Car Refinancing Basics

Auto refinancing is when you replace your current automobile loan with a new loan that has better or different terms.

What is auto refinancing?

Auto refinancing is when you replace your current automobile loan with a new loan that has better or different terms. The new loan pays off your original loan and you open a new loan with new paperwork, a new loan rate and new terms and conditions.

 

When to Refinance Your Car

There are many reasons why someone might need or want to refinance their car:

• Interest rates have gone down since you took out your original loan. If interest rates have dropped, it is worth talking to a lender and seeing what your potential savings could be over the life of the loan.
• You didn’t get the best deal possible when you purchased the car and would like a more favorable loan now. Car dealerships may not offer the best rates possible. If you took out your loan with a dealer and did not negotiate the interest rate, a refinance could save you a lot of money over the life of the loan.
• Your personal finances have changed and you would like a lower monthly payment. While refinancing can reduce your monthly payments, it often means taking a longer loan payoff period. Your car will also depreciate during that time and you may pay more in interest over the life of the loan. Term restrictions may also apply depending on the year of the vehicle.
• Your credit has improved since you received your original loan. If you previously had bad credit or no credit, checking to see if you can get a better deal a few years down the road is a good idea. You may receive better offers and save money over the life of the loan with a lower interest rate.

How to Refinance Your Car

Before you decide to refinance, talk to a few lenders to see what rates they offer and whether it will save you money over the life of the loan. Find out if there is a prepayment penalty, or fee for paying off your other loan early, and what others fees you may be responsible for when you refinance. You will also want to make sure your car’s value is more than the loan amount left, or it could be hard to get a new loan. Some lenders may have restrictions about the age of the car they will refinance.

Once you have determined if refinancing is a good option, prepare your documentation. You will likely need a number of documents on hand to apply for a new loan.
• Proof of income
• Evidence of auto insurance.
• Information on your current loan.
• Information about the car, including the make, model, mileage, year and vehicle identification number, or VIN.
• Your driver’s license.

After you have gathered your documentation, shop around. Look for loan promotions in your area and get prequalified with a few different lenders. Some lenders also offer a discount if you use an automatic payment option, so don’t forget to ask.

GAP Insurance

GAP, also known as Guaranteed Asset Protection, provides the consumer with protection in the event of a total loss of the covered car due to vehicle theft or an accident. If a total loss occurs, you file a claim and GAP will pay off the residual loan balance that the primary claim fails to pay. Given the ever-increasing costs of a complete vehicle restoration after an accident, GAP protection may be needed more now than ever before.

When to Get Car GAP Insurance

As a general rule, if you have less than 20% equity in on the car when you open the loan, GAP coverage should be considered. Conversely, if you enter the loan with more than 20% equity in the car, GAP coverage becomes less beneficial and effective. Also, the longer the loan period, the more helpful GAP coverage becomes.

Our lenders are happy to answer your questions, even if you are not an RCB Bank customer. Connect with a lender in your area.

Financing available with approved credit. Other qualifications, restrictions, and conditions may apply.

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GAP – Payment Protection for Life’s Unexpected Moments

Learn About GAP

Protect your assets.

By Brent Carroll, RCB Bank Lending

New cars can quickly depreciate in value causing your auto insurance to pay less than what you owe on your car loan. What happens when an accident totals your car? Who pays the difference between the insurance settlement and your outstanding loan balance? You do. Or, maybe not.

Get$Fit Tip: Protect your assets.

It may be worth buying Guaranteed Asset Protection (GAP) coverage to help you avoid the risk of negative equity and having to continue making principal payments after a total loss. Depending on your loan term, GAP adds on average an estimated $7-$111 to your monthly loan payment, but it potentially could save you thousands of dollars in the event of loss.

After insurance settles, GAP will pay off your remaining loan balance2, including up to $1,000 of your car insurance deductible.

 

When GAP may benefit you:

• You make a small or no down payment on a new car
• You agree to a loan term longer than 48 months

Talk to a lender for details to see if GAP is right for you.

Our lenders are happy to answer your questions, even if you are not an RCB Bank customer. Connect with a lender in your area.

Invest in yourself. RCBbank.com/GetFit

1GAP insurance costs varies between lenders and loan terms. See your lender for specific questions regarding your personal loan qualifications and overall costs. 2GAP Insurance covers the residual value of the loan as of the date of loss. Ancillary products can be purchased at an additional cost, which vary based on loan terms. Qualifications and restrictions apply. Above example is for generic illustration purposes only, based on 700 credit score. Does not factor in down payments, additional fees or other costs. Subject to credit approval. Rates are accurate as of June 15, 2018, and subject to change without notice. Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. Member FDIC and Equal Housing Lender, RCB Bank NMLS #798151.
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A case for shorter term loans

Get$Fit tip for how to save money on your auto loan

Car driving

Is a longer-term, lower monthly payment loan saving you money?

Probably not.

Lower monthly payments of longer-term loans often come with higher interest rates, which means you end up paying more money over the life of your loan.

When it comes to borrowing money, it’s wise to consider the total cost of your loan.

If you can afford a higher monthly payment, accepting a shorter-term loan could save you thousands of dollars.

lower monthly payment and a longer loan term may cost you more money overallLet’s crunch the numbers on a 48-month (4 year) and 72-month (6 year) auto loan with example an example rate of 2.89% annual percentage rate (APR) for 48 months and 3.89% APR for 72 months for qualified buyers. Rates are for illustration purposes only; See a lender for current rates.

On a $30,000 new car loan, total interest increases from $1,805 for a 48-month term to $3,687 for a 72-month term – a significant cost difference of $1,882.

