Auto Refinance Resources

Auto loan refinancing is when you use a new car loan to pay down your old loan—often with a lower monthly payment or interest rate. 

<p>You might choose to refinance a car loan for many reasons, from potentially lowering your monthly car payment to reducing your total interest costs over the life of the loan. If you’re thinking about refinancing your auto loan, it’s important to understand how refinancing works. The process is surprisingly straightforward, but there are a few key things to consider before you <a href="https://www.lendingclub.com/auto-refinancing"><b>apply for auto refinancing</b></a>.  </p><h2>What does it mean to refinance a car and how does it work? </h2><p>When you refinance a car loan, it means you pay down your existing loan with a new auto loan—usually from a different lender. You’ll make payments to the new lender until your loan is paid off, and the new lender’s name will appear on your car’s title. While refinancing won’t lower your total loan amount, you may benefit from more favorable terms.<sup>[1]</sup>   </p><p>For example, if your new car loan has a lower interest rate, your new loan will accrue less interest each month. Even if you do not qualify for a lower interest rate, you could still lower your monthly payment by extending the length of your loan term. This strategy could be helpful if your finances have changed and you need some extra wiggle room in your monthly budget.  </p><p>Alternatively, if you can afford a higher monthly payment, choosing a loan with a shorter term might help you score a lower interest rate. </p><h2>When could auto loan refinancing be a good idea? </h2><p>It’s important to <a href="https://www.lendingclub.com/resource-center/auto-refinance/when-can-i-refinance-my-car-loan"><b>consider timing when refinancing</b></a> your existing car loan. Here are a few situations when auto loan refinancing often makes sense.   </p><ul><li><p><b>Your financial situation has improved.</b> You may want to shop for auto loan refinancing if your income or credit score have increased since you first took out your auto loan, or if you’ve paid off debts and have a lower <a href="https://www.lendingclub.com/glossary/d/debt-to-income-dti-ratio"><b>debt-to-income (DTI) ratio</b></a>. The changes could help you score a lower interest rate or more favorable loan terms if you refinance.<sup>[1]</sup> </p></li><li><p><b>Market interest rates have dropped. </b>Even if your personal situation hasn’t improved, market competition impacts auto loan rates. When interest rates fall, lenders may offer lower rates to attract new customers. Check rates with multiple lenders to see if you might benefit.  </p></li><li><p><b>You didn’t shop around for your first loan.</b> Dealerships can markup rates which may may result in higher interest rates and longer loan terms.<sup>[2] </sup>If you originally financed your auto loan through a dealership, you may qualify for better loan terms through a bank or lender. In some cases, the terms may still be better even if your financial situation or market interest rates haven’t changed.  </p></li><li><p><b>You want to lower your monthly payment.</b> Sometimes lowering your monthly payments takes priority over getting a lower interest rate. If you need to free up room in your monthly budget, refinancing your auto loan could help you get a longer term and lower monthly payment.   </p></li></ul><h2>When could refinancing your car loan not be a good idea? </h2><p>Sometimes it’s better to wait before refinancing your auto loan. Here’s a closer look at times when you should hold off.  </p><ul><li><p><b>You can’t get a lower interest rate.</b> If market interest rates have gone up or your financial situation hasn’t changed, it may make sense to hold off on refinancing.  </p></li><li><p><b>You’re upside down on your car loan. </b>When you owe more on your vehicle than it’s worth, most lenders won’t allow you to refinance.<sup>[4]</sup>  </p></li><li><p><b>You don’t meet lender requirements. </b>Many lenders won’t offer refinancing until you’re at least a few months into your current loan. On the flip side, some lenders require a longer period remaining on the loan term. If you’re near the beginning or end of the term, you may not qualify. </p></li><li><p><b>You don’t want to pay fees.</b> Some lenders charge origination fees when you take out a new loan. In some cases, the amount is calculated as a percentage of the new loan amount and then deducted when the loan is funded. Your current loan may also charge you a prepayment penalty for paying off the loan early, often calculated as a percentage of the remaining loan amount.<sup>[3]</sup> </p></li><li><p><b>You don’t want your credit affected. </b>Many lenders, like LendingClub Bank, let you check your rate without affecting your credit score by conducting a soft credit inquiry. However, once you apply, the lenders usually perform a hard credit check, which could cause your score to take a temporary dip. <a href="https://www.lendingclub.com/resource-center/personal-finance/key-differences-of-a-soft-credit-check-vs-hard-credit-check"><b>Learn more about soft vs. hard credit inquiries</b></a>.<sup>[5]</sup>  </p></li></ul><h2>What do lenders look for when refinancing your car loan?</h2><p>Auto loan refinance terms, rates, and requirements usually vary widely between lenders. When you finance your car loan, lenders typically consider a range of factors, including information about your vehicle, current loan, and your creditworthiness. Here are some common things lenders look at when refinancing your car loan. </p><h3>1. Vehicle age, make, model, and mileage </h3><p>Lenders may refuse to refinance certain vehicle makes and models, or they may have limits on the car’s mileage and model year. For example, LendingClub Bank requires your vehicle to be less than 10 years old and have fewer than 120,000 miles. </p><h3>2. Current auto loan balance and remaining payments </h3><p>Your existing auto loan balance and remaining payments can also be a factor. A lender might choose not to refinance a loan if it has too low—or high—of a balance, or if you’re close to paying it off. </p><h3>3. Loan-to-value ratio </h3><p>Lenders may also look at the value of your vehicle relative to how much you owe on the loan, or the loan-to-value (LTV) ratio. A higher LTV can make it harder to get approved, especially if your LTV is over 100% and your car is worth less than the outstanding loan principal. This is also known as being “upside down” or “underwater” on your loan, and it can happen when your vehicle’s value depreciates faster than you pay down your loan.<sup>[4]</sup> </p><h3>4. Debt-to-income ratio </h3><p>Your monthly debt-to-income ratio helps lenders understand how easy it will be for you to afford your monthly payments. Qualifying for a new loan can be difficult if you have a high DTI ratio.  </p><h3>5. Your creditworthiness </h3><p>Lenders review your credit reports and credit score to help determine whether you qualify for a loan and to set your loan rates and terms. Having a long history of timely payments and low balances on your credit cards can help your credit score.  </p><h2>How to refinance your car loan </h2><p>If you’ve decided that refinancing your car loan is a good idea and the timing is right, follow these steps to get started.  </p><ul><li><p><b>Shop around.</b> Many different types of lenders—like banks, credit unions, and online lenders—offer auto refinancing loans. Check your rate at multiple companies to find a competitive offer. When done properly, rate shopping may not impact your credit score.<sup>[6]</sup></p></li><li><p><b>Get your documents in order.</b> Most lenders will need your Social Security number, driver’s license number, registration paperwork, and the car’s vehicle registration number (VIN). You’ll also need to know the payoff amount for your existing loan. You can usually find this online when you log into your loan account or by contacting your current lender.  </p></li><li><p><b>Read the fine print about eligibility.</b> Lenders will often have rules about which loans and cars are eligible for refinancing—for example, a minimum outstanding balance of $4,000 and fewer than 120,000 miles on the car. Save time by identifying each lender’s eligibility requirements before you apply. </p></li><li><p><b>Apply to refinance your car loan.</b> When you’re ready to apply, it’s important to understand that most lenders use a hard credit inquiry with each application, which can impact your credit score. If you are applying to multiple lenders, consider submitting them all within a two week window. VantageScore® count all inquiries within a 14-day period for the same type of loan as just one inquiry on your credit report.<sup>[6]</sup></p></li><li><p><b>Closely evaluate offers. </b>Compare the terms of your existing loan against your offers to decide which one will help you accomplish your financial goals. Calculate how much you could save over the life of the loan, how much you could lower your monthly payment, and how quickly you could pay down the loan.  </p></li><li><p><b>Finalize your auto refinance loan. </b>Once you’ve accepted a refinance offer, be sure to complete all of the paperwork. If the new lender is paying off the old lender, make sure your old loan is paid in full. Or if funds were deposited in your bank account, you may need to pay off the old lender directly.   </p></li><li><p><b>Make your first payment. </b>Payments on auto refinance loans can start immediately. Be sure to note the due date of your first monthly payment, and make the payment on time.  </p></li></ul><h2>The bottom line </h2><p>Refinancing a car loan can be a good idea if your creditworthiness has improved, interest rates have dropped, or you want to change your loan’s terms. You could consider refinancing your car loan when you can qualify for a new loan with more favorable terms, such as a lower interest rate or monthly payment.   </p><p>Keep in mind that applying for and taking out a new loan may<b> </b><a href="https://www.lendingclub.com/resource-center/personal-loan/does-refinancing-a-car-hurt-your-credit"><b>impact your credit score</b></a> in the short term. However, in the long run, refinancing won’t necessarily hurt your credit if you make your loan payments on time.  </p><hr/><ol><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-before-i-shop-for-auto-loan-at-a-bank-credit-union-dealership-or-other-lender-en-755/#will-my-credit-impact-my-interest-rate">Consumer Financial Protection Bureau</a>. “What should I know before I shop for a car or auto loan?” </p></li><li><p><a href="https://www.bankrate.com/loans/auto-loans/how-to-decide-between-bank-or-dealership">Bankrate</a>. &quot;Is it better to finance a car through a bank or dealership?&quot;</p></li><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/can-i-prepay-my-loan-at-any-time-without-penalty-en-843/">Consumer Financial Protection Bureau</a>. “Can I prepay my loan at any time without penalty?” </p></li><li><p><a href="https://consumer.ftc.gov/articles/auto-trade-ins-and-negative-equity-when-you-owe-more-your-car-worth">Federal Trade Commission Consumer Advice</a>. “Auto Trade-Ins and Negative Equity: When You Owe More than Your Car is Worth” </p></li><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/whats-a-credit-inquiry-en-1317/#:~:text=Hard%20inquiries,frequently%20you%20apply%20for%20credit.">Consumer Financial Protection Bureau</a>. “What’s a credit inquiry? </p></li><li><p><a href="https://www.experian.com/blogs/ask-experian/how-does-rate-shopping-affect-credit-score">Experian.</a> &quot;How Does Rate Shopping Affect Your Credit Scores?&quot;</p></li></ol><p></p>

