Expresses the interest that you pay on an annual basis, rather than a monthly basis. It includes additional costs such as origination fees, discounts, etc. We provide you the APR so that you can make the best informed financial decision on your vehicle.
Terms and Definitions
There are a lot of words to make sense of around refinancing your vehicle so we wanted to make this as simple and easy for you as we could!
APR - Annual Percentage Rate
Collateral is an asset you own that the lender uses to offset their financial risk of lending you money. If you default on your loan, the lender can recoup their financial losses by selling your collateral. In an auto loan, the collateral is typically the same vehicle being financed by the loan.
A cosigner is another person who agrees to cover your debt obligation if you default on your loan payments. While not always needed, a lender may ask you to find a cosigner to increase your odds of qualifying for a loan with a good interest rate. It is a simple way for a lender to offset their financial risk of lending you money.
A credit report is a line-item summary of how successfully you’ve paid off your debts over time. Lenders review your credit report to estimate their own financial risk of lending you money, estimate your interest rate, and other factors.
A FICO score is a three digit score ranging from 300 to 850 and help creditors understand how likely you are to pay off your debt. Any score above 670 is considered a good score. Most people with a FICO score below 620 find it hard to get approval at favorable interest rates.
This is just another way of indicating the APR on an auto refinancing loan.
A hard inquiry on your credit report shows that you applied to get credit elsewhere. This is also known as a “hard pull.” This can lower your credit score by a few points. Multiple hard inquiries cause lenders to consider you high risk so they will be less likely to lend to you.
Kelly Blue Book Value
The Kelly Blue Book value is a common and simple way to check the value of your vehicle. You can also use this website (kbb.com) to check the refinancing value of your car. If your loan balance exceeds the value of your vehicle, you may find it difficult to find any lenders who will refinance you until you get the balance down.
This is a loan that is repaid in regular payments over a set period of time. An auto loan is generally 60 months or 72 months long. Auto refinance loans are often much shorter since you’ve already paid off much of your base loan.
A loan modification is an adjustment made to your existing loan with your current lender, such as a reduction in the interest rate, the length and balance of the loan, or a different type of loan. The lender might report the adjustment to the major credit bureaus and may not affect your credit score much.
Original Loan Amount
This is total amount of money you borrowed from the lender. If you made a down payment, the original loan amount is total vehicle price subtracted from your down payment.
This is the total amount of money you would need to pay off the debt of your loan immediately. This is different from your current balance. You will need to contact your lender to find out what your payoff amount is.
Prepayment penalties are fees that lenders may charge you if you pay off your loan early. Lenders make a portion of profits on interest payments. Refinancing involves paying off your loan early so make sure to consider this.
Principal is the initial size of a loan. This includes the money you agreed to pay back and does not include the interest. So for your auto loan, this is the purchase price of your car in addition to any extra things you financed.
Refinancing refers to taking out a new loan to pay off one or more outstanding loans. The new loan replaces the original loan and the purpose is generally to lower the interest rate or lower your monthly payments.
Soft inquiries are sometimes referred to as “soft pulls.” Lenders may do a pre-qualification credit check to see if you qualify. They do not need your permission to do this and these don’t affect your credit score.
This is when the balance of your loan is higher than the value of your vehicle. You may find it difficult to find a lender to refinance your loan if your car loan is “upside down.”