Focusing on the total loan cost will help you avoid buying more car than you can afford, plus help you avoid owing more on your car than what it is worth.

The longer the financing term, the more susceptible you are to having negative equity and being upside down on your loan.

A typical new car can lose close to 22-percent of its value in the first year, and roughly 12-percent annually in years two through four, according to data from the online car-pricing company Edmumds.com.

If you do go with longer financing, consider buying Guaranteed Asset Protection (GAP) coverage to help mitigate the risk of negative equity and having to make additional principal payments after a total loss. Having GAP can help with the difference between the primary insurance settlement and the outstanding balance on your vehicle on the date of loss. Ask your lender for details.

Get$Fit Tip: Before car shopping, get pre-qualified for financing so you know your numbers. Then, stick to your budget.

Our lenders are happy to answer your questions, even if you are not an RCB Bank customer. Connect with a lender in your area.

Invest in yourself
RCBbank.com/GetFit

RCB Bank Learning Center articles are for education purposes only. Opinions expressed above are the personal opinions of the author and meant for generic illustration. Scenarios, terms and rates shown are only examples as of May 2018 and are subject to change without notice.  Member FDIC and Equal Housing Lender, RCB Bank NMLS #798151. Brad Ward, NMLS #536616.
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Avoid this car-buying mistake

Tips to help you save money on your next car loan.

The Problem

Buying a car is a major purchase. Budgets are tight. It’s tempting to accept financing based on the lowest monthly payment, but this may prove a costly mistake. Here is why.

Lower monthly payments often mean longer loan terms and higher interest rates. You may be able to obtain 84-month term (7 year) financing and a budget-friendly monthly payment, but you’ll pay more over the life of the loan. You also risk becoming upside down on your loan, owing more money for your car than it is worth.

Don’t be payment-driven. Save up as much as you can and negotiate the sales price down, not the monthly payment.

The Solution

Here are additional tips to help you keep your car buying costs as low as possible.

  1. Know your credit score. More importantly, know the details in your report. Your credit score will determine which loan you will qualify for and the interest rate you’ll pay. Start reducing your current debt now to improve your score and financing options.
  2. Get pre-approved. Know the exact amount you can spend before you start looking (and stay under that number). Start with your financial institution and shop around. A banker can also access car evaluations to improve your bargaining power with the dealership.
  3. Focus on price. Know what the car is worth, not what the dealer tells you it is worth. Do your homework. Check NADA guides. Shop online. Compare dealers. View the car evaluation with your banker. Then go to the dealership and negotiate a fair purchase price for the car, not your loan payment.
  4. Decide needs versus wants. You may want a newer model vehicle but do you want — can you honestly afford — the higher purchase price and possible higher interest rate? It’s a matter of choice. I encourage you to save up as much money as possible before you shop so you have more choices.  With a higher down payment, you can borrow less money. You can choose a higher monthly payment with a lower term, which will save you more money over the life of the loan.

Avoid the payment-driven temptation and start saving up now for your next vehicle. In the meantime, explore your financing options and ask your banker what you can do to improve your credit score.

Final piece of advice: Don’t be afraid to walk off the lot.

Don’t rush your decision and accept the first offer. It’s your money and your life. Be good to yourself.

Our lenders are happy to answer your questions, even if you are not an RCB Bank customer. Connect with a lender in your area.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. Member FDIC and Equal Housing Lender, RCB Bank NMLS #798151. Curtis Bales, NMLS #800411.
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Prepare before you step inside a dealership

Ways to improve your car buying experience

inside of car dealership

Buying a car can be intimidating, even if you’ve done it before.  Sales people, negotiations, paperwork  – it can be a whirlwind of emotions. For most people, buying a car is the second largest purchase they will make in their lifetime. A little preparation before you step onto the dealership floor may improve your car buying experience.

Get preapproved.

If you know the financial institution you will be using to finance your next car, get preapproved for a loan so you know your budget upfront. Car shopping is less complicated when you know your maximum purchase price. It’s easy to get blinded by a shiny new car and all the extras only to find it is out of your budget.

When you have your financing approved, you can focus on other aspects, like car reviews and purchase price to ensure you are getting the best deal.

Do your homework.

There are a number of websites to research the dependability and safety of cars. Find out what similar cars are selling for in your area. Then, compare your potential purchase to its value on websites such as Nadaguides.com.

Trade in your car.

If you will be trading in your car, know the payoff amount and make sure the dealer will pay off your loan in full. Research the value of your trade-in to know what you should expect before going into the dealership.

Think through term limits.

Don’t overpay. An important, and often overlooked factor in auto financing, is the loan term. The loan term is the number of months you have to pay off your car. Many dealerships will finance a car for seven or even eight years. This may look good on paper but you must think long term.

Before you sign, ask yourself:

  • Will I own this car for seven or eight years?
  • Will the car’s value still match my loan payoff?

People forget to ask these questions before they purchase, and some end up upside down in their car. This means their loan payoff is more than the car is worth and they have negative equity.

Watch your overall interest cost. While financing a longer term may allow you to buy a more expensive car at a lower monthly payment, you will also pay more interest on long-term loans. Always compare the potential outcome and consider what is best for your future car buying experiences.

You are the customer.

You decide where to finance your car, not the dealership. While dealerships may have a competitive rate or loan term, ask yourself some questions.

  • Does the dealership have my best interest in mind?
  • If I have problems with my loan, who will I call for help?
  • Does the dealership know me better than my bank?

You hold the cards when it comes to where you finance your vehicle, so do what feels comfortable to you.

Our lenders are happy to answer your questions, even if you are not an RCB Bank customer. Connect with a lender in your area.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. Member FDIC and Equal Housing Lender. RCB Bank NMLS #798151.
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