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How to Refinance a Car Loan

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

You might have heard people talk about refinancing their home to get a better interest rate. But did you know you might be able to do that with your vehicle loan too? There are many reasons to refinance a vehicle loan, including potential interest savings if your credit has improved since you bought the car. Learn how to refinance a car loan below.

What Does It Mean to Refinance a Loan?

Refinancing a loan means taking out a new loan to cover the old debt. For example, imagine you bought a car for $20,000 and financed the entire purchase price. You’ve been paying on it for a while, and you now owe $15,000.

If you decide to refinance the loan, you get a new loan (with new terms) for $15,000. The funds from that new loan pay off the old loan, and you begin making monthly auto payments on the new loan.

Reasons to Consider Refinancing

Refinancing might sound like shuffling money around, but it can serve a purpose. Some reasons to consider refinancing a car loan can include:

  • You have better credit than you did when you first got the loan. You may be able to get a better interest rate on a refinance and save yourself a lot of money over the rest of the life of the loan. For example, the difference between three percent and six percent on a $25,000 car loan over 60 months is close to $2,000.
  • You want a lower monthly payment. You may be able to refinance with better terms or extend your loan longer, which can reduce your payment. For example, if you originally financed for 60 months, you could refinance for 72 months and reduce your payments.
  • You aren’t satisfied with your lender. If you don’t like the service at a specific restaurant, you dine somewhere else. If you don’t care for the quality of the goods at a certain store—or the cashiers there are always ringing you up incorrectly—you can start shopping somewhere else. And if you don’t like the quality of service you get from your current vehicle loan lender, you can refinance your loan and work with a different bank.

5 Steps for Refinancing Your Car Loan

While the details vary from situation to situation, the process for refinancing a car loan does not. If you want to know how to refinance a car loan, you can follow the steps below in most cases.

1. Decide If Refinancing Is Right for You

First, decide if refinancing a car loan is right for you. This is a financial process that might have an impact on your credit, so you do want to ensure you have a good reason for going through it. Weigh the benefits with any potential consequences.

For example, if you want to refinance to lower your car payment, you may refinance with a six-year loan. That could add several more years of payments—including interest—which could mean you pay more out over the life of the loan than you intended.

If you need the wiggle room in your budget right now but believe your income will increase in the near future, this might still be okay, because you could benefit from the lower payment now and then pay more on the car per month in the future to pay it off faster.

Obviously, your situation is unique, but applying this type of forward-thinking consideration helps you make the decision that’s right for you.

2. Gather Information and Check Your Credit

Once you have decided you want to refinance a car loan, start with a bit of research. Here is some of the information you may want to gather:

  • Information about your existing loan, including the interest rate, the monthly payment and your payoff amount. The payoff amount is around what you’ll need to borrow to refinance. It’s a good idea to know your interest rate and terms so you can tell if you’re getting a better deal with your refinance.
  • Your current income and personal details. You will likely need to enter this on any loan application.
  • Your credit score and an understanding of your credit history. Whether or not you can get better terms with your refinance may depend on whether or not your credit has improved or at least stayed the same, so it’s important to know where you stand before you start applying for loans.

3. Shop Around for the Best Terms

Research auto loan refinance options to find the best terms you may be able to apply for. In some cases, you might be able to get preapproved for loans based on information you enter and a pull on your credit report.

If you go through preapprovals or approvals for several loan options, make sure to keep your applications all within around a 14-day period. This helps ensure the credit bureaus treat it like one inquiry and not a bunch of hard inquiries for credit. Hard inquiries lower your credit score slightly, so when you can limit them to one, it’s better for you.

4. Prepare and Submit Your Loan Application

Once you choose a lender, prepare and submit your loan application. Take your time entering all information. A loan application could be denied simply because a typo made it impossible to pull your credit or made it look like you didn’t make enough money to afford the monthly payment.

If you apply for an auto refinance online, you may hear back within seconds. But in some cases, lenders might take one or two days to respond. They might also reach out to ask you for more information as they consider your loan. If you apply, keep an eye on your contact methods, such as emails or texts, and respond in a timely manner to any requests for documentation or clarification.

If you don’t respond, your loan application could be denied simply because the lender didn’t have all the information they needed to make a decision.

