Refinance a Car Loan is a process by which you replace your auto loan with another. So, that’s how refinancing your car works.
Depending on your credit profile and your financial situation, refinancing could reduce your monthly expenses by offering you a lower rate of interest, a longer repayment time, or both. You may also be able to add/remove a cosigner.
The refinance process can be slow and take two weeks. In addition, you might have to pay some fees to process your new loan. Before you pull the trigger to refinance your car, be sure to read this guide
How does refinancing an automobile work?
Auto refinance is unlikely unless there is a better interest rate. In some cases, however, getting a loan with a longer term and lower monthly payments can be possible.
Here are some steps you should take to finance your car loan.
1. Credit checks
Refinancing an auto loan is generally not a smart move if your credit rating is lower than it was before you took out your first loan. Make sure to review your credit score.
If you have a substantial improvement, you might be eligible for a better rate. Even if the improvement in your financial situation is not significant, it is still possible to secure a better rate with a different lender.
2. Take all of your documents with you
Before you apply, ensure you have all the required documents.
The requirements for documents may vary depending on the lender. However, be sure to have:
- Evidence of residence
- Information about the vehicle
- Documentation proving insurance
- You will receive a payoff letter from your current bank
3. Shop around
You can refinance your car loan by comparing different auto lenders. This will help you to determine which one offers decent interest rates.
Many online lenders to allow you obtain pre-qualification for an auto loan. This will allow you to get an idea of the interest rates you can expect from your lender if it is approved.
Be sure to consider penalties and fees in addition to the interest rate. Steinway explains that not all lenders will charge application fees or origination fees.
All States charge title transfer, and reregistration fees. Steinway recommends asking your current lender if there are any prepayment penalties.
4. Choose a lender, and then apply
Once you are certain which lender you would like to work with, visit the closest bank or credit union branch or apply online. This process won’t take you too long if all your documents are ready.
If approval is obtained, the lender will share loan terms, interest rates and fees.
Be sure to carefully read the terms and conditions to avoid any hidden fees. If all is well, however, accept the offer to pay off the other loan.
5. Repay the existing loan
Most lenders will mail a check directly from your existing lender to cover your loan. Others may send you a check or allow you to repay the loan.
If the lender requests this, you should immediately make that payment. It is possible to get in trouble with both lenders by keeping that cash in your check account longer than you intended.