Autoloan refi/early payment strategy

[Anonymous]

We recently gave in and purchased a new (to us) car. We have been working on rebuilding credit, which is better than before, but still were hit pretty hard on rate. Ideally, we would like to refi after a year or so and drop the rate. Finanacing is through Capital One, which I have read is decent with doing refis.

A few questions about this.

1. Is the 1 year mark a good time to try this?

2. We are current on payments, and have even paid  some extra towards principle. Do the extra payments help chances of refi and the rate?

3. I am expecting a good payout from work sometime early next year. I would like to do a lump principle payment of $1500-2000. This would be a few months prior to the 1 year/planned refi time. Would that help chances of getting a refi? Would we save more in interest to do it then, or possibly wait until after the refi and then make the lump payment?

4. Any other strategy I should consider?

[Creditdummy123]

Check out my post on Refi in the auto loan section. https://ficoforums.myfico.com/t5/Auto-Loans/Just-did-REFI-with-PENFED/td-p/5688769

I went through a similar situation. Sounds like you are on the right track. Only thing I would consider doing is bi-weekly payments. It will cut down on your current interest since auto loans are calculated daily and you end up making an extra payment a year.   To answer your other question, the lower the principle the better chance of getting approved since the banks are taking less risk. Check my post it has good data poits for reference. 

[Anonymous]

Thanks for the info. Yes, been doing bi-weekly already, plus a bit extra here and there. Only 2 months in. Seems like I should wait about 10 months to get payment history really solid, right? 

[Creditdummy123]

Looks like most places will do a refi up to 120% the value of the car. So I am guessing if the balance owed is less than the value of the car you should be in good shape. Something else to take into account is the year of the car. sometimes if the car is older than 2 years it will fall under another bracket and interest rate may be higher. It sounds like you are going on the right direction. I ended up trying 6 months in and was denied and my 2nd try was 12 months in. I think the decision had to do more with how bad my credit was than the lenght of time I was making payments.  Hope this helps.

[DaveInAZ]

"Finanacing is through Capital One, which I have read is decent with doing refis"

- Cap One may be good at refinancing for loans with other lenders, but no lender will refi their own loan. You need to look elsewhere to refi, I suggest Penfed or DCU credit unions.

Timing for a refi has much more to do with your credit rating and personal finances - DTI (Debt to Income ratio), adequate income to make the payments, with total monthly payments less than 40% of income for car loans. In 2017 I refi'd a car loan in less than one month, but that was because the dealer finance guy pulled a fast one and placed my loan with a lender I don't like instead of using the pre-approved loan I came in with, but my credit score was around 720 then and low DTI.

Extra payments really won't make that much of a difference (other than lowering you interest expense), with good credit lenders will refi up to 120% of car value. What are you credit scores and other debts?

[Anonymous]

The length of time the loan is open may affect your score but other than affecting score it will not affect your chances of refinancing as much as other factors like:

Loan to Value

Age of Car

Know before you go.  Look into credit Unions Pen Fed, DCU, Navy, Visions FCU see who you can get in with.  Sometimes you have to live or work in a region othertimes you can join an organization and get in.  Know what their score ranges - rates are and exactly what score they use.  DCU uses Equifax Mortgage and you online you can find their tiers and rates by score.  Visions uses Experian Mortgage.   These are different than the regular FICO 8 but included in your MyFICO quarterly report.

Since cars new or used tend to depreciate faster than a loan gets paid off at first (since it's more interest than principal at first) you will need to find out how much they will refinance.  DCU is up to 120% NADA book value.  Visions is 110%.

When you know these things and look at the NADA value versus an amortization schedule you can figure out when to refinance.

If you are upside more than they allow you will either need to come up with the shortfall or perhaps they can give a line of credit or credit card to take it from.