5. Begin Making Payments on Your New Loan

When the loan is approved, the new lender will make a direct payment to the old lender. Your old loan is paid off and closed, and you begin managing your new loan. Make sure you start making payments on time to the new loan to avoid fees and negative reports to the credit bureaus. You might think that you have improved your financial situation and credit history over time and are in a great place to refinance a car loan.

But when you check your credit, you might find some surprise negative items bringing down your score and affecting your opportunity at refinancing to save money. If you discover inaccurate or fraudulent negative items on your credit report, Lexington Law’s credit repair services can help you challenge them and set the record straight for the benefit of your credit score.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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Do I need a rainy day fund?

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

When it comes to your finances, not every day can be rainbows and sunshine, and unexpected expenses can pop up more often than you’d like. While budgeting is an essential part of financial planning, sometimes setting aside money for unplanned expenses can go right over your head. To avoid going into debt over small inconveniences, setting aside money and putting it into a rainy day fund is crucial.                      

In this article, we’ll go over what a rainy day fund is, how it differs from an emergency fund and how much you should be saving. We will also give you tips on how you can save for those stormy days. 

What is a rainy day fund?

In 2019, 15 percent of adults said they would use a credit card a carry a balance to cover a $400 unexpected expense. Source: Federal Reserve.

The purpose of a rainy day fund is to have money set aside that is readily available for life’s unexpected financial situations that tend to occur outside of your normal living expenses. Whether you need to buy a new phone or have to pay for an unexpected car repair, a rainy day fund can help you cover the costs of these unplanned and inconvenient situations. 

If not accounted for, these costs can disrupt your monthly budget, which can in turn increase your chances of going into credit card debt. According to the Federal Reserve, 37 percent of adults said they could not or would not pay for a sudden $400 expense with cash or a cash equivalent, with 15 percent saying they would use a credit card and carry a balance to cover the costs (and 12 percent wouldn’t be able to pay by any means). 

Having a financial cushion such as a rainy day fund can help individuals afford the costs of these expenses and avoid racking up unnecessary debt.

Rainy day fund vs. emergency fund

Though they may seem similar, emergency funds and rainy day funds are not the same. Emergency funds are meant for larger financial emergencies and act as a financial safety net when things like a job loss or a sudden medical expense occurs. 

Should an emergency like this happen, you would have money to cover everyday expenses, such as rent, groceries, car payments and other recurring bills. Many experts recommend having at least three to six months’ worth of living expenses saved in an emergency fund, but this amount can differ depending on your circumstances. 

In simple terms, emergency funds are used for great financial hardships, while rainy day funds are used to cover smaller, unforeseen expenses. 

How much should you have in a rainy day fund? 

Saving for a rainy day fund can look different for everyone depending on their needs and lifestyle but having at least $500 to $1,000 saved is usually recommended. This amount should be able to cover smaller expenses that come up and help put your mind at ease whenever they occur. 

On average, you should aim to have $500 to $1,000 in your rainy day fund. Source: Lexington Law.

When forecasting your rainy day budget, consider any long-term expenses that could pop up. Do you have a pet that is nearing old age that may need to be taken to the vet any time soon? Maybe you have children and want to budget for those impromptu doctor’s office visits. Whatever your situation, a rainy day fund can be the umbrella that protects you from any unexpected financial storm. 

Where should I put my rainy day fund? 

Your rainy day fund should be liquid, meaning it is easily accessible to you and can be pulled out at any given moment, without any additional fees. Money market accounts, high-yield bank accounts and traditional savings accounts are all great options that can keep your money safe and accessible. Your rainy day fund should be kept separate from your other accounts, such as your emergency fund. Avoid tapping into your savings, as this money should only be used when small inconveniences arise. 

4 quick tips on saving for a rainy day fund

Saving for a rainy day fund can be fairly simple. Since these accounts are for smaller expenses and don’t require a hefty amount of cash, you can likely save up enough money within a year. Here are four quick saving tips to help get you started: 

1. Tighten up your budget 

As with any savings account, you want to take a hard look at your budget and see if you can afford to cut down some of your spending. For example, you can save money by eating out less and cooking at home more. You can also limit your coffee runs to only once a week as opposed to every day. This type of spending adds up, and by tightening up your budget a bit, you’ll be able to quickly put that money into your rainy day savings. 

