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Common car refinancing mistakes to avoid

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If you are having trouble making your current loan payments, refinancing — replacing your current auto loan with a new one — can be a great way to save money and remain behind the wheel of your vehicle. But there are some common mistakes to avoid to ensure you don’t end up in yet another precarious financial spot.

Top 6 car refinancing mistakes

Avoid these common pitfalls when refinancing your vehicle loan.

1. Not checking refinancing requirements

Lenders hold specific requirements when it comes to refinancing. Be on the lookout for criteria ranging from age of vehicle, miles and even the amount you have left on the loan.

Bankrate tip: You can find specific refinancing requirements on lenders’ websites or on Bankrate’s reviews.

2. Not checking with your current lender first

While your current lender might have the most competitive rates it is still the best place to start. So, before exploring refinancing options outside your current lender, it is wise to reach out and explain your situation to see if they can help.

Bankrate tip: Even if you still follow through with refinancing your loan, it is possible that they can offer you a better deal than a new lender could.

3. Extending your loan term too much

The goal of refinancing is to save money, but if you extend your loan too much you could end up spending more money over the lifetime of the loan. While a longer loan term will mean a lower monthly payment, you will also pay more interest.

Bankrate tip: Prior to term adjustment take advantage of an auto refinance calculator to confirm you will save money.

4. Not considering your credit

As with most cases when it comes to financing, your credit serves as the main factor for approval. So, work to improve your credit prior to refinancing your loan. This way you will receive the most favorable terms available and walk away with a better loan overall.

Bankrate tip: Check your credit ahead of loan applications by using AnnualCreditReport.com.

5. Only shopping one lender

Just as you would when shopping for your initial auto loan, it is recommended to compare at least three different lenders. So, while it may be tempting to sign off on the first loan offer you come across, not all options are created equal.

Bankrate tip: Compare current rates offered by a range of lenders. Pay close attention to the approval requirements, repayment options and how it stacks up against your current loan.

6. Becoming upside down on your loan

Before refinancing, check where the equity of your vehicle lies with a negative equity loan calculator. If you owe more than your car is worth, or hold negative equity, refinancing is likely not a good idea.

Bankrate tip: Don’t refinance a vehicle you can’t afford. Check where your budget may be overextending and figure expected costs ahead of signing off on a new loan.

The bottom line

While refinancing your car loan can come with risks, it is a great way to lower your monthly cost and continue affording your vehicle. Keep these common mistakes in mind and stay up to date on current refinancing rates to ensure you walk away with the best loan for your needs.

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Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor