What is Vehicle Refinancing?

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  • Written By: Adam Hill
  • Edited By: Bronwyn Harris
  • Last Modified Date: 21 August 2019
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Many of us have heard advertisements for companies that handle home loan refinancing. The lesser-known cousin, so to speak, of mortgage refinancing is vehicle refinancing. It is very common for a driver to put up only a partial down payment when buying a car, and pay for the rest with financing. A vehicle refinancing is a transaction, handled by the vehicle owner's financial institution, which allows the person to obtain a lower interest rate and/or monthly payment on his vehicle.

Through vehicle refinancing, many drivers can save a significant amount on their monthly car payment, as well as the interest rate on the loan. To determine if a person could benefit from vehicle refinancing, an analysis of the relevant numbers must be done by a professional at a financial institution. The biggest potential obstacle that a driver may face in trying to refinance has to do with the amount still owed on the loan. If the balance of the loan is more than the current market value of the car, then a vehicle refinancing will likely be impossible to do. If the vehicle is being leased, this complicates matters even further.


There are many companies that offer refinancing other than ordinary banks and credit unions. Especially in times of relatively low interest rates in general, it may be wise to comparison shop for vehicle refinancing. Having the option to refinance in this way offers advantages to the driver at the time of purchase as well. For example, knowing that he can lower the payments and interest on his car loan later will take some pressure off when it comes time to negotiate the terms of the loan with the dealer. The stated threat of refinancing in the future may even motivate the dealer to offer a comparatively low interest rate from the start.

Most of the time, vehicle refinancing starts out with the car owner filling out an application. These are usually quite simple and take no more than about ten minutes to complete. The most important information that the driver will provide will be the terms of his current loan, including the remaining balance of it. If it is possible for refinancing to take place, the financial institution will send the loan payoff amount to the car dealer who provided the loan at the time of purchase. When the loan closes, the bank or credit union then becomes the owner of that debt, with the right to collect on it.


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Post 2

@rundocuri- I have a story that may help you decide whether or not refinancing your current auto loan is right for you.

About five years ago, I found what I thought was a good deal on an auto refinance loan. I was having some financial issues and was eager to lower my monthly payment, so I took advantage of the loan. At the time, I was very happy with my new monthly payment and the fact that my interest rate was a little lower than it was on my previous car loan. However, this new loan extended the years that I would be paying on my car, so it really wasn't a great deal in the long run.

After several years, my car began to have a lot of problems. Since I still owed on it for several years, trading it in was not an option. It seemed like it was a lot of car repair bills later when I finally made the last payment.

The bottom line is that when you are looking for an auto refinancing loan, make sure that you clearly understand the terms. What sounds like a good deal may not be after you make all of the required loan payments.

Post 1

This article provides a lot of important information about auto refinancing that makes it sound very positive to do. However, I have been warned against refinancing an existing auto loan. Would anyone like to share their story and some disadvantages of a refinance car loan?

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