Your credit score may be impacted when you refinance your auto loan thanks to a hard credit check, but the effects are typically short-lived.   

<p>Before deciding to refinance your vehicle, it’s important to understand how it may affect your credit score. Let’s take a closer look at how refinancing a car loan impacts your credit. </p><h2>Will refinancing your auto loan hurt your credit score? </h2><p>Yes, refinancing an auto loan may hurt your credit score. When you refinance a vehicle, you’re applying for a new auto loan, then using that loan to pay down your existing car loan. During the application process, the lender will check your credit reports, resulting in a <a href="https://www.lendingclub.com/resource-center/personal-finance/key-differences-of-a-soft-credit-check-vs-hard-credit-check"><b>hard credit pull</b></a>.<sup>[1]</sup> </p><p>Some lenders, like LendingClub, offer pre-qualification to <a href="https://www.lendingclub.com/auto-refinancing"><b>check your rates</b></a> first, which shows up as a soft pull rather than a hard pull on your credit report. </p><h2>How much will your credit score decrease if you refinance? </h2><p>Your credit score may decrease after a hard credit check when you refinance an auto loan. However, it could go down even more if you’re applying for additional credit over a short time.<sup>[1]</sup> If you’re <a href="https://www.lendingclub.com/help/auto-refinance-faq/how-do-i-apply-for-an-auto-refinance-loan"><b>applying for auto refinance loans</b></a>, you may want to reconsider whether applying for additional credit like a credit card or mortgage makes sense.   </p><p>When you refinance your auto loan, the age of your accounts—or the length of your credit history—goes down. Fortunately, this <a href="https://www.lendingclub.com/resource-center/personal-finance/what-affects-your-credit-score"><b>credit scoring factor</b></a> only makes up 15% of your score so your score may be impacted accordingly. Loans that are reported as “new” to the credit bureaus also signal that you’ve taken on more debt, which could lower your score.<sup>[2]</sup>   </p><p>Your credit mix, or the different types of accounts on your credit report, may not change much since you’re replacing one auto loan with another.<sup>[2]</sup>  </p><h2>How long will it take for my credit score to recover? </h2><p>According to Experian, hard inquiries from the application process can stay on your credit report for up to two years, but generally the impact on your score only lasts about a year.<sup>[3]</sup> </p><h2>When refinancing your car loan might make sense </h2><p>Refinancing your auto loan can offer many benefits, like lower interest rates or a longer loan term. However the timing may not always be right, depending on your financial situation and other factors. Here’s a closer look at when refinancing your car loan might make sense.  </p><h3>1. You got the loan from the dealership </h3><p>If you got your original loan from the car dealer, you may not have received the best rate possible. A dealership is typically an intermediary between the buyer and the auto lender, and the dealer may mark up the interest rate to compensate for their involvement.<sup>[4]</sup> You may be able to get a better rate by refinancing directly with an online lender, credit union, or other financial institution. </p><h3>2. Your credit has improved </h3><p>If your credit score has increased since you first took out the loan, and you’ve been making on-time payments on your original loan for at least a few months, you may qualify for a lower interest rate through refinancing.<sup>[5]</sup>  </p><h3>3. Interest rates have gone down </h3><p>Interest rates fluctuate often. If interest rates have decreased since you first took out your loan, you may be able to take advantage of lower rates. Rate shopping without a hard credit check can help you determine whether you qualify for a lower rate. Credit scoring systems such as the FICO® and VantageScore®  have built-in accommodations for rate shopping on installment loans. They treat inquiries related to multiple loan applications as a single event, as long as all applications are for the same loan amount and are submitted within a 14-day window.<sup>[6]</sup></p><h3>4. You need a lower car payment </h3><p>Even if you’re unable to lower your interest rate, refinancing can still help you get a lower monthly payment. You’ll refinance a lower balance than what you started with, which shrinks your monthly payments. Refinancing into a longer term may also lower your monthly payments because they’re spread over more months. This can free up cash for other monthly expenses. Just keep in mind that this strategy can result in a higher total interest cost over the life of the loan. </p><h2>When an auto refinance loan might not make sense </h2><p>Refinancing can come with a number of benefits, but it’s not always the right move. Here’s a look at common reasons when an auto refinance loan might not make sense.  </p><h3>1. Your loan is almost paid off </h3><p>If you don’t have much time left on your loan, lenders likely won’t want to refinance your loan. <a href="https://www.lendingclub.com/help/auto-refinance-faq/what-is-auto-refinance"><b>LendingClub Bank</b></a>, for example, requires at least 24 months left on the loan term to consider a refinance loan. </p><h3>2. Your loan is underwater </h3><p>Being upside-down or underwater on your auto loan means the repayment amount on your loan is more than the car is worth. While it can be possible to refinance an underwater loan, it typically comes with high interest rates and unfavorable terms.<sup>[7]</sup> </p><h3>3. The prepayment penalty is too high </h3><p>Since the new lender is <a href="https://www.lendingclub.com/resource-center/personal-loan/the-pros-and-cons-of-paying-off-a-personal-loan-early"><b>paying off your old loan early</b></a>, you may be subject to prepayment penalties in the process. Check with your original lender to see what fees you may incur, then compare it with your potential savings to make sure it’s worth it.<sup>[8]</sup> </p><h2>Can you refinance an auto loan with poor credit? </h2><p>Yes, you can refinance an auto loan with poor credit. While it’s generally better to refinance when your credit is in good shape, it may be possible to refinance a car loan even with bad credit. However, you’ll likely pay a higher interest rate as your credit score decreases. Instead, you might consider working to improve your credit score before you try to refinance your auto loan.<sup>[9]</sup>  </p><h2>How to get started with the auto refinancing process </h2><p>Refinancing your auto loan is a straightforward process, but it&#39;s important to understand what’s involved before you get started. Here are a few pointers to keep in mind.   </p><ul><li><p><b>Determine if refinancing makes sense for you.</b> Consider current interest rates, whether your credit score has improved, and other factors that may make it a good time to refinance or require you to wait. Be sure to also assess your car’s value to make sure you’re not upside-down on your existing loan. </p></li><li><p><b>Shop around. </b>Many lenders will let you prequalify without a hard inquiry to your credit score. If you choose to complete the application, be sure to have all your documents in order, like your car’s vehicle identification number (VIN), existing loan’s payoff amount, and your Social Security number. Try to compare offers within a short period of time—usually no more than two weeks—to minimize the impact on your credit score.<sup>[6]</sup>  </p></li><li><p><b>Evaluate loan offers. </b>Compare refinancing offers from different lenders to your existing loan to see how your financial situation will be impacted. Calculate how much you could save over the life of the loan, how much you could lower your monthly payment, and how quickly you could pay down the loan. With this knowledge in hand, you can confidently decide which refinancing offer will help you accomplish your financial goals.<sup>[9]</sup> </p></li></ul><h2>The bottom line </h2><p>Is refinancing a car bad for your credit? It may impact your score, but as long as you make your monthly payments on time, your score should recover. Unless you’re planning to take out a large new loan in the very near future—for example, a mortgage—don’t let a short-term, small drop in your credit score keep you from refinancing your auto loan and saving money. </p><p>If you didn’t shop around for your current auto loan, your credit score has improved, or interest rates have decreased since you took out your initial car loan, it’s likely worth looking into refinancing options.    </p><hr/><ol><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/whats-a-credit-inquiry-en-1317/#:~:text=Hard%20inquiries,frequently%20you%20apply%20for%20credit.">Consumer Financial Protection Bureau</a>. “What’s a credit inquiry? </p></li><li><p><a href="https://www.myfico.com/credit-education/whats-in-your-credit-score">myFICO</a>. “What&#39;s in my FICO Scores?” </p></li><li><p><a href="https://www.experian.com/blogs/ask-experian/hard-inquiry-vs-soft-inquiry/#:~:text=Hard%20inquiries%20can%20impact%20your,for%20less%20than%20a%20year.">Experian</a>. “What’s the Difference Between a Hard and Soft Inquiry?” </p></li><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-dealer-arranged-and-bank-financing-en-759/">Consumer Financial Protection Bureau. </a>&quot;What are the different ways to buy or finance a car or vehicle?&quot;</p></li><li><p><a href="https://www.experian.com/blogs/ask-experian/how-soon-can-you-refinance-car-loan/">Experian.</a> &quot;How soon can you refinance a car?&quot;</p></li><li><p><a href="https://www.experian.com/blogs/ask-experian/what-is-rate-shopping/">Experian</a>. “What is rate shopping?”</p></li><li><p><a href="https://consumer.ftc.gov/articles/auto-trade-ins-and-negative-equity-when-you-owe-more-your-car-worth">Federal Trade Commission Consumer Advice</a>. “Auto Trade-Ins and Negative Equity: When You Owe More than Your Car is Worth” </p></li><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/can-i-prepay-my-loan-at-any-time-without-penalty-en-843/">Consumer Financial Protection Bureau</a>. “Can I prepay my loan at any time without penalty?” </p></li><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-before-i-shop-for-auto-loan-at-a-bank-credit-union-dealership-or-other-lender-en-755/#will-my-credit-impact-my-interest-rate">Consumer Financial Protection Bureau</a>. “What should I know before I shop for a car or auto loan?” </p></li></ol><p></p>

