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How to refinance your car loan Part of refinancing an Auto Loan In this video, we will discuss refinancing a Car Loan
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5 min read Read Published 23 March 2023
Written by Rebecca Betterton Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the ways and pitfalls of using loans to buy an automobile.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers to manage their finances through providing precise, well-researched and informative facts that break down otherwise complex subjects into digestible pieces.
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Not everyone when they first apply for a car loan. Refinancing your car loan can . It is the process of replacing the present loan with a fresh one with a different length, interest rate, or both. A lower interest rate could aid in reducing your monthly payment as well as the cost you’ll incur throughout the term of your loan. To get the most out of refinancing, you will require good credit and a history of punctual payments. 7 steps to refinance an auto loan Refinancing a car loan is like applying for any other type of car loan but with a couple of extra steps. Review your current finances as well as loan documents, and then search for the best lender to meet your needs. 1. Consider refinancing as the right financial move There are two primary reasons to refinance, namely if you can get a better rate or if you are . The first scenario is common in the event that you took out an auto loan when were high or your credit score was low. If you’ve been in the market since getting your loan, lenders will likely give you better terms, which will help you save money over the life that of your loan. However, if you feel like you’re overstretched with your budget monthly with your current payment you could refinance your auto loan to a more long-term loan. Reextending your repayment period will lower the amount you pay each month — but you will likely pay more in interest in the long run. The most important thing to remember
If refinancing your car can reduce your expenses It’s likely to be the best option for you. If you can’t get a refinancing deal, it’s not a good idea. The refinancing process will result in an interest rate that is higher can increase the cost of your loan more costly, even if your monthly payments shrink.
2. Re-evaluate your current loan Most lenders have a to refinance. Therefore, you’ll need to know your payoff quantity to see if you can qualify. It’s also essential to know exactly the amount of interest you’ve been paying and what your monthly installment is, and the total amount the loan will be when you finish the entire time. Make sure you have this information in order to compare your current loan against the loans you’ll get in the future. What’s the most important takeaway
Education is power when it comes to getting the most value for money. Use an to understand the cost you’re paying on your existing loan and compare it to your refinance options after you’ve applied for preapproval.
3. Examine your credit score credit score and credit history are major factors lenders consider when you’re applying to refinance. If you’ve made good money decisions since then and have made timely payments, for instance — your Lenders will view you as less risky and might offer you lower rates. before you start applying. This will guide you towards lenders that you are eligible for and help you anticipate rates. Even those with a credit history the ability to get a by finding the best lender. Key takeaway
The better your credit score, the lower the interest rate you will likely receive from an lender. Your payment history is important too.
4. Determine the value of your car amount of your loan isn’t the only factor to take into consideration when deciding to refinance. It is also important to know . Resources like and make estimating your car’s value simple. If you have a car that is more recent with low mileage and a large balance that’s still going to take many years to pay off refinancing can help you save money and keep you from going upside-down on your loan. If it’s worth less what you owe, you might not be able to refinance. And if your car is almost paid off it’s not a good idea to refinance because interest comprises a small percentage of the remaining balance. Key takeaway
Knowing the value of your vehicle can help you determine whether the lenders are willing to lend you money. If the car you own isn’t valued at all, refinancing might cost you more than the savings you’d make.
5. Shop around for the best refinancing rates . All lenders evaluate your credit score as well as your financial history, and eligibility in a different way. If you choose to refinance first, you should contact the credit union or bank that you are using in other areas. Some financial institutions provide discounted interest rates to customers who are already customers. Compare the rates that your current lender to gain a clear view of what top lenders offer. Once you’re in the market, make sure you have at three lenders. With multiple preapproval offers, you can see which is the most suitable for your financial objectives. Key takeaway
Interest rates vary widely and it is advisable to compare several lenders before you make a final decision. — but be sure to inquire with your current financial institution because there may be discounts for current customers.
6. Determine your savings After shopping around for rates, do the math and see how much you would save by refinancing your car loan. Make the process of comparison simple. Examine the current loan for charges. It is not uncommon for lenders to charge a that makes refinancing more costly. It is also important to be clear on your goals. If you’re looking to cut the amount of your monthly payments, be sure that the new loan isn’t going to cost much more if you opt for . If you’re refinancing at a lower rate, make sure you’re saving enough interest to cover any costs. A shorter loan term is also worth considering if you have more money in your budget. It will get you there quicker and could save money in interest, depending on the terms you receive on your new loan. Calculating ahead of time lets you see the amount the new rate will save you in terms of payment of interest, or monthly installments or both. 7. Make sure you have all your paperwork in order Preapproval is important, but it’s not the end of the process. If you are applying, be sure to supply the lender with the following documents: Proof of income, including W-2s or most recent pay stubs. Proofs of residency Recent utility bill, lease agreement, monthly mortgage statement or tax bill Recent proof of insurance monthly statement or insurance card Details regarding the current loan (such as the balance, interest rate, loan duration and monthly payment) Information about your car include year and make, model, mileage , and VIN. (VIN) Be sure to go over your application and documents to make sure there are no mistakes prior to submitting. Once you submit the paperwork and get full approval and follow-up with each lender. If you get a check, ensure that your previous lender gets it and then applies this to the loan. If your lender is a new lender is paying off the previous one, follow up frequently to ensure that you don’t miss payments due to clerical errors. The key is to organize your documents prior to time to help speed up the refinancing timeline. Be prepared to spend time contacting both lenders to ensure your repayments and payment are in the correct place. Considerations to make prior to refinancing before you begin the refinancing process, make sure it’s appropriate for you. Requirements to refinance: Every lender or bank lender has its own requirements to determine if you are qualified to refinance. Make sure that you’re not paying on time for payments. The remaining time in your loan is another requirement for eligibility. Most lenders want to see at least six months of repayments on your loan and you must have at minimum six months left. Prepayment penalties: Many auto loans include clauses specifying the time and method to pay off the loan. Often these clauses include a charge in the event that you repay the loan early. Some lenders do not are required to charge this, however it could impact your overall savings. The remaining time on the loan If you’re near the end the current loan, it may make more sense to pay it off , rather than putting time and money into refinancing. Health of your finances: Your income-to-debt ratio is one of the many factors considered by lenders. The higher your ratio before applying for the new loan, the greater chances of getting competitive loan terms. You can use an online calculator to calculate your debt-to-income ratio. The bottom line Refinancing your vehicle loan could have a significant impact on your personal finances. Before you make an application to a lender look into auto loan costs and contrast the terms to the terms for your existing loan. If you shop around and work to improve your credit score you could be able to lower the amount you have to pay or receive lower monthly payments by switching lenders.
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Authored by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers in navigating the ways and pitfalls of borrowing money to purchase the car they want.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain confidence to manage their finances by providing precise, well-studied information that breaks down complicated topics into digestible chunks.
Auto loans editor
Up next Part of Refinancing a Car Loan
1 minute read Mar 24 2023
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