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Refinancing your car loan Part of refinancing an Auto Loan In this series Refinancing the Car Loan
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5 min read Published 23rd March 2023
Writen by Rebecca Betterton Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase an automobile.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to control their finances by providing clear, well-researched information that breaks down complicated topics into bite-sized pieces.
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Not everyone when they first get an auto loan. Refinancing your car loan can . It involves replacing the current loan with a new one with an additional length, interest rate or both. A lower interest rate could aid in reducing your monthly payment as well as the cost you’ll incur over the course that you pay for the loan. However, to get the most benefit of refinancing, you’ll require credit with good standing and a track record of punctual payments. 7 steps to refinance your auto loan Refinancing a vehicle loan is the same as getting a type of car loan, with few additional steps. Check your financial situation along with your loan documents, and then search for the most suitable lender that can meet your requirements. 1. Consider refinancing as the right financial move There are two primary reasons to refinance: if you could get a better rate or if you are . This is the first situation that happens in the event that you took out an auto loan when were high as well as your credit rating was not high. If your since you got your loan the lender will provide more favorable terms that will enable you to reduce your expenses over the course of the loan. However should you feel that you are stretching your budget monthly due to your current payments, you can refinance your auto loan to a more long-term loan. Reextending your repayment period will lower your monthly payment however, you’ll likely be paying more interest in the future. Key takeaway
If refinancing your car can help you save money, it’s likely the right choice for you. If you aren’t able to get , it is not a good option. Refinancing to an interest rate that is higher could make your loan more expensive even if your monthly payments are lower.
2. Review your current loan The majority of lenders offer a refinance option. So, you will need to know your payoff quantity to see if you qualify. It is also important to understand exactly how much interest you’ve been paying, what your monthly payment is, and what the total cost of the loan will be when you complete the whole period. Make sure you have this information in order to examine your current loan with offers you’ll receive in future steps. What’s the most important takeaway
The power of education is when it comes to getting the most value for money. Make use of this information to determine the cost you’re paying for your existing loan and then compare it with the refinance options available when you apply for preapproval.
3. Examine your credit score credit score and your history are the most important factors that lenders take into consideration when you are applying to refinance. If you’ve made wise choices with your money since then — and making on-time payments for instance- your Lenders will view you as less of a risk and may offer you better rates. before you start applying. This will guide you towards lenders that you are eligible for and also help predict rates. Even those who aren’t eligible may still be able to get a by finding the best lender. Key takeaway
The higher your credit score, the lower the interest rate you will likely receive from a lender. Your payment history is important as well.
4. Estimate your car’s value The cost for your loan isn’t the only factor to think about when deciding whether to refinance. You should also know . These resources make estimating your car’s value simple. If your car is newer with low mileage and a sizable balance that’s still going to take several years to pay, refinancing could make you money as well as stop you from going upside-down with your loan. If it’s worth less than the amount you owe, you may not be able to refinance. And if your vehicle is close to being paid off it’s not a good idea to refinance as interest only comprises a small percentage of the remaining balance. What you should take away from this is
Understanding the worth of your vehicle will aid in determining whether lenders will allow you to lend you money. If the car you own isn’t valued at all, refinancing might cost you more than what you’d be able to save.
5. Shop around for the best refinancing rate. Each lender weighs your credit score, financial history and eligibility in different ways. If you are considering refinancing begin with the bank or credit union that you are using in other areas. Certain financial institutions offer reduced interest rates to existing customers. Compare the rates you are currently paying your bank with to get a clear view of the best lenders’ rates. Once you’re prepared, you should have at least three lenders. With multiple preapprovals it is possible to decide which one is best for your financial objectives. The most important thing to remember
Rates of interest vary greatly, so compare a few lenders before deciding. But make sure to make sure to check the current institution you are with as there are discounts available to current customers.
6. Calculate your savings. After looking at rates, do the math to determine how much you would benefit from refinancing your car loan. Utilize an application to make the process of comparison simple. Review for fees on your existing loan for charges. It is not unusual for lenders to charge that makes refinancing more costly. It is also important to be clear of your goal. If you are looking to reduce your monthly installment, you must make sure that the new loan isn’t going to cost much more than the one you’ve opted for . If you’re refinancing with a lower rate, make sure you’re saving enough interest to pay for any fees. A shorter loan duration is worth considering if you have extra room within your financial budget. It will get you there quicker and could save money in interest, according to the terms that you get on the new loan. Calculating ahead of time lets you see how much money the new rate will save you on 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 necessarily the end of the road. When you apply, plan to supply the lender with the following documents: Proof of income, including W-2s or most recent pay stubs. Proof of residency such as a recent utility bill lease agreement monthly mortgage statement, or tax invoice Recent proof of insurance monthly statements or insurance cards . Details about your current loan (such as balance and interest rate, loan term and monthly payment) Details about your vehicle include year and make, model, mileage , and vehicle identification number (VIN) Make sure you review your application and documents to double-check for errors before submitting. After you have submitted the application and are granted approval and follow-up with both lenders. If you get a check, ensure that your previous lender receives it and 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 ahead of time to accelerate the refinancing timeline. Be prepared to contact both lenders to ensure your repayments and payment are in the right location. Things to think about prior to refinancing before you begin the process of refinancing, be sure it makes sense for you. Requirements for refinancing: Each bank or lender has its own requirements to determine if you’re qualified to refinance. Be sure you are not in default on your payments. The amount of time left on your loan is an additional requirement to be eligible. Most lenders want to see at least six months of payments on your loan and you should have at minimum six months left. Prepayment penalties: A lot of auto loans include clauses specifying the time and method to make payments on the loan. The majority of these clauses will include , a fee assessed if you pay off the loan in advance. Not all lenders will charge this fee, but it can impact the total savings. There is still time left on the loan: If you are close to the end of your current loan, it may make sense to pay it off , rather than putting time and money into refinancing. Health of your finances: Your income-to-debt ratio is among the numerous factors that are which lenders take into consideration. The higher your ratio before applying for an additional loan the higher chances of getting competitive loan terms. There is an online calculator to help calculate your debt-to-income ratio. The bottom line Refinancing your car loan will have an impact on your financial situation. But before you apply with a lender look into the auto loan rates and compare their conditions with those of your current loan. If you shop around and work to improve your credit score you could be able to reduce the total amount you pay , or obtain a more affordable monthly payment by switching lenders.
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Writen by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers with the details of using loans to buy 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 dedicated to helping readers gain confidence to take control of their finances with clear, well-researched information that breaks down otherwise complex topics into manageable bites.
Auto loans editor
Up next Part of Refinancing the purchase of a car Loan
Read 0 minutes Mar 24, 2023
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