A Guide to Auto Refinancing

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Many people associate financial changes with stress, especially when it comes to refinancing a loan. Some expect the process to be a hassle, some stress because they don’t know what to expect, and, more rarely,  some feel perfectly comfortable. Regardless of which category you identify with, we created a guide that should provide you with helpful knowledge to keep you informed about what to expect, make the process as simple as possible, and, of course, to help save you money.

1. Do it sooner than later.

Because interest accrues every day, and since  your vehicle becomes less valuable with every mile, the longer you wait, the higher loan-to-value (LTV) ratio you’ll have. LTV is an important factor for lenders when deciding to make you an offer.

2. Expect to have paperwork. 

No matter whether refinancing with rateGenius or another company, paperwork is a tedious, yet necessary, part of the process. Refinancing requires the coordination and cooperation between different lenders and bureaucracies across the United States, which can sometimes require extra documentation and a bit of patience. Luckily, we do our best to alleviate as much stress as we can by handling the rest of the process.

3. The process is typically quick, but sometimes it can be tricky. 

This is the case especially for lease buyouts and for transfers of ownership.

4. Apply with accurate information. 

This is one of the most important things to keep in mind, as it can determine the ease of your refinance process. Lenders base their decision and offer on the information provided in customers’ applications. Sometimes, however, once customers complete and submit the documents for their accepted offer, the information does not match their application. This can result in rescinded offers,  therefore requiring new approval (or not), and new documentation to coincide with that approval. This significantly delays the process, and will likely result in a different rate than you originally agreed to. Always make sure that what you enter into your application is correct; that the name you enter matches your driver’s license, and that you list your income and vehicle’s mileage with 100% accuracy.  

5. Do your own math. 

This is a general rule of thumb for all things financial.  Though we provide accurate and in-depth explanations of loan terms to our customers,  it always feels reassuring to do the math yourself to make sure you understand and agree to the terms.

6. Keep making payments.

 If you have any payments due during the interim between your old loan and your new loan, still make the payment. If there are any funds left on your old loan after your new lender pays it off, your old lender is legally obligated to return that money to you. 

7. Credit is a factor, but not the only factor. 

Many customers believe that if they have great credit, that they’ll be automatically approved for a new auto loan. However, that’s not necessarily true. Though credit is an important consideration, lenders mostly care about things like DTI (debt-to-income ratio) and LTV (loan-to-value ratio). DTI is essentially the lender’s assessment of risk in your ability to afford the auto loan payments. LTV is your lender’s determination about how much you owe on your previous loan versus how much your car is worth. Put another way, it indicates your proximity to being upside down on your loan.

8. Select automatic payments. 

Many lenders offer perks for customers who select automatic payments on their new loans. Some perks include lower auto loan rates, which can save some people hundreds of dollars over the life of their loan.

From the Desk of Roger Douville

Lending Policy Pitfalls

Of course you must have loan procedures that provide your lending staff the guidance they need to make sound lending decisions for your institution. However, I suggest your procedures should be structured much like how Captain Barbossa (from Pirates of the Caribbean) views “Parley” – the rules are more like “guidelines”.

In each lending institution, there is always at least one staff member who takes these loan procedures literally. They are the sticklers for procedure; the black and white brigade; the “no gray area there” people. Much time is likely spent coaching them about what makes each loan applicant’s circumstances unique and how to find a way to approve a loan rather than deny a loan request in haste.

But have you ever considered the members of your staff that use your loan procedure to make ill advised loans, just because they can? Just because your loan procedure allows you to go to 50% debt ratio on a 710 Beacon Score, doesn’t mean you should! Does the exception for LTV make sense for this borrower with this collateral for that term? Every deal is unique and one-off. Your underwriters are there to mitigate risk while providing yield. Remind them to look into the deal rather than at it.

All the best,

Roger Douville

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Changing lender focus

Auto loan rates to rise in 2018: What it means for you

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As we enter a new year,  economists have made their official predictions about what 2018’s auto industry has in store. Overall, interest rates will likely increase for subprime borrowers.

In recent years, lenders have offered decent rates on auto loans, even to subprime candidates, in order to boost sales and respond to the increasing price of new cars. However, the Federal Reserve increases interest rates if they believe there are too many risky loans funding sales. This increase in meant to deter subprime borrowers to prevent another loan bubble like the infamous crash in 2008.

In an article in Forbes, credit-reporting agency TransUnion forecasted that lenders will continue to prioritize lending towards “lower risk, better-qualified borrowers” in 2018.

So, what does that mean?

According to the Washington Post, these increased rates should only slightly effect rates for those with good credit. However, that may not hold true for riskier borrowers. Auto loans, especially on new cars, may be unaffordable for many within this group. Some trends that may arise from this shift are:

  1. Bigger down payments.
  2. Purchasing used cars instead of new.
  3. Longer loan terms.

With these predictions in mind, it’s important that you make the best choices for you and your wallet when considering a new (or used) car. And not to worry – refinancing can help. 

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