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What's the penalty for refinancing a car?
I want to refinance my car, but I've read there's a penalty for doing so. What's the typical penalty for refinancing a car loan?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
The penalties you might have heard of are
prepayment penalties
. While most lenders have done away with them, some still sneak them into your contract as a way to keep you locked into your current loan.In most cases, a prepayment penalty is a charge of 2% to 4% of your current
car loan
balance for making payments ahead of schedule. (Sometimes, prepayment penalties are disguised by language like the “rule of 78s” or “percentage loans.”) If there are prepayment penalties in play for you, you’ll need to do some serious research to see if refinancing is the best way to go.
In some cases, refinancing will actually cost you more than a prepayment penalty. If this applies to you, it’s better to keep your current loan rather than try to refinance it.
If you want to save money in other ways, you should shop around for car insurance rates every renewal policy, or about every six months. The
Jerry
app makes this super easy. You’ll get to compare dozens of competitive quotes from top insurers like State Farm, Travelers, and Allstate. View full answer
- Gregory R.
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