are owned by members. Be sure to factor in membership fees when refinancing with credit unions. Credit unions often offer rates that are up to 1.5% less than banks. Credit unions offer other services similar to banks, such as savings accounts and credit cards.

Online banks and lending institutions may also offer attractive rates. To avoid fraud, be cautious before signing with an online lender.

Many people forget to ask their lender for a rate cut. Asking for a rate reduction can save you money on transaction fees.

Beware Of Hidden Fees

Refinancing may seem appealing on the surface. This is especially true if you have a low APR. Make sure to read the terms before you agree to refinance. Fixed-term loans are more likely to have an early termination fee. This is especially true if your original lender charges one. These fees may also be known as penalty clauses or call provisions, or closing fees.

Transaction fees can be charged by the new lender for refinancing. These fees are not included in the amortization or loan calculation. These fees can wipe out refinancing savings.


Vehicle refinance can help you save money and make it easier to own a vehicle. You can ensure that you get the best deal if you are educated about the refinance process.