The total cost of owning a car includes the purchase price, interest on loans, insurance, fuel, maintenance, repairs, taxes, registration, depreciation, and unexpected expenses.

<p>When it comes to estimating the true cost to own a car, the sticker price is only the start. Understanding the factors that go into cost of car ownership can reduce surprises and help you budget more accurately. </p><p>Here are six factors that impact the total cost of owning a car—plus tips for how to cut costs, where possible. </p><h2><b>1. Initial purchase price</b> </h2><p>Naturally, price is a large component of the true cost of owning a car. Purchase price can also determine sales taxes, state registration fees, and licensing fees. </p><p><b><i>How to lower it</i></b><i>:</i> Arm yourself with knowledge. Use online tools like Kelley Blue Book and <a href="https://www.truecar.com/">TrueCar</a> to research average selling prices and establish an appropriate value for your trade-in. Plug-in hybrids and electric vehicles come along with tax credits, which can offset part of the initial cost. You can also brush up on your negotiating tactics: <a href="https://cars.usnews.com/cars-trucks/advice/how-to-negotiate-the-best-price-on-a-new-car">U.S. News &amp; World Report</a> recommends controlling your emotions and knowing which fees are flexible. </p><h2><b>2. Interest rate</b> </h2><p>About <a href="https://www.consumerreports.org/car-maintenance/the-cost-of-car-ownership-a1854979198/">two-thirds of buyers</a> use financing for their car purchase, and the interest charges can contribute meaningfully to the true cost of car ownership. </p><p><b><i>How to lower it</i></b><i>:</i> Don’t settle for financing directly from the dealership. Our partners at NerdWallet recommend, “It’s wise to get pre-approved before you hit the dealership, so take a little time to compare auto loan interest rate offers from different lenders.” Making a down payment and keeping your credit score in good shape can also help you lock in a lower interest rate. </p><p>If you already have a loan, <a href="https://www.lendingclub.com/auto-refinancing">auto refinancing</a> can save you money on interest, lower your monthly payments, or potentially do both.</p><h2><b>3. Depreciation</b> </h2><p>Unfortunately, even well-maintained cars lose value over time, making depreciation one of the largest cost factors—particularly for new cars. Depreciation may not seem like an explicit cost, but it’s one you’ll realize when you go to sell your car and purchase a new one. </p><p><b><i>How to lower it</i></b>: Buying a used car can diminish the sting of depreciation, since older cars depreciate at a lesser rate. <a href="https://www.trustedchoice.com/insurance-articles/wheels-wings-motors/car-depreciation/">New cars can depreciate by as much as 11 percent</a> the moment you drive them off the lot. Keeping your car longer can also reduce depreciation costs. </p><h2><b>4. Maintenance</b> </h2><p>New tires, oil changes and unexpected repairs are included in the total tally for car ownership. </p><p><b><i>How to lower it</i></b><i>:</i> Longer, more comprehensive warranties and maintenance plans can help defray some costs—though these might add to the initial purchase price of the car. Reliability reviews and ratings, like those available at <a href="https://www.consumerreports.org/cars/">Consumer Reports</a>, can help you estimate expected costs and decide if a deluxe warranty is a good choice, or if a different car would be a better option. </p><h2><b>5. Insurance</b> </h2><p>Coverage is required by law in most states, and rates can vary widely. </p><p><b><i>How to lower it</i></b><i>:</i> The <a href="https://www.iii.org/article/nine-ways-to-lower-your-auto-insurance-costs">Insurance Information Institute</a> recommends shopping around for at least three price quotes and requesting a higher deductible. Bundling auto and home insurance with one company can also help save money. Rates can also be impacted by your driving record, how you use your car (daily commute versus weekends-only) and where it’s parked (in a garage versus on the street). </p><h2><b>6. Fuel</b> </h2><p>On average, fuel is the second-largest cost of car ownership—and the price goes up if you choose a gas-guzzling SUV. According to <a href="https://www.consumerreports.org/car-maintenance/the-cost-of-car-ownership-a1854979198/">Consumer Reports</a>, “You could pay more than $15,000 to fill up a Jeep Liberty over five years, while a similar-sized but more-efficient RAV4 V6 could save you $4,000 during that time.” </p><p><b><i>How to lower it</i></b><i>:</i> Pick your new car with an eye for efficiency, and consider whether an electric or hybrid vehicle could be right for you. Once you’ve made your purchase, get the most out of your MPG by avoiding aggressive driving, using cruise control and lightening your load. </p><h2><b>Calculating the cost of car ownership</b> </h2><p>Budgeting for the true cost of car ownership can get complicated, but an online cost estimator, like the <a href="https://www.edmunds.com/tco.html">Edmunds True Cost to Own® calculator</a>, can help. </p>

Should you lease or buy your next car? Leasing costs less on a monthly basis and puts limits on how you can use your car. Buying comes with ownership responsibility but will cost you less in the long run.

