What Are Some Differences Between Refinancing a Home and an Auto?
While there are many similarities between refinancing a home and an auto, there also are marked differences. Two of the biggest are the closing costs and other fees involved in refinancing a mortgage. They are more and higher than with refinancing a vehicle.
Some of the same documents and paperwork involved in an original mortgage will be required when refinancing a house. By contrast, refinancing an auto can be a lot simpler. It can even be done online in a quick, easy process.
Here are some basic differences between the two transactions:
Vehicle Age: Most lenders won’t refinance a vehicle older than 10-12 years. There generally aren’t any age limits for refinancing homes.
Term length: Home loans typically range anywhere from 10 to 30 years, whereas car loan terms range from 24 to 84 months.
Interest calculation: Car loans are typically simple-interest loans with fixed rates. Simple interest means the interest is calculated daily on the principal balance only and isn’t compounded (interest applied on the interest). Mortgage loans can have fixed rates, but can also be adjustable rate loans.
Ease: Refinancing an auto loan can usually be done online, relatively quickly. There’s no in-person inspection. You provide your lender details about your vehicle, including the vehicle identification number (VIN), mileage and current condition to determine the auto’s value. You can also look up your car’s value on independent sites like Kelley Blue Book, but keep in mind auto lenders may use different methods to value your vehicle.
By contrast, mortgage refinancing usually involves interacting with third parties, such as having an appraiser conduct an inspection and signing documents at a title company.
Apply to get prequalified
In both transactions, you can get an idea of whether refinancing will save you money by first applying to prequalify without a hard inquiry on your credit report. Most lenders have an online calculator to help you determine potential savings.
As mentioned earlier, probably the biggest differences between the two types of loans are the fees and closing costs involved. For home refinancing, these can include:
Application fee
Appraisal fee
Attorney fees
Title fee
Origination fee
In refinancing a car, the most common charges might be:
Application fees: Even though you can get a prequalification offer for free, you may have to pay to process your refinance application.
Registration fees: In some states, you must reregister your vehicle if you switch lenders when refinancing your loan. You may have to pay a fee for the new registration.
Title transfer fees: Some states require you to pay a title transfer fee when refinancing a car loan. This is because the old lender has to transfer your car's title to the new lender. The new lender should coordinate the title transfer with your state's motor vehicle agency.
Even factoring in these fees, generally speaking, if you can lower your interest rate by 1% or more by refinancing your auto, you may save on your monthly payment. The thing to watch for is the length of the new loan. If it extends your current loan by many more months, the fees you pay to refinance may outweigh any savings.
It really depends on your personal situation. If you’re needing to lower your monthly payment because of a change in finances or if your credit has improved and you think you can get a better rate, it might be a good move to look into refinancing. There’s always the option of paying off the loan early to avoid paying more interest over the long term.
Take a look at Mode
If you think refinancing your auto might be right for you, consider Mode. Not all lenders refinance vehicles, but we do here at Mode, and we have a few advantages you might want to consider:
No application fees1
Simple interest contracts
Friendly and knowledgeable customer service team
Fast and easy online application process
All our credit and funding professionals are in-house, so you’ll have an answer on your application in less than 24 hours
Here are some of the things we look for (hint: you don’t have to have perfect credit!)
Monthly minimum income of $2,000
FICO® score > 450
Vehicle 9 years old or newer
Less than 100,000 miles on the vehicle
GM Financial retail customers with an active contract are not eligible to refinance through Mode. If you’re a GM Financial lease customer looking to purchase your vehicle at the end of your lease, talk to us about a lease buyout.
If your vehicle is financed with any other lender, and you think we might be able to do your finances some good, consider applying to prequalify for refinancing with Mode.
1You will not be charged application or processing fees by Mode to refinance your vehicle. Depending on your state, title and registration fees may apply.
By Julie Powell, GM Financial