How To Refinance Your Car Loan

Are you wondering how to refinance a car? Refinancing is possible, and there are some steps you can follow. With a good game plan, refinancing your auto helps you accomplish both at the same time. Although the word “refinance” may evoke images of a daunting procedure, refinancing your car is far simpler than refinancing your house. There normally are no costs, and the loan itself can be processed considerably faster. And the best part: You’re likely to experience financial benefits from refinancing your auto practically immediately.

Refinancing entails replacing your present loan with a new one of a different period, interest rate or both. Choose the best time to refinance and compare lenders to receive the best rates.

Review Your Current Loan

Finding out if you qualify for a refinance is the first step in refinancing a car loan. The second step is whether it will save your money.

Assess Your Credit Score

You are more likely to acquire a lower interest rate from a lender when you have good credit. Before applying, check your credit score. This will help you in finding lenders you qualify for and estimate prospective rates.

Your credit score may have improved after your initial loan, for example, if you’ve paid down debt and made on-time payments on your accounts. Lenders will refer you as less of a risk and may offer you higher rates. While you can refinance your auto loan with bad credit, it may be tougher for you to get a better rate than you currently have.

Your payment history and current  debts are also important to lenders, so be careful to take this into account when looking into offers.

Evaluate If Refinancing is the Correct Financial Move

If refinancing improves your financial situation—which may vary from person to person—it may be the best option for you. There are two basic reasons to refinance. Either you are able to receive a better interest rate or a more affordable monthly payment, and both are feasible if you are able to qualify for a fair offer.

Consumers who refinanced this previous quarter did so roughly 24 months into their loan.

Calculate Your Car’s Value

Your car will need to meet specific lending standards, such as being no older than 10 years or having over 100,000 kilometres. These problems lower the prospective resale value greatly, making your loan riskier for the lender. If you have a large loan balance and your automobile is modern and has low miles, refinancing could save you money. 

However, if the value of your car is less than what you owe, you might be out of luck. A lender may be significantly less eager to refinance if you’re already underwater or upside down on your current loan.

Get Your Paperwork Ready

When you apply for preapproval, plan to provide the lender with a few common documents, such as proof of income, residential proof, existing loan details, vehicle details and loan payoff amount.

Be careful to check your application and papers for errors before submitting them. Once you have full approval, follow up with both lenders. If you receive a check, ensure that your previous lender receives it and applies it to your debt. Follow up often to prevent missed payments from bureaucratic problems if your new lender is repaying the previous one.

Compare lenders

It is wise to evaluate online lenders, banks, and credit unions regardless of your credit score. All lenders analyse your credit score, financial history and eligibility differently. Online lenders, for example, tend to use characteristics like job or income when setting your rates.