<p>If you’re trying to decide whether to buy or lease a car, both options have benefits and drawbacks. When you buy, you own your car outright once you repay your auto loan, and you have more flexibility regarding mileage and vehicle customization than you would with a leased vehicle. But your upfront and ongoing maintenance costs could be higher when you buy—and your monthly payments probably will be, too.<sup>[1] </sup> </p><p>This guide can help you understand whether leasing vs. buying a car makes more sense for you. </p><h2>Leasing vs. buying a car: what’s the difference? </h2><p>Understanding the differences between leasing vs. buying a car can help you make an informed choice if you’re shopping for a new vehicle.  </p><table><tr><td><p><b>Factor</b> </p></td><td><p><b>Buying a car</b> </p></td><td><p><b>Leasing a car</b> </p></td></tr><tr><td><p><i>Ownership</i> </p></td><td><p>You’ll own your car after repaying your auto loan. </p></td><td><p>You won’t own your car or build equity with monthly payments.  </p></td></tr><tr><td><p><i>Upfront costs </i></p></td><td><p>Your upfront costs may be higher. </p></td><td><p>Your upfront costs may be lower. </p></td></tr><tr><td><p><i>Monthly payments </i></p></td><td><p>Your monthly payments may be higher, but you’ll only make them for your loan’s term. </p></td><td><p>Your monthly payments may be lower, but they’ll continue as long as you lease. </p></td></tr><tr><td><p><i>Insurance </i></p></td><td><p>Your insurance premiums may be lower. </p></td><td><p>Your insurance premiums may be higher. </p></td></tr><tr><td><p><i>Warranty protection </i></p></td><td><p>It may cover your car’s maintenance and repairs for a few years. </p></td><td><p>It often covers your car’s maintenance and repairs for your entire lease term. </p></td></tr><tr><td><p><i>Mileage</i> </p></td><td><p>You won’t have mileage caps. </p></td><td><p>You’ll generally have mileage caps. </p></td></tr><tr><td><p><i>Flexibility to customize </i></p></td><td><p>You have more flexibility if you want to customize your car.  </p></td><td><p>You have less flexibility if you want to customize your car.   </p></td></tr><tr><td><p><i>Sellability</i> </p></td><td><p>You can sell your car anytime or keep it as long as you want. </p></td><td><p>You cannot sell your car, and you’ll need to turn it in or buy it for its full value when your lease term ends. </p></td></tr><tr><td><p><i>Depreciation</i> </p></td><td><p>You’ll need to consider depreciation when you sell or trade in your car. </p></td><td><p>You won’t need to consider depreciation, as it’s built into your lease agreement. </p></td></tr></table><p>  </p><h3>1. Ownership </h3><p>When you choose to <a href="https://www.lendingclub.com/resource-center/auto-refinance/tips-for-how-to-get-the-best-deal-on-a-new-car">buy a vehicle</a>, you will eventually own your car at the end of your loan term. With a lease, your monthly payments cover the estimated depreciation of your car with interest, so you won’t build equity or own your car at the end of its lease term.<sup>[1] </sup>  </p><h3>2. Upfront costs </h3><p>Your upfront costs may be higher if you choose to buy vs. lease a car. When you buy, you’ll generally need to pay sales tax on your car, plus registration and origination fees. Your lender might also require a down payment, which increases your initial costs.  </p><p>Your initial costs may be lower with a lease because a down payment isn’t always required, though other fees apply. Your leasing company may charge acquisition and disposition fees, which cover the cost of setting up your lease agreement and cleaning and selling your car at the end of your term. You’ll also pay registration fees.<sup>[1] </sup>  </p><h3>3. Monthly payments </h3><p>When you buy or finance a car, your monthly payments go toward interest and loan principal, so they tend to be higher than what you’d pay with a leased vehicle. With a lease, your monthly payments go toward interest and the estimated depreciation of your car during its lease term.   </p><p>Your payments might be higher if you choose to buy, but you’ll only make them during your loan term. After that, your loan will be repaid and you’ll own your car outright. When you lease, your monthly payments continue for as long as you choose to lease a car.<sup>[1] </sup>    </p><h3>4. Insurance </h3><p>You’ll probably need full-coverage insurance whether you lease or <a href="https://www.lendingclub.com/resource-center/auto-refinance/when-is-a-good-time-to-buy-a-car">buy a car</a><b>,</b> but you might need more coverage for a leased vehicle. Full coverage typically includes collision, comprehensive, and liability insurance, but leasing companies often require gap insurance, too. Gap insurance protects the lessor if your car is totaled after an accident. It pays for the difference between what your vehicle is currently worth and the amount you owe on the loan.<sup>[2] </sup>   </p><p>Besides having stricter coverage requirements, some lessors also limit your deductible, or the amount you pay out of pocket before insurance kicks in, which isn’t the case with lenders. Lower deductibles typically result in higher monthly payments.<sup>[3]</sup>     </p><h3>5. Warranty protection </h3><p>Leased cars often have warranties that are effective for your entire lease term. These warranties typically cover regular maintenance costs and repairs, so you won’t need to worry about high unexpected costs cropping up with a leased car.  </p><p>On the other hand, if you buy a car new, it may have a warranty that covers certain maintenance or repair costs. But that warranty will likely only be effective for a few years, after which you’ll need to pay for regular maintenance and repairs.<sup>[4]</sup>  </p><h3>6. Mileage </h3><p>You can drive as many miles as you’d like when you buy or finance a car, but this usually isn’t the case when you lease. Leasing companies often cap your mileage at 12,000 or 15,000 miles per year, and fees typically apply if you exceed your allotted mileage.<sup>[1]</sup>  </p><h3>7. Flexibility to customize </h3><p>Buying a car gives you more flexibility to customize it compared to leasing. So if you’d like to tint your windows or upgrade your wheels, you can do so when you buy or finance a car—but not if you lease.   </p><h3>8. Sellability </h3><p>You can sell your car anytime when you buy or finance it. Unfortunately, you won&#39;t have this option with a lease because you can&#39;t sell a leased vehicle. Instead, you&#39;ll need to turn it in at the end of your lease term or buy it from the leasing company for its full value.<sup>[1]</sup> </p><h3>9. Depreciation </h3><p>Once you purchase a car, it typically loses value (depreciates) instantly. While <a href="https://www.edmunds.com/tco.html"><b>depreciation</b></a> may be a concern if you own your car and try to sell it before you&#39;ve established positive equity (when the remaining loan balance is less than the car&#39;s current market value), it’s less of a concern with a leased vehicle. Rather than selling, you’ll turn in the leased car or buy it for its full value once your lease is up.<sup>[1]</sup> </p><h2>Pros and cons: Buying vs leasing a car </h2><table><tr><td><p> </p></td><td><p><b>Buying</b> </p></td><td><p><b>Leasing</b> </p></td></tr><tr><td><p><b>Pros</b> </p></td><td><p>- Opportunity to build equity and ownership </p><p>- Monthly payments end once loan is repaid </p><p>- No mileage caps </p><p>- Can sell your car at any time </p><p>- More flexibility to customize </p><p>- Insurance costs may be lower </p></td><td><p>- Monthly payments may be lower </p><p>- Warranty may cover maintenance costs for entire lease term </p><p>- Can turn in your car once lease term is up </p><p>- Can get newer cars more often </p></td></tr><tr><td><p><b>Cons</b> </p></td><td><p>- Monthly payments may be higher </p><p>- Warranty may only cover maintenance and repairs for a few years </p><p>- Car is a depreciating asset </p><p>- Upfront costs may be higher </p></td><td><p>- No equity or ownership opportunity  </p><p>- Fees may apply for certain actions </p><p>- Insurance costs may be higher </p><p>- Mileage caps often apply </p><p>- Long-term costs may be higher </p></td></tr></table><h3>When leasing a car makes sense </h3><p>Leasing a car could be a better option than leasing if you:  </p><ul><li><p><b>Don’t drive far or frequently:</b> Many leases have mileage caps between 12,000 and 15,000 miles annually, so leasing could make sense if you have a short commute or don’t drive often.  </p></li><li><p><b>Get new vehicles often:</b> If you prefer the dependability and features of newer cars, leasing may be the right choice. Lease terms are typically short, and you can simply turn in your car and lease another, newer vehicle once your term ends.  </p></li><li><p><b>Want low maintenance costs: </b>Many lease warranties cover certain maintenance and repair costs for your entire lease term, so you won’t need to worry about unexpected expenses. </p></li><li><p><b>Can afford ongoing monthly payments:</b> While you might not pay for maintenance and repairs, you’ll make monthly payments for as long as you lease a car.  </p></li></ul><h3>When buying a car makes sense </h3><p>Buying a car could be better than leasing if you:  </p><ul><li><p><b>Have a long commute or drive often: </b>Since leases often have mileage caps, buying a car may be your best option if you drive more than 12,000 or 15,000 miles a year.  </p></li><li><p><b>Have a down payment saved:</b> If you have a down payment set aside for a new car, buying could be a better choice. Making a down payment means you may have instant equity and benefit from lower monthly payments.  </p></li><li><p><b>Keep vehicles for several years:</b> Buying may be a better option if you typically keep cars for several years. You’ll eventually repay your auto loan and own your car outright—and the lack of monthly payments may mean more potential for long-term savings. </p></li><li><p><b>Want more flexibility:</b> Buying could also make more sense than leasing if you want the freedom to customize your car as you please.  </p></li></ul><h2>The bottom line </h2><p>Ultimately, choosing between leasing vs. buying a car depends on your preferences, habits, and goals. Buying is likely the better choice if you have a long commute or want to own your car eventually. Buying may also result in long-term savings, though your upfront costs may be higher. When you buy, you can also choose to <a href="https://www.lendingclub.com/auto-refinancing"><b>refinance your auto loan</b></a> if you’re not happy with the terms or your credit situation has improved.   </p><p>On the other hand, leasing could be a good choice if you don&#39;t drive often and enjoy the benefits of newer cars. Leasing might help you save money in the short term, but perpetual monthly payments and higher insurance rates can mean higher long-term costs.    </p><hr/><ol><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-about-leasing-versus-buying-a-car-en-815/">Consumer Financial Protection Bureau</a>. “What should I know about leasing versus buying a car?” </p></li><li><p><a href="https://www.iii.org/article/what-auto-insurance">Insurance Information Institute</a>. “What is auto insurance?” </p></li><li><p><a href="https://www.iii.org/article/insuring-leased-car">Insurance Information Institute</a>. “Insuring a leased car.” </p></li><li><p><a href="https://www.kbb.com/car-advice/car-leasing-guide/">Kelley Blue Book</a>. “Car Leasing Guide: How to Lease a Vehicle in 2024.”</p></li></ol><p></p>

Timing matters when refinancing an auto loan. So before opting for a new loan, make sure you understand when it’s a good idea to refinance and when it’s better to wait. 

