How Does Car Loan Refinancing Work?

Car loan refinancing means getting a new car loan to finance the old one. The new/current loan will get used for paying off the old car loan. You will have a lower interest rate and a more flexible payment schedule in most cases. Also, there are other benefits, such as a lower down payment and better terms when you refinance your car loan.

What is the Difference Between Car Loan Refinancing and Car Loan Consolidation?

Car loan refinancing and car loan consolidation are two ways of getting rid of an old car loan and replacing it with a new one. However, they are not the same thing. Although these methods can get rid of an old car loan, they come with differences in terms of their benefits.

The main difference is that car loan refinancing allows you to take on a new car loan without first paying off your old one. It means that you can have all the flexibility of having two loans on your credit report at once instead of just one or none, depending on how you decide to proceed with refinancing your car loans. On the other hand, a car loan consolidation is not flexible since it requires you to pay off your old debt before taking out a new one from another lender.

How Does Car Loan Refinancing Work?

Car Loan Refinancing is a way of getting rid of your old car loan and replacing it with a new one. In this method, you apply for a new loan from another lender specializing in refinancing individuals’ loans. Alternatively, you can refinance a car loan with the same bank. You are then sent a check for the amount that you owe on your old car loan. You must pay this amount before applying for a new one from the same lender or another lender if you wish to consolidate two loans into one.

Determining Monthly Payments with Car Loan Refinancing

Car loan refinancing requires you to pay off your old car loan with the lender’s amount before you can apply for a new one with another lender.

How much of a down payment do I need to make on my car loan?

The minimum down payment required is 5% of the total amount of your loan. To calculate this number, multiply the total amount of your loan by .05 and then subtract this number from 100%. For example: Your car loan is for $20,000; therefore, $20,000 x .05 = $1,000. Subtracting this number from 100% = 50%.

You will need to put up at least half of the total car purchase price as a down payment on your new vehicle. Therefore, your required down payment is 50%. If you put less than half up front as a down payment or if it is not enough to cover all or part of what you owe on your older vehicle, you may be left with negative equity in your vehicle, which could be problematic for years to come.

Benefits of Car Loan Refinancing over Car Loan Consolidation

According to Lantern by Sofi, when using car loan refinancing, you can have more flexibility. This is because you can consolidate two loans into one without paying off any money first before applying for another loan from the same lender or even taking out two separate ones if there are lenders who offer this option. You will also not have to worry about paying more interest since refinancing results in lower interest rates when compared with consolidating two loans into one at once.