When money gets tight, you start looking for ways to lower your monthly expenses. One thing many people think about is refinancing their auto loan. At first glance, it seems like an easy fix—just get a better interest rate, lower your payments, and move on with life. But refinancing your car loan isn’t always that simple. It can be a helpful option if you do it right, but the truth is, many people make the same mistakes that cost them time, money, and even credit score damage.
If you’re thinking about refinancing your auto loan, take a few minutes to read about the most common errors you’ll want to avoid. Knowing what not to do can save you from making a decision you’ll regret.
Not Understanding How to Refinance an Auto Loan
You might think refinancing is just about switching lenders for a lower interest rate, but there’s more to it. Before you take action, you should understand how to refinance an auto loan. It starts with checking your current loan details—how much you still owe, your current interest rate, and how many months are left in your term. Then, compare offers from other lenders to see if the new deal is actually better.
Many people refinance without looking at the full picture. For example, if you’re near the end of your original loan term, refinancing into a new loan with a longer term may lower your monthly payment but cost you more in total interest. You should also check your credit score before applying. If your credit hasn’t improved since you first got the loan, you may not get better terms at all.
Ignoring Trusted Services
Another mistake is going straight to your bank or the first online lender you find. It’s smart to shop around, and that includes using companies that specialize in auto loan refinancing. Services like RefiJet help people find the best refinancing options based on their credit, car value, and loan goals.
Some borrowers miss out on savings because they don’t know about trusted services. These platforms can do the heavy lifting for you—comparing multiple offers, guiding you through the application, and explaining your options. Not using a service like this could lead you to accept a deal that’s not really in your favor.
Stretching Out the Loan Term Too Much
It’s tempting to refinance your car loan for a longer term so you can get lower monthly payments. And yes, that can help with your budget. But if you stretch the loan out too far, you could end up paying way more interest than necessary. Even worse, your car might lose value faster than you pay off the loan. This is known as being “upside down” on your loan, where you owe more than the car is worth.
You need to find a balance between monthly savings and the total cost of the loan. If you can, try to keep the loan term as short as possible while still keeping payments affordable.
Not Checking for Fees or Penalties
Some lenders charge prepayment penalties or fees when you refinance. If your current loan has a penalty for paying it off early, it could eat up the savings from refinancing. Other times, your new lender might add fees for processing, title transfer, or other services. These hidden costs can make a deal look better than it actually is.
Before signing anything, read the fine print. Ask questions. Make sure the savings you see on the surface aren’t being canceled out by fees you didn’t expect.