<p><a href="https://www.lendingclub.com/auto-refinancing"><b>Refinancing your auto loan</b></a> can help you get a lower interest rate or change the loan term, which could save you money on interest, lower your monthly payments—or potentially both. If you only recently bought your car, or you’ve had it for several years, you might be wondering if it’s too soon, too late, or the perfect time to refinance.  </p><h2>When to refinance your car loan </h2><p>Timing can be a huge factor when considering an auto loan refinance. Many lenders have required waiting periods before you can refinance or cut off periods when it’s too late. Let’s take a closer look at some of the timing restrictions lenders may have around refinancing.  </p><h3>The first 60 to 90 days of the car loan </h3><p>Most lenders require that you’ve had the loan for at least a few months before you can apply to refinance. At LendingClub Bank, for example, the minimum requirement is 90 days. This allows time for the car title to transfer from the manufacturer or previous owner to your current lender. The new lender also wants to see if you’ve been making on-time payments for the first few months. </p><h3>At least 24 months remaining on the car loan </h3><p>If you’re considering refinancing, you’ll want to act while there’s still some time left on your loan because many lenders have a minimum requirement. For instance, LendingClub Bank requires at least 24 months remaining on the original loan term. Plus, the later in the term you are, the more interest you’ve already paid off—which means it could be more cost-effective to simply stick with your original loan and finish off the principal. </p><h2>7 signs it’s a good idea to refinance your car </h2><p>There are more telltale signs refinancing your car loan is a good option for you. Consider these common situations when it may make sense to try to refinance your auto loan. </p><h3>1. Your credit score has increased </h3><p>If you’ve been paying your debts on time, your credit utilization has decreased, or you’ve made other moves to improve your credit score, you may be able to qualify for a lower rate than you received when you first bought the car. Even a small reduction can meaningfully impact your total interest and monthly payments. When you applied for the original loan, the lender likely did a hard inquiry on your credit report. Waiting a few extra months can give your score time to recover, which may help you get a better interest rate.<sup>[1]</sup> </p><h3>2. Interest rates have dropped since you purchased your vehicle </h3><p>If prevailing interest rates were higher when you first took out your loan, it might be worth checking whether you can lower your rate. Many lenders allow you to check your potential rate without doing a hard credit check, so you can see your savings without impacting your credit score.<sup>[1]</sup> </p><h3>3. You want a lower monthly payment </h3><p>Refinancing isn’t just about potentially saving money—you can also refinance to put more room in your budget. Lengthening your term may increase your overall interest costs, but it also reduces your monthly payment. If bills are tight, refinancing to lower your payments may be the solution you’re looking for.<sup>[2]</sup> </p><h3>4. You financed your current auto loan with a dealership </h3><p>Dealer-financed auto loans are often not the best deal. Because dealers act as a go-between for shoppers and the bank, they tend to mark up the interest rate to get a cut. By refinancing directly with an online lender, credit union, or other financial institution, you’re avoiding that markup, which can save you money.  </p><h3>5. You want to pay off your auto loan sooner </h3><p>Can you swing a higher monthly payment? If so, you may be able to refinance into a loan with a shorter term. Not only will you pay off your loan more quickly, but you could also save on overall interest.<sup>[2]</sup> </p><h3>6. You want to remove a co-signer </h3><p>Maybe you needed a co-signer to qualify for your original loan, but you’ve established or improved your credit since then. If so, you can try to remove your co-signer by refinancing into a loan of your own.<sup>[1]</sup>  </p><h3>7. You need extra cash </h3><p>Some lenders offer a cash-out refinance option, which means you can take out a loan for more than the value of your car and keep the difference in cash. </p><h2>5 signs you shouldn’t refinance your auto loan </h2><p>Auto refinancing can make a lot of sense for some people—but before choosing to refinance, it’s important to make sure the timing is right. Here’s a closer look at some common situations when you may want to hold off on refinancing your loan.  </p><h3>1. The interest rate is higher than your current loan </h3><p>If your credit score has gone down or rates have gone up since you first took out the loan, you could end up with a higher interest rate through refinancing. That might be okay if your goal is to get a longer term and lower monthly payments. However, it’s important to do the math first to make sure the trade-off is worth it. </p><h3>2. You owe more than the value of your car </h3><p>Depending on how far along you are into repaying your loan and other factors, like depreciation or missed payments, you may owe more on your current loan than the vehicle is worth. This situation leaves you “underwater” or “upside down” on the loan. Most lenders won’t refinance this type of loan. If they do, the rate and terms will likely be unfavorable. Before applying for a refi, check your car’s value compared to your loan payoff amount to see where you stand.<sup>[3]</sup>  </p><h3>3. You waited too long to refinance your auto loan </h3><p>Lenders typically require borrowers to have at least two years left on the loan in order to qualify for refinancing. Additionally, it can be tough to refinance a car that’s over 10 years old or with 140,000 (or more) miles on it.  </p><h3>4. Your current auto loan has a prepayment penalty </h3><p>Paying off your current loan early could cost you a prepayment penalty fee, often charged as a percentage of your outstanding loan balance. Be sure to read the disclosures and fine print to understand whether your existing loan is subject to any prepayment fees and how much they’ll cost. Then, weigh the fee against the potential savings you’ll get with a new loan to see if it makes sense financially.<sup>[2]</sup>  </p><h3>5. You don’t want your credit score affected </h3><p>Refinancing an auto loan typically results in a hard credit inquiry from the lender, which can cause your score to drop. The dip is usually only a few points, and it’s temporary. However, if you’re in the middle of applying for a mortgage or other credit, it’s probably a good idea to hold off on refinancing your auto loan. <a href="https://www.lendingclub.com/resource-center/personal-finance/key-differences-of-a-soft-credit-check-vs-hard-credit-check"><b>Learn more about soft vs. hard credit inquiries</b></a>.<sup>[4]</sup>  </p><h2>Is refinancing worth it?  </h2><p>Refinancing may be worth it, depending on your financial goals and situation. Before deciding to refinance your auto loans, it’s important to carefully consider your credit situation, interest rates, and your motivation for refinancing. The timing may not always be right, and in some cases it may not even be possible to refinance due to lender restrictions.   </p><p>How to get started refinancing your auto loan If you’re thinking of refinancing your auto loan, you can start the <a href="https://www.lendingclub.com/resource-center/auto-refinance/how-does-refinancing-a-car-work"><b>refinancing process</b></a> by reviewing the details of your current auto loan, including your outstanding loan balance, annual percentage rate (APR), and time left on the loan term. Next, check your credit to make sure it’s in good shape. If it needs improvement, then take steps to <a href="https://www.lendingclub.com/resource-center/personal-loan/how-to-improve-credit-score"><b>improve your score</b></a>.   </p><p>Check with lenders to see what kind of interest rate and terms you can qualify for. Many lenders, including LendingClub Bank, will show you a potential rate without doing a hard credit inquiry. When it comes to actually applying for loans, submit all your applications within a span of a couple of weeks to minimize the impact to your credit score.<sup>[1]</sup>  </p><h2>The bottom line </h2><p>Whether you want to pay off your vehicle faster, have smaller monthly payments, or save on interest, auto loan refinancing can be a powerful personal finance strategy that can be tailored to your unique financial situation. However, it’s important to carefully consider a wide range of factors to determine if the timing makes sense to refinance your auto loan.     </p><hr/><ol><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-before-i-shop-for-auto-loan-at-a-bank-credit-union-dealership-or-other-lender-en-755/#will-my-credit-impact-my-interest-rate">Consumer Financial Protection Bureau</a>. “What should I know before I shop for a car or auto loan?” </p></li><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/can-i-prepay-my-loan-at-any-time-without-penalty-en-843/">Consumer Financial Protection Bureau</a>. “Can I prepay my loan at any time without penalty?” </p></li><li><p><a href="https://consumer.ftc.gov/articles/auto-trade-ins-and-negative-equity-when-you-owe-more-your-car-worth">Federal Trade Commission Consumer Advice</a>. “Auto Trade-Ins and Negative Equity: When You Owe More than Your Car is Worth” </p></li><li><p><a href="https://www.consumerfinance.gov/ask-cfpb/whats-a-credit-inquiry-en-1317/#:~:text=Hard%20inquiries,frequently%20you%20apply%20for%20credit.">Consumer Financial Protection Bureau</a>. “What’s a credit inquiry? </p></li></ol><p></p>

If you’re in the market for a new car, you might be wondering if your current credit score will help you get a good deal or hold you back. Your credit score is an important part of the process, but it’s not the only factor. Though good and excellent credit scores help when taking out any line of credit, it is possible to buy a car with a less-than-ideal score.

