You are all familiar with the term mortgage refinance. It is a very common occurrence. Did you know that you can also refinance car loans? It’s not only possible to refinance an auto loan, but it’s usually a much easier process than refinancing a home loan. If you’re thinking about refinancing your car loan, here’s how to refinance your car loan.
Refinancing could save you a lot of money or allow you to get rid of a cosigner if your credit has improved since you took out your original loan. Refinancing a car loan becomes a necessity, especially when you don’t get a good rate initially.
The 2 major scenarios when you consider the option of refinancing. Firstly, when you need a better loan rate than the current loan, and secondly, when you need a lower monthly payment, longer terms are also given when refinancing your car loan.
How to Refinance a Car Loan
There are not many steps involved, but the main step that one should focus on is comparing the rates and assessing the terms of different lenders. Here’s how to refinance a car loan.
Check your credit score
A strong credit score is required to qualify for the best interest rates. You should check your credit score before refinancing your auto loan. A score of over 660 is a good place to start, but if you want the greatest rates, aim for a score of over 740. You’ll also want to double-check your credit report for any errors.
For instance, you can check your credit report from any of the main credit agencies. Consequently, you can work on the score and improve it, then apply for better rates.
Assess your current loan
To begin, check your most recent auto loan bill to discover how much you owe. Using various online tools will help you determine the fair market value of your car. Refinancing may be a possible option if your car is worth more than you owe.
You can check your contract for the APR and the payment amount. In addition, you should check the number of months left to pay your current loan and the amount that is left for you to pay.
Determine your car’s value
Another step involved in refinancing your car loan is assessing the value of your car. In other words, a car’s value starts to depreciate in the first five years. Therefore, it is better to refinance if your car’s value has decreased since your purchase.
Similarly, the car should also meet the lender’s requirements. For example, it shouldn’t be over ten years, or the mileage should be above 100,000 miles. These requirements are set in place as the car is a risk element for the lender. In addition, you might be rejected by your lender if your existing loan is an upside-down loan.
Compare Lenders
If you are looking at refinancing, then comparing the refinance rates offered by different lenders needs to be evaluated. Only this will make sure you will receive the best rate and let you save some money on your car loan. You can begin by obtaining quotations from online lenders, but you should also inquire at small local banks and credit unions.
Check for prepayment penalties
A prepayment penalty is a cost charged by some lenders if you pay off your loan before the agreed-upon due date. Check your loan documentation or call your lender to see if your loan has a prepayment penalty. In the vast majority of cases, there won’t be. However, it would help if you double-checked before proceeding.
Get your details in order
If you decide to refinance your auto loan, you’ll need to start gathering the documentation that lenders will require. The following are the types of documents you’ll most likely need:
- Personal information – Social Security number and driver’s license number.
- Income details – Salary slips and tax returns from the last two to three years.
- Car information – The title, registration, proof of insurance, VIN, and car mileage.
- Loan information – Name of your lender and your current balance.
You’re ready to begin the loan-shopping procedure once you’ve obtained all of the essential documentation.
Apply for a refinance loan
You can proceed with filling out an official application once you’ve found an auto loan refinancing package that you prefer. If you’re approved, your old loan will be paid off, and you’ll start making payments to your new lender. Your car title must be transferred to your new lender as well.
The lender will do this for you. Your new lender should send you documents outlining all of the terms and conditions of your new loan. Keep your loan papers in a secure, easily accessible location. While auto loan refinancing isn’t for everyone, it can help you save money throughout your loan by lowering your interest rate or reducing the length of your payment period.
Final Thoughts
Refinancing a car loan can help you secure better terms, lower your monthly payments, or reduce your interest rate. By researching lenders, improving your credit score, and comparing offers, you can find the best option for your financial situation. With careful planning, auto refinancing can lead to significant savings and improved financial flexibility.
Sara Sam may not look like your typical car and finance expert, but don’t let that fool you. With over four years of experience in the industry, she knows all the ins and outs of cars, car insurance, and refinancing. You can trust Sara to help you navigate the often-confusing world of automobiles and financing.