2. Set up automatic transfers 

Automatic transfers are an easy way to put cash aside without even having to think about it. Set up an automatic transfer from your checking account to your savings account and determine a monthly amount that is feasible for your budget. Transferring $50 every month will put your savings account at $600 in one year.

Another option is a swipe-and-save feature, which most banks offer. Each time you swipe your debit card, your bank will automatically transfer $1—or any amount you choose—into your savings account. Though this may seem like a small amount, you’d be surprised how fast it can add up. 

3. Save your change

Saving your spare change and cash may seem old school, but it’s an extremely effective way to save for your rainy day fund. Extra cash from a birthday or holiday can go straight into a savings jar. Eventually, you can build up your cash savings and add it to your rainy day fund whenever the time is right.

4. Open a dedicated rainy day savings account

As mentioned, a high-yield savings account is a great option for storing your rainy day fund. Not only are these funds easily accessible, but you’re also able to earn interest on each deposit you make. Shop around for accounts that will make the most sense for you—keep interest, deposit requirements and fees in mind. If you don’t have to tap into your rainy day fund often, you can end up earning more money than you would in a traditional savings account. 

Though it’s impossible to prepare for all of life’s unexpected events, setting up a rainy day fund can help give you peace of mind should any financial storms come your way. Keep educating yourself on how to prepare for these life events to ensure that you keep your credit health in good standing. 


Reviewed by Anna Grozdanov, Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Anna Grozdanov was born in Sofia, Bulgaria but moved to Arizona with her family. Ms. Grozdanov grew up in Arizona and went on to graduate Magna Cum Laude from the University of Arizona with a B.A. in both Philosophy and Psychology. Ms. Grozdanov finished her first year of law school at Pepperdine University School of Law in California, but returned to Arizona where she graduated from the Sandra Day O’Connor College of Law. Since graduating from law school, Ms. Grozdanov has worked in Estate Planning, Estate Administration, Probate, and Personal Injury. She has extensive experience advising and working closely with clients and applies these skills at Lexington by helping clients achieve their credit repair goals. Ms. Grozdanov is licensed to practice law in Arizona. She is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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How minimum monthly credit card payments affect your credit

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Many people don’t hesitate to pay just the minimum payment on their credit card. This is especially true if the total balance is high or the cardholder is confused about the credit card lending terms and doesn’t understand the impact of paying the minimum balance. But, making just the minimum payment can have a greater impact on your credit score than most people realize.

Learn how lenders calculate the minimum payment, what it means for your debt and how making a minimum payment affects your credit.

What are credit card minimum payments?

Your credit card minimum payment is the least amount of money your lender will accept toward your credit card balance each month. You need to pay the minimum payment by its due date to avoid late penalties and other fees and to keep a consistent payment history. The minimum payment amount is displayed on your credit card bill and often ranges from one to three percent of your total credit card bill. 

How is a minimum payment calculated?

Your lender calculates the minimum payment based on your total balance and any outstanding interest charges. 

Each credit card lender has a different method for calculating its minimum monthly payment. The two primary methods are formula and percentage.

Formula

Many of the major credit card lenders use a formula to calculate your minimum payment. The formula picks an amount and adds one to two percent of your monthly balance. For example, let’s say your lender picked $35 as the minimum payment amount, plus two percent interest, and you spent $500 in new charges for the month. In this scenario, your minimum payment would be $35 plus $10 ($500 x 2%) for a total of $45.

If your total balance is less than the minimum payment, then your whole balance is due. Following the previous example, if your lender charges $35 plus two percent interest but your credit card balance is $20, you will owe $20 for that month, plus any fees and interest from the previous month.

Percentage

Other lenders—typically credit unions and financial institutions—use a simpler, percentage formula to calculate the minimum monthly payment. This method is most common for high-risk borrowers with poor credit. The percentage can range from four to six percent.

For example, if you had a $1,000 credit card balance with a lender that charges six percent, you would owe a minimum payment of $60 plus any additional fees ($1,000 x 6%). 

Some lenders will include any past-due fees in the minimum payment. 

What happens if you make only the minimum payment on your credit card?

Making the minimum payment on your credit card is better than paying nothing at all. As long as you always make the minimum payment, you should not receive negative items on your credit report, as it relates to your payment history. 