<p>If you’re in the market for a new car, you might be wondering if your current credit score will help you get a good deal or hold you back.  </p><p>To buy a car, a credit score of around 660 or higher is typically needed to secure favorable loan terms, though higher scores can lead to better interest rates and more financing options. Lower scores may still qualify for loans but often come with higher interest rates. </p><h2><b>What credit score do you need to buy a car?</b> </h2><p>According to Experian’s Q1 2024 <a href="https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/2024/experian-safm-q1-2024.pdf">State of the Automotive Finance Market</a> report, the typical car buyer needs a credit score of 755 for new car loans and 686 for used car loans. However, don’t be alarmed if your score isn’t there yet—these are just averages, and qualifying for an auto loan can be subjective. A higher credit score doesn’t guarantee approval and a below-average credit score won’t necessarily prevent you from qualifying either.  </p><h3><b>Minimum credit score to buy a car</b> </h3><p>There’s no universal minimum credit score to buy a car—<a href="https://www.experian.com/blogs/ask-experian/what-is-the-lowest-credit-score-to-buy-a-car/">credit score minimums</a> vary from lender to lender. With that said, Experian’s State of the Automotive Finance Market report found that 69% of vehicles financed were for borrowers with a credit score of 661 or higher.  </p><h2><b>Benefits of a higher credit score</b> </h2><p>Of course, having a good credit score (670-739<sup>[1]</sup>) is always better—and it increases your chances of qualifying for a car loan. </p><p>It makes sense. Think about the process from a lender’s perspective. Imagine you’re trying to decide whether or not to lend a stranger money, with the promise they’d return the funds. Would you lend money to someone with a history of missed payments? Or would you prefer to lend money to someone who has historically made their payments on time? That’s why lenders prefer applicants with good credit scores. </p><h3><b>It can save you money</b> </h3><p>A good credit score can also keep money in your wallet. If you have a higher credit score, auto lenders are more likely to offer you loans with favorable terms, like a lower interest rate, longer-term (e.g., a five-year loan versus a three-year loan), or larger loan amount.  </p><p>How much you save may vary by lender. For example, if you have a $20,000 new car loan with a 36-month term, here’s how your credit score could impact your monthly payment and total interest. </p><table><tr><td><p>FICO score </p></td><td><p>720-850 </p></td><td><p>690-719 </p></td><td><p>660-689 </p></td><td><p>620-659 </p></td><td><p>590-619 </p></td><td><p>500-589 </p></td></tr><tr><td><p>Annual percentage rate (APR) </p></td><td><p>7.40% </p></td><td><p>8.55% </p></td><td><p>10.30% </p></td><td><p>12.42% </p></td><td><p>16.76% </p></td><td><p>17.65% </p></td></tr><tr><td><p>Monthly payment </p></td><td><p>$621 </p></td><td><p>$632 </p></td><td><p>$648 </p></td><td><p>$668 </p></td><td><p>$711 </p></td><td><p>$720 </p></td></tr><tr><td><p>Total interest paid </p></td><td><p>$2,365 </p></td><td><p>$2,746 </p></td><td><p>$3,334 </p></td><td><p>$4,059 </p></td><td><p>$5,584 </p></td><td><p>$5,902 </p></td></tr></table><p><i>Source: </i><a href="https://www.myfico.com/credit-education/calculators/loan-savings-calculator/"><i>myFICO.com</i></a><i> as of 8/8/2024</i> </p><h3><b>You have a higher chance of approval</b> </h3><p>If you have a good credit score, you have a better chance of qualifying for a loan through a traditional lender, such as a bank or credit union. These lenders may offer better rates unlike dealership financing which can sometimes be more expensive with less favorable terms—such as prepayment penalties.  </p><h3><b>You can score better interest rates</b> </h3><p>A better credit score can help you score lower interest rates. As you can see from the table above, the interest savings are significant from tier to tier. A credit score in the top tier only pays $2,365 of interest over the life of the loan. Conversely, a score between 500 and 589 leads to $5,902 of interest—an extra $3,537. </p><h3><b>You may have lower monthly payments</b> </h3><p>Owning or leasing a car can be expensive. And auto loan payments plus the cost of car insurance can be a steep line item in your monthly budget. But the higher your credit score, the more likely you are to secure a lower monthly payment for your car loan. That’s less money going out the door and more in your bank account.  </p><h2><b>How to get a car loan with no credit</b> </h2><p>If you have a less than ideal credit history—or no credit history at all—you aren’t relegated to bicycles and public transportation until the end of time. You may still be able to get a car loan. You can improve your strength as an auto loan applicant through a few strategic moves, even if you have minimal or poor credit.  </p><h3><b>Make a bigger down payment</b> </h3><p>When you purchase a car, you’ll have the option to make a down payment. This reduces the size of your loan and helps build positive equity in your vehicle. Lenders like that.  </p><p>More specifically, lenders prefer a lower loan-to-value ratio (LTV). So, if you make a bigger down payment, you decrease your LTV.  </p><p>Keep in mind depreciation waits for no one. Your car&#39;s value takes a hit as soon as you drive off the lot. A down payment can help offset that inevitable drop. </p><h3><b>Find a co-borrower</b> </h3><p>There’s nothing wrong with leaning on the financial shoulder of a partner or relative. If you have lower credit scores (or no credit whatsoever), you can apply for an auto loan with a co-borrower or cosigner that has better credit. That said, it’s worth mentioning that your cosigner effectively promises to cover the loan if you stop making payments.  </p><h3><b>Build credit first</b> </h3><p>Even if you don’t have credit, it’s possible to find a less conventional lender that’s willing to give you an auto loan. However, your loan offer might include higher interest rates, prepayment penalties, or other less-than-desirable terms. If you can manage without a car, it might be a wiser personal finance decision to build credit first and avoid high interest rates.  </p><h2><b>3 Ways to build credit and save money when buying a car</b> </h2><p>Building credit helps you qualify for an auto loan and secure the best terms, such as a lower interest rate. This translates to lower monthly loan payments and more money in your pocket. Fortunately, building credit’s not as complicated as you might think. </p><h3><b>Avoid late payments</b> </h3><p>Your payment history accounts for 35% of your FICO credit score. If you want to increase your score, make your payments on time, every time. This is low-hanging fruit for all wannabe credit-builders out there.  </p><h3><b>Lower your credit utilization</b> </h3><p>Behind payment history, your credit utilization significantly impacts your credit score. By lowering this metric (e.g., paying down credit card debt), you can improve your score and rake in savings on your auto loan. </p><h3><b>Check your credit report</b> </h3><p>Have you checked your credit report recently? If not, you might be selling yourself short to auto lenders. Credit reports aren’t impervious to errors—it’s more common than you’d think.  </p><p>As part of a <a href="https://www.consumerreports.org/credit-scores-reports/consumers-found-errors-in-their-credit-reports-a6996937910/">ConsumerReports study</a>, 5,858 volunteers checked their credit reports for mistakes, and 34% of participants found at least one error.  </p><p>Did you know you’re entitled to free credit reporting each year? You can get a copy of your report from the major credit bureaus: Equifax, Transunion, and Experian.  </p><hr/><p> </p><h2><b>Auto loan credit score FAQs</b> </h2><h3><b>Can an auto loan help me build credit?</b> </h3><p>When you take out your loan, your credit score might take a dip. This is normal because you’re increasing your total debt. But as you make on-time payments and repay your loan, your credit score could increase.1 </p><h3><b>What credit score do I need to buy a car with no money down?</b> </h3><p>Minimum credit score requirements vary from lender to lender—regardless of your down payment. That said, a down payment is still worth considering, especially if you want a lower monthly car payment.  </p><h3><b>How will my credit score affect my car loan?</b> </h3><p>The better your credit score, the better your odds at getting a car loan with favorable terms. A higher score could translate to better rates and the option of a longer term. However, your credit score alone doesn’t guarantee approval or denial (or even access to the best rates).  </p><h3><b>Does my credit score matter when buying a new vs. used car?</b> </h3><p>Your credit score always matters when taking out a loan. So it will still be taken into account regardless if the car is old or new. But if you’re paying cash, the dealer may not need to see your credit report or credit score.  </p>

A lot has changed since the pandemic in how Americans buy their cars. 

