How to refinance your car loan


Refinancing Your Auto Loan May Make Sense under several scenarios. For example, if your credit has improved recently, there’s a good chance you can lower your interest rate and monthly payments. You might also be able to buy time to pay off the loan, or go the other way and extend the term if you’re having trouble making your monthly payment.

The refinance application often takes less than an hour, and many lenders promise to make a loan decision in minutes. Here are the steps to take to successfully refinance your auto loan.

Find a recent payment stub for your current car loan and make sure you know the following:

  • Your current monthly payment and the remaining balance.

  • The time remaining to repay the loan in months, often referred to as the loan term.

  • The interest rate you pay.

  • The lender’s customer service number in case you have any questions.

Extract your original loan agreement and check that there are no prepayment penalties. If you can’t find your contract, don’t worry. The lender’s customer service department can give you the information you need, or even email you a copy of the contract.

You will also need the following to complete loan applications:

  • Your car’s vehicle identification number.

  • Pay stubs from your current employer or proof of employment.

  • Your social security number.

If you’ve been making all of your car loan payments on time for a year or more, your credit has likely improved and there’s a good chance you could qualify for a refinance.

Of course, this is only true if you have also kept all of your other financial commitments up to date. The proof is in the numbers, so you will need to know where you are at, and you have two options to do so.

You can shoot yours credit report – it is a history of your credit activity – or check your credit score for free to see if you’ve had any issues, such as late payments. Because you are checking your own credit, this type of research will not lower your score. However, because each of us has many credit scores, the score you get won’t necessarily tell you exactly what interest rate to expect on your new loan.

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Your alternative is to simply apply for a new loan and determine your credit quality as a result of the application. Which brings us to …

Apply to several auto loan refinancing companies so you can compare interest rates and find the best deal. The application process does not cost you anything and you will quickly find out if you qualify for a lower interest rate.

A word of warning: make sure you submit all your loan applications within 14 days. Similar requests during this time are usually grouped together and processed as one, reducing the impact on your credit score – this will only trigger a small drop, around five points.

With the aid of auto loan refinance calculator, enter your current loan information first. Enter the initial loan amount, your interest rate, and the loan term in months. Then enter the outstanding balance and the number of months remaining until you pay off the loan.

Then enter the number of months you want for the new loan and the interest rate you expect to get. You’ll then see the new – and hopefully lower – monthly payment, how much you’ll save each month, and your total savings over the life of the loan.

It’s also a good time to see how much your car is worth by researching online guides or, better yet, getting cash offers from your local CarMax or from online services such as Vroom and Carvana for reference. If the loan balance is greater than the value of your car, you are upside down on your loan. Refinancing may not be possible. Some lenders, however, will lend more than the value of the car.

In some cases, you may see only a small difference, if at all. And if you are near the end of your loan, an auto loan refinance may not be worth it.

If you decide to refinance, you can leave your loan term unchanged or consider these options:

Pay off the loan faster. If you are used to making loan payments of a certain amount, you may be able to keep the same payment but shorten the term of the loan. This saves you money because you will pay less interest over the life of the loan.

Take longer to repay the loan. If your budget is tight and you want a bit of financial relief, you can extend the loan term by a few months or even a year to reduce your payments. This is not ideal because you will pay more interest in the long run. However, it’s better than missing payments and damaging your credit history.

If you decide to refinance, complete the application with the lender of your choice. You will receive the loan documents and you simply respond to the requests of the lender.

Here’s a quick rundown of what you can expect: You’ll sign new loan documents and a new loan will be created for you, at a new interest rate, with the term you choose. Your new lender, the refinancing company, will pay off your old loan and you will start making payments to your new lender at the lower rate.

While there are many details to work out, the whole process can be completed in a matter of hours.

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