However, making only the minimum payment means you may see greater charges for interest, resulting in you paying more over time.

Take a look at this example: Let’s say you have $5,000 in credit card debt and your lender offers an 18 percent interest rate with a minimum payment of two percent of the balance. In this scenario, your minimum payment is $100 per month, which can look very tempting. But, it will take you almost eight years to pay off your balance and you will pay a total of $4,311 in interest—almost doubling what you originally owed. 

Your minimum payment is generally a small portion of your total debt, and most of that payment goes to interest. As a result, you are slowly progressing toward paying off your principal amount, and you could end up paying minimum payments for many years.

Additionally, your credit card utilization may be high if you make only minimum payments. Credit utilization is the amount of credit extended to you by the lender versus the amount you owe. If you maintain a high credit card balance while only paying the minimum payment, you are at risk of having high credit utilization month after month. 

Several factors determine your credit score, but credit utilization accounts for 30 percent of your overall score. So, maintaining a high utilization ratio can negatively impact your credit score. 

Finally, when you maintain a high credit card balance and a routine of only paying the minimum payment, you may fall behind on payments. When you make late payments or miss the payment entirely, having a negative payment history can also lower your overall credit score. 

What should you do if you can’t afford to pay in full?

If you can’t pay your credit card in full, don’t panic. Approximately 47 percent of Americans have credit card debt, so it’s quite common—but that doesn’t mean you shouldn’t pay off credit card debt. Follow the steps below to tackle your debt efficiently and in a way that works for you. 

Pay as much as you can

As mentioned before, it’s essential to always make at least the minimum payment on time. This will help you avoid negative items on your credit report for late or missed payments. However, whenever possible, try to make more than the minimum payment. This will help you pay down your principal debt faster and pay less interest over time. 

Come up with a repayment strategy

If you have multiple credit cards with debt or various types of debt, it’s crucial to have a repayment strategy. 

There are two popular debt repayment strategies: the avalanche and the snowball. The snowball method recommends you pay off your debt from smallest to largest (like a growing snowball). This method is meant to give people positive reinforcement because they feel motivated as they knock out several of their small debts quickly before moving on to the larger debts. 

The avalanche method is a more systematic approach—you list all your debts and their interest rates and pay the one with the highest interest rate first. This method aims to save you money in the long run by getting of higher-interest debt first. 

Decide which approach fits your style. Both of these methods are highly effective in their own way. 

Budget

A budget is the first step to taking control of your financial health. Without a budget, you may not know where your money is going or where you can save. Often, a budget can highlight unnecessary spending. There are plenty of free apps, such as Mint, that allow you to have an automated look at all your spending and build a budget. 

Talk to your credit card issuer

You can reach out to your credit card issuer if you’re going through financial hardship to see what they can do for you. Some credit lenders will offer to lower your interest rates, which will help you tackle your principal debt much faster. Some financial hardships can include the loss of a job, an injury or a medical incident. Ultimately it will be your lender that decides if your situation merits help. 

Consider a balance transfer

There are a lot of credit card options out there. If your credit card has a high-interest rate, you may consider a balance transfer. Some credit card lenders offer a low-interest promotional rate when you transfer a credit balance to them. During this time, you can make a significant dent in your debt. However, you should know that some balance transfers come with a one-time fee, so make sure to consider this as well. 

Care for your credit

Your credit is your door to many financial opportunities. A healthy credit score can help your chances for approval for auto leases, mortgages, personal loans and more. It can also help you get a much lower interest rate and better borrowing terms when you receive financial products.

Improving your credit takes work. While focusing on your credit card’s impact on your credit score, make sure your overall credit profile is accurate. Errors and inaccuracies can greatly hurt your credit score and put a dent in your debt-relief goals. Professional credit repair companies can help you navigate the challenges of credit reporting inaccuracies.

The first step toward establishing a healthy credit history is making sure all items are listed fairly and accurately—professional credit repair is an easy, effective way to get your credit score back on track.


Reviewed by Shana Dawson Fish, Associate Attorney at Lexington Law Firm. Written by Lexington Law.