<p>If you’ve become discouraged by the new car buying market and are wondering how to get the best deal on a new car in 2023, you’re not alone. A lot has changed since the pandemic in how Americans buy their cars. </p><p>Instead of walking onto a dealer’s lot at the end of the month to grab a last-minute bargain, car-buying in 2023 requires a bit more strategy than before. Doing your research ahead of time is essential, including knowing the local car buying trends in your local area. With a little time and patience, you can put yourself in a position to score a good deal.</p><h2>New Car Buying in 2023: What’s Changed?</h2><p>Just a few years ago, it used to be a car buyer could show up at their local dealership during the last few days of any month to get the best price on a new car. This is because dealerships had end-of-month quotas to meet and excess inventory they were eager to move off the lot. So, in the past, if your negotiations at one dealership failed, all you had to do was move on to the next dealer down the street. </p><p>All of that changed when inventory plummeted and global supply chains fell apart during the pandemic. When worldwide lockdowns drastically decreased driving, manufacturers tightened their belts in response. And in further anticipation of lower demand for new cars, manufacturers also canceled microchip orders. Unfortunately, those predictions were incorrect, and demand for new cars bounced back quicker than expected. Those decisions are what continue to impact new car inventory today.</p><p>Due to microchip and inventory shortages, month-end deals with below-MSRP pricing are a thing of the past. Nowadays, paying the manufacturer&#39;s suggested retail price (MSRP) can be considered a bargain. But there’s some good news for prospective buyers—car prices are projected to decline by 2.5% to 5% this year. So, what does that mean for you?</p><p>The rules for how to get a good deal on a new car have changed, and “good deals” look differently than they did before. To find the best deal on a new car today, starting your car-buying process with a plan, thorough research, and realistic expectations is more important than ever. </p><h2>How to Get the Best Deal on a New Car in 2023</h2><p>If you&#39;re ready to get honest about the 2023 new car market, and <a href="https://www.lendingclub.com/auto-refinancing">refinancing your existing auto loan</a> is not something you want to do, these six steps can help you navigate the new normal in car buying.</p><h3>1. Be flexible.</h3><p>If you want the best deal on a new car, flexibility is key. You decrease your options and negotiating points with every must-have you add to your list of new car criteria. Some areas where flexibility can help increase your options include: </p><ul><li><p><b>Car color: </b>Many dealerships have limited inventory so being flexible on car color can help you prioritize other features you may find more important, such as vehicle type.</p></li><li><p><b>Extra features: </b>Instead of waiting for models with upgraded wheels or roof racks to arrive on the lot, consider adding extras with aftermarket parts.</p></li><li><p><b>Vehicle type: </b>Consider making a list of multiple car types that will serve your needs to set yourself up for the most options at the lot.</p></li><li><p><b>Interior: </b>If you can stay flexible on upholstery and interior finish colors, you can potentially avoid special order-related delays. </p></li></ul><h3>2. Know MSRP (and how to master it).</h3><p>The manufacturer’s suggested retail price, or MSRP, represents the price that auto manufacturers recommend dealerships sell their vehicles for and is usually displayed on a new car’s window sticker. While dealerships may want you to think of the MSRP as the car’s price tag, you should think of it as a starting point for any negotiations. You can find the MSRP on most makes and car models at Kelly Blue Book<sup>®</sup> or Edmunds<sup>®</sup>.</p><p>Once you know the MSRP of the vehicle you’re interested in, it’s a good idea to research the market value, or sale price, of the make and model by zip code. Market value takes into consideration several factors, including current demand, supply, options, and dealer incentives.  If the car you’re interested in is in high demand, a market value of $5,000 over MSRP might be a good deal. Generally, a sale price slightly under MSRP will be a reasonable target. </p><p>Some examples of how MSRP can empower you in the dealmaking process include:</p><ul><li><p><b>Price comparison: </b>Since MSRP is the same across dealerships, knowing a car’s MSRP helps you accurately compare prices.</p></li><li><p><b>Confidence:</b> Knowing a car’s MSRP and local pricing trends puts you in a better position to negotiate when you’re at the dealership.</p></li><li><p><b>Market savvy:</b> When you combine MSRP and local pricing trends, you can better evaluate whether a deal is a good or bad.</p></li></ul><h3>3. Go domestic.</h3><p>Given that U.S.-based car manufacturers have been working to rebuild their inventories, the best new car deals in 2023 could be on domestic cars. While you might have been an import loyalist before the pandemic, considering domestic makes and models could mean better options as well as make negotiating somewhat easier. </p><p>Some ways going domestic could aid your new car search include: </p><ul><li><p><b>Higher inventory:</b> Inventory is low across the board, however, most domestic brands generally have a 30-day supply (and faster availability for buyers), which is higher than many foreign manufacturers.</p></li><li><p><b>Cheaper transport:</b> Since domestic cars are only transported within the U.S., their transportation costs will be lower than imported models (which means lower costs for buyers).</p></li><li><p><b>SUVs and trucks:</b> Domestic manufacturers typically have a wide range of models that could meet your needs.</p></li></ul><h3>4. Be a local market pro.</h3><p>New car pricing, models and availability vary by city and region. That’s why it’s essential to learn about your local new car market—including top models, pricing and current inventory. The more knowledge you have, the better you’ll be able to negotiate.</p><p>Once you have an idea of your preferred makes and models, contact multiple local car dealerships to inquire about:</p><ul><li><p><b>Inventory: </b>Knowing whether a car is in stock or requires a special order can help you negotiate a better deal.</p></li><li><p><b>Pricing: </b>When you get price quotes, ask for “out-the-door” prices and get everything in writing via email or text <i>before</i> you visit the dealership.</p></li><li><p><b>Documentation fees:</b> This fee (which usually covers administrative paperwork) can vary widely, so ask for a firm quote.</p></li><li><p><b>Manufacturer financial incentives: </b>Ask about any available manufacturer rebates and incentives, including down payment specials and promotional interest rates.</p></li><li><p><b>Dealer promotions: </b>Local car dealers are in constant competition, so it’s worth asking them about matching another dealer’s price offer.</p></li></ul><h3>5. Buy online.</h3><p>If you can’t find the car and options you want at a local dealer, look at what you can find on the online auto marketplace. You can buy a new car online sight-unseen, or by test-driving the car you want locally, then placing a deposit on a similar vehicle online for delivery at some point in the future. </p><p>In addition to the shop-in-your-pajamas experience, buying a new car online can help you:</p><ul><li><p><b>Find exactly what you want: </b>Comparing different vehicle makes, models, features, and options from the comfort of home eliminates the pressure and time that comes with visiting multiple dealerships.</p></li><li><p><b>Compare prices:</b> Online auto marketplaces make it simple to compare prices on the same make and model across multiple dealerships nationwide.</p></li><li><p><b>Go nationwide:</b> If your ideal car isn’t available close to home, an online buying experience can find (and arrange delivery) of your vehicle in any of the 48 contiguous states.</p></li></ul><h3>6. Don’t ditch the old rules completely.</h3><p>The car market has changed significantly, but that doesn&#39;t mean throwing out car buying rules of the past that still make sense. Some rules of thumb to continue include: </p><ul><li><p><b>Time your shop. </b>Want extra attention and assistance while you shop? Weekdays are still the best days to visit a new car lot because dealerships are usually less crowded.</p></li><li><p><b>Value your trade-in. </b>Know what your trade-in is worth before you make a deal. Consider using Kelly Blue Book<sup>®</sup> or Edmunds<sup>®</sup> to determine the fair market price (for private sales) and trade-in price (for dealerships).</p></li><li><p><b>Shop the sales. </b>Sales still exist in this market, so keep your eyes peeled for major sales events on holiday weekends like July 4 and Labor Day. Also look for year-end sales events from October to December when generous savings and incentives on vehicles from the outgoing model year are likely to continue. </p></li><li><p><b>Cast a wide net.</b> It’s still true that driving a few hours outside of your city to a less populated area could potentially save you hundreds, if not thousands, of dollars on the price of a new car.</p></li></ul><h2>The Bottom Line</h2><p>For anyone who wants to know how to get the best price on a new car in 2023, there are few things to keep in mind. If you can be flexible on make, model, and features, the more options you’ll have in a market where supply and inventory remain somewhat constrained. Be willing to do a bit of research on market value and price trends so you’re better equipped to negotiate and make a reasonable deal given today’s market conditions. </p>

Is now a good time to buy a car? At the time of this writing, inventory shortages, rising interest rates, a lack of dealer incentives, and a stressful shopping experience are still making the car-buying process unusually difficult for buyers of both new and used cars.

