Refinance your car loan is essentially replacing the existing loan. You will get a new loan to pay off the old balance. The terms, rates, and monthly payments for your new loan will be different.
Refinancing has two main purposes. First, it can lower your interest rate while saving you money over the long term. Refinancing can extend the term of your loan and lower your monthly payments. This is a quick warning: Although a lower monthly payment may make it easier to pay your bill, a longer term means a longer repayment period. Also, you will usually pay more interest over the loan’s life.
When Should You Refinance Your Car Loan?
These are just a few of the scenarios where you might consider an auto refinance:
Your Credit Score Is Increasing
The highest interest rates are reserved for those with excellent credit scores. If your score has improved in the time since your car loan was taken out, you might be eligible for a lower rate.
Other Financial Factors Have Influenced
Your financial situation could have improved in other ways which could lead to you being eligible for lower interest rates. One example is lowering your debt-to-income ratio. This means that your monthly credit card, loan, and other balances take up less of your income each month. Also, a higher income or a better salary can be helpful.
Market Rates Have Fallen
Interest rates change daily. They can be lower or higher depending on the market conditions. Market rates can be affected by Federal Reserve policy, inflation, and investment activity, among other things.
You Are Willing To Extend The Repayment Term
You can extend your repayment term to spread the loan balance over more months and reduce your monthly payments. Before you decide to do this, make sure you have a look at the total cost of this option, as well as how much interest you’ll pay over time.
Refinance Your Car Loan
It’s crucial to do your research if you decide to refinance an auto loan. This is especially important if you want maximum savings. Here’s how the refinancing process looks:
1) Shop Around For A Lender
If you are looking for the best rate and terms, it is worth shopping around. Also, you need to meet the qualification requirements of your lender. You should also look for lenders who prequalify with a soft credit pull to ensure that your score doesn’t suffer.
2) Gather Your Documentation.
To apply for a loan, you will need to provide a variety of financial documents. These documents include:
- Current loan documents (account statements, payment terms, contracts, etc.)
- A copy of your driver’s license
- Recent pay stubs
- Employment proof
- A copy of your Social Security Card
Information about your vehicle such as its age, make and model, as well as VIN, will be required.
3) Complete Your Application
Next, fill out the applications of any lenders you are interested in. These documents, plus possibly additional, will be required. You’ll also need basic information about yourself, your family, your car, and your finances.
4) Compare Your Offers And Decide On A Loan
After your application has been processed by the lenders, you will receive loan offers. Compare the terms, interest rates, APRs, and other terms for each loan, including any prepayment penalties if the loan is not paid on time.
5) Fill Out Any Paperwork
Once you have chosen your loan option, fill out the final paperwork and sign your contract to finalize your loan. It will take time to repay your old loan and transfer its balance. Continue making payments until your loan is paid off.