Shana Dawson Fish is an Arizona native whose family migrated from Guyana. Shana graduated from Arizona State University in 2008 with her Bachelor’s Degree in Criminal Justice & Criminology, and in 2012 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, Shana was a Judicial Intern at the United States District Court for the District of Arizona and the Maricopa County Superior Court. In 2016, Shana was awarded a legal defense contract and represented clients as a Trial Attorney in juvenile proceedings. Shana has experience in litigating numerous trials and diligently pursuing the rights of her clients. As a Trial Attorney, Shana identified the needs of her clients and also represented debtors in bankruptcy proceedings. Shana is licensed to practice in Arizona and is an Associate Attorney in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

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What is an escalated information request?

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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

When you discover an error on one of your credit reports, such as an inaccurate address or a record of a late payment that you know you paid on time, you can begin the credit dispute process to hopefully correct the error. This is one of your rights as a consumer, according to the Fair Credit Reporting Act (FCRA).

But what happens if your credit dispute or challenge fails? If you are like many consumers, the process may not initially yield favorable results. This is where an escalated information request comes in. Read on to learn what your options are following a dispute rejection.

What are the steps involved in the credit dispute process?

There are four main steps in the credit dispute process.

First, you send your dispute letter to whichever of the three credit bureaus—Equifax, Experian and TransUnion—shows the error on your credit report. In your letter, identify the information that you want to dispute, explain why you’re disputing it and provide any relevant evidence that supports your case. Ask that they remove or correct the information in question. (You can use this sample letter from the FTC if you’re not sure where to start.)

Second, you may reach out to the data furnisher that provided the inaccurate information to the credit bureaus, such as a creditor or another financial institution.  Data furnishers should conduct a reasonable investigation to verify the accuracy of the information they’re reporting to the bureaus if someone submits a dispute, and this could help you as well.

Third, wait for the credit bureaus and data furnishers to respond to your dispute. They typically have 30 to 60 days to investigate your claim. However, there is the possibility that they might deem it “frivolous,” which might happen if your dispute is inaccurate or if you repeat the same claims without adding new evidence.

Once you get a response, review the results of the investigation. If your dispute is accepted and the information is confirmed to be inaccurate, your report should be updated accordingly. If your dispute is rejected because it’s considered frivolous or the information on your report is seemingly verified, you have a couple of options—you can either let the issue drop, or attempt to escalate your dispute.

What do I do if my dispute is rejected?

Denial isn’t the end of the line. When a credit dispute is rejected, it is up to you to continue your efforts to ensure you have a fair and accurate report. Before resigning yourself to defeat, you may follow the steps below to escalate your information request.

1. Send additional letters

Draft another set of letters to the credit bureaus and a new one for the creditor in question. Outline the following:

  • Your disappointment with the initial credit dispute decision
  • Information about the account and the nature of your dispute
  • Detailed information about the dispute (include supporting documents)
  • And, for the bureaus, a list of the incorrect items on your credit report and how they should be corrected

At the end of your letters, you may document your intention to escalate your claim to the appropriate authorities if needed. Then you may mail your letters and supporting documents to the credit bureaus and relevant creditors with a return receipt requested.

2. Wait for responses

It may take up to 60 days to receive responses. Keep copies of your letters, emails and any phone calls between yourself and the credit bureaus and creditors. Be sure to write down dates, times, names of representatives and a summary of your discussions. In the case that you need this documentation, you will be very glad you kept a record of the events.

3. Review the final decision

If, upon reviewing the final decision you are still not satisfied with the outcome, you may send copies of your escalated information requests and supporting documents to the appropriate authorities, such as the Federal Trade Commission and your state’s Attorney General.

However, you should strongly consider speaking with an attorney to discuss your situation to determine what are your best options. In each of these endeavors, make sure you have enough evidence to prove your case and discredit your claim’s denial.

Protect your rights

Facilitating escalated information requests can be a long and arduous process, especially following an initial credit dispute. However, you have a right to fair and accurate credit reports, and the long-term benefits of accurate credit can make the dispute process worth your time and effort.

Make sure to regularly review your credit reports for errors, and if you find any, take action as soon as you can. You can initiate the credit dispute process yourself, but if you don’t have the time to dedicate to it or if you would rather work with a professional, there are credit repair companies who can help. Contact Lexington Law today to learn more about how we can help you as consumer advocates.

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