<p>Is now a good time to buy a car? At the time of this writing, inventory shortages, rising interest rates, a lack of dealer incentives, and a stressful shopping experience are still making the car-buying process unusually difficult for buyers of both new and used cars.</p><p>Being able to find a bargain isn’t the only consideration when thinking about buying a car. Car shoppers who need a vehicle now (or who want to take advantage of high trade-in values or new electric car tax credits) may choose to move forward regardless of the car market. And </br>since the market is constantly changing, when is the best time to buy a car changes, too.</p><p>Here’s what to consider if you’re trying to decide whether to buy now or wait.</p><h2>What Makes a Good Time vs. Bad Time to Buy a Car?</h2><p>When the objective is getting the car you want at the lowest possible price, there are four key factors that come into play:</p><h3>Auto market</h3><p>When cars are plentiful, it’s relatively easy to find the make, model, and features you want. When inventory is in short supply, as it is now, the car with the features you want may not be readily available. When dealers have excess inventory, buyers have a bit of bargaining power. </br>But in today’s tight automobile market, buyers are routinely <a href="https://mediaroom.kbb.com/2022-12-12-As-Luxury-Share-Grows,-New-Vehicle-Prices-Hit-Record-High-in-November,-According-to-Latest-Kelley-Blue-Book-Average-Transaction-Price-Data">paying above the manufacturer’s suggested retail price</a> (MSRP).</p><p>New and used car prices don’t always move in lockstep, but the two markets affect each other since many new car buyers are also looking to trade in a used car. Used car prices have soared in the past few years. If current trends continue, we may begin to see auto prices stabilizing somewhat.</p><h3>Cost of financing</h3><p>The interest rate you pay on a car loan has a significant effect on your overall costs, both in </br>monthly payments and in total. Rising interest rates in 2022 have caused some buyers to choose less expensive cars or extend their loans to six years or more to keep monthly payments affordable.</p><h3>Available incentives</h3><p>In a favorable car market, car manufacturers and dealers offer discounts, cash back, or 0% financing to entice you to buy. In a tight market, these incentives are harder to come by, increasing the net cost of buying a car.</p><h3>Your flexibility</h3><p>If you’ve got the financial flexibility to wait out a difficult car market, it can provide you with some leverage. Though no one knows when pricing will return to normal, market conditions may be more favorable in a year or two, giving you a chance to save up and wait for the right time to buy. If your car was recently totaled, however, or your monthly repair bills are through the roof, you may need to act anyway.</p><h2>What Can New Car Shoppers Expect?</h2><p>Supply chain issues with car parts, including the tiny microprocessors that go into most of the new cars being built today, have created a global shortage of new car inventory. As a result, new automobile prices are up across the board. Kelley Blue Book® (KBB) reports the average price of a new vehicle was <a href="https://mediaroom.kbb.com/2022-12-12-As-Luxury-Share-Grows,-New-Vehicle-Prices-Hit-Record-High-in-November,-According-to-Latest-Kelley-Blue-Book-Average-Transaction-Price-Data">$48,681 in November 2022</a>, up 28% from pre-pandemic levels.</p><p>Tight inventories have not only driven up the price of new cars but have also changed the car-buying experience. On top of not being able to find the make and model you want, contacting multiple dealers, agreeing to extra features or dealer fees you don’t want or need, and paying more than the sticker price, are all commonplace. It’s a seller’s market.</p><h2>What Can Used Car Shoppers Expect?</h2><p>According to KBB, at the end of 2021, the average used car in America sold for $28,205, 42% higher than in December of 2019, just before the COVID-19 pandemic began. People held onto their cars during the pandemic, first because they weren’t driving much, then because buying a new car became challenging. With inventory short, used car prices have soared.</p><p>A high trade-in value can help offset the high price of a new car, provided you can find a new car to buy. But high prices don’t help used car shoppers, many of whom are looking for affordable alternatives. Late last year, used car prices began stabilizing as dealers paid lower wholesale prices for used vehicles and passed the savings along to customers. However, used cars priced at $10,000 or less are still in short supply</p><h2>How Long Will Supply Chain Issues Last?</h2><p>Despite some easing in the global chip market, vehicle manufacturers continue to have difficulty securing inventory. Coronavirus shutdowns and conflicts overseas are still causing further supply chain issues for carmakers both in the U.S. and abroad. Although no one can pinpoint exactly when supply chain issues will resolve, many industry insiders expect issues to continue well into 2023.</p><h2>How Do Fed Interest Rate Hikes Affect Financing?</h2><p>While automakers last year were unable to make enough vehicles to keep up with consumer’s eagerness to buy, this year sales could remain soft—due to weakening demand. After average automobile prices had already risen to record highs, multiple interest rates increases by the Federal Reserve have made vehicle purchases even less affordable for those who need financing.</p><p>Financing the purchase of a new car is a growing challenge for consumers. Borrowing costs can add thousands to the cost of a vehicle purchase, which can also affect how much and the type of car you can afford. Since the beginning of last year, the Fed has raised its benchmark interest rates numerous times, causing interest rates on consumer loans and credit to also rise. In turn, higher interest rates have made financing a car more expensive.</p><p>For example, let’s say you needed to finance $40,000 to buy a car. A five-year loan at 3.5% APY would cost you $728 monthly and $43,660 over the life of the loan. At 6.5% APY, the same loan five-year loan would cost you $783 monthly and $46,959 over its life–an increase of $3,299.</p><p>A rising interest rate environment isn’t the only factor that can affect your APR on a car loan. Your credit score also plays a significant role. According to a <a href="https://www.experian.com/blogs/ask-experian/auto-loan-rates-by-credit-score/">recent report from Experian</a>,car buyers with excellent credit can expect to qualify for lower interest rates than buyers with fair or poor credit, varying by nearly 10 percentage points on new car loans, and by nearly 17 percentage points on used car loans.</p><h2>Should You Keep Your Current Car?</h2><p>If you’re just flirting with the idea of a new car, you might decide to wait until the market softens–or at least give yourself time to shop around for a good deal. However, if you need a new (or new-to-you used) car urgently, you may not be able to put off your purchase. Similarly, if your current car is in need of continual repairs, it may be more costly to keep it than to replace it with a more reliable vehicle.</p><p>While there are some signs of supply chain issues easing, if inventory problems persist into this year, new car prices may remain high. Used car pricing may soften a bit, which would be good news for used car shoppers, but lost leverage for new car buyers hoping to get top dollar for their trade-in. Meanwhile, interest rates on car loans may also continue to rise if the Federal Reserve hikes interest rates again in the months to come.</p><h3>Refinance Your Existing Car Loan</h3><p>If you decide to keep your current car and your credit has improved since you took out your original loan, you might want to look into <a href="/resource-center/auto-refinance/when-can-i-refinance-my-car-loan">refinancing your existing car loan</a> to see if you can lower your payment.</p><p>LendingClub Bank requires at least two years’ worth of payments left on your existing auto loan to do a refinance. If you find that you do qualify for a lower rate on a new loan, you may be able to lower your monthly payments. Extending your loan term length (e.g., from your two remaining years to three) could also lower your monthly payments, though that may also increase the total amount of interest you pay.</p><h2>5 Tips for Finding a Better Deal on a New Car</h2><p>No matter the timing of your new car purchase, you can increase your chances of getting a good deal using these tactics:</p><h3>1. Contact multiple dealers.</h3><p>To find the car you want and to get the best possible price it always pays to shop multiple dealers first. Cars that are in high demand may require searching many dealers over weeks or months to locate the make and model you want.</p><h3>2. Pre-order your new vehicle.</h3><p>If you find a dealer you can work with, ask about pre-ordering your new car so you’re not stuck with a trim level you don’t like or unwanted extra features that add to your costs. Keep in mind, due to the computer chip shortage, you may be waiting up to six months (or more on some new cars) for your new vehicle to arrive.</p><h3>3. Get federal and state tax credits and incentives on EVs or hybrids.</h3><p>Under the passage of the $369 billion Inflation Reduction Act, buyers of <a href="https://evlife.co/blog/ev-tax-credit-inflation-reduction-act-2022/">qualifying electric and plug-in hybrid vehicles</a> in 2022 may still receive up to $7,500 as a nonrefundable federal tax credit on their tax returns. But rules are changing. While the Act promises to accelerate electric car affordability for millions of Americans, the availability of federal tax credits will decrease dramatically before ramping up over the long term. Over the next couple of years, and until automakers meet strict new guidelines for battery manufacturing, fewer electric cars will qualify for EV tax credits. One bright spot is that many states will continue to offer generous rebates and tax credits of their own.</p><h3>4. Shop around for the best loan.</h3><p>Dealer financing may come with markups that can add to your overall cost of financing. It’s always a good idea to compare APRs with your bank, credit union, or online lenders. You may be able to get approved for a lower-rate loan so you don’t have to negotiate dealer financing. (But if you do wind up with a higher APR than you had hoped for, you may be able to <a href="/auto-refinancing">refinance your car loan</a> to a lower rate later on with a different lender.)</p><p>But what if after securing preapproval you’re not able to actually take delivery of a car you ordered until weeks or months later? Many bank or credit union preapprovals expire in 30 or 60 days. So, if you need more time to complete your purchase, you may have to get re-approved for your loan. Alternatively, you can try to get a preliminary estimate on financing from the dealer when you place your order, then comparison shop for loans when you’re 20 to 30 days out from delivery.</p><h3>5. Keep your options open.</h3><p>Whether the market favors buying or not, walking away from a car (or loan) you can’t afford helps you stay on track. Don’t be afraid to scale down or look for alternatives if the deal you’re offered doesn’t meet your expectations.</p><h2>The Bottom Line</h2><p>The best time to buy a new car, used car, or do a trade-in depends on several factors: auto market supply, loan rates, dealer incentives, and how long you’re willing to wait for a good deal to appear.</p><p>Most importantly, know your options: figure out how much you would pay for a new car versus used, how much you could get for your old car, and what your new monthly payment might be should you need to finance your purchase. Then weigh the value of getting a newer, more reliable car against the cost of maintaining your current vehicle. After all this, if you find a car thatfits your needs at a price you can live with, it could be the right time to buy a car.</p><p>If you choose to keep your existing vehicle for now, see if you could save money on your original dealer loan by looking into an <a href="/auto-refinancing">auto refinance loan</a>.</p>

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