Refinancing your car loan does not take much time between application and approval. Plus, refinancing your car loan is a good way to save money. Refinancing your car loan is the act of getting a new loan to pay off your current car loan. To save money on your car loan, you must know how to refinance it.
Reasons why you should refinance your car loan:. If you have gotten improved credit from your original car loan or you’re stuck with a loan with high interest rates, refinancing your car loan may help lessen your interest rate and the total amount of interest you’re required to pay. Refinancing is also a good option if you have difficulty repaying your loan because it can reduce your payments. In less than an hour, the application and approval for refinancing your car loan will be completed.
Factors to Consider Before Refinancing a Car Loan
Before proceeding with refinancing your car loan, you need to consider some factors. These factors help you make better choices when refinancing.
- Refinancing requirements.
- There is time left for the loan repayment.
- Pre-payment penalties.
- Your financial health.
Knowing if it is a good idea to refinance or not depends on these factors.
How to Refinance Your Car Loan
There are six basic steps to follow to refinance your car loan. Following the below steps below;
Analyze your existing car loan
Review the information concerning your current car loan. While doing so, put together the below information:
- Amount of your monthly repayment.
- Current loan: APRA.
- Number of months left for the loan repayment.
- Amount to pay off your current loan.
The repayment amount and APR must be included in your contract.
Regulate your Car Value
The prices of cars have increased in the past few years, so it is crucial to find out the car’s current value. Sometime in 2023, the prices of cars dropped, causing most drivers to lose the value of their cars. When the value of your car is less than your loan balance, it results in negative equity. Refinancing your car loan with bad equity can be difficult. If you have good credit, then refinancing at this point shouldn’t be that hard. If your car value is less than your loan balance, it is not a good option to refinance your car loan. Until you have good equity, you cannot refinance your car loan.
Estimate your Credit
Being aware of where your credit stands can help you indicate how easy it may be for you to get approved for a loan. It also helps you indicate the general interest rate you may get and if it’s a good idea to refinance or not. Review your credit report or check your credit score to see where you stand.
Checking your credit score or history does not harm your credit score. If your credit is not good enough, you can improve it by making your car loan payments on time for six to twelve months and keeping your credit account up to date. Having good credit gives you a better chance of benefiting from refinancing your car loan at a lower rate.
Put together information for your Application
The information needed to refinance your car loan is different depending on the lender. Most lenders will require the below information to confirm your information before approval.
- Vehicle registration.
- Driver’s license.
- Car insurance proof.
- Identification number of your car.
- Social security number.
- Proof of employment.
- Loan payoff amount statement
Prepare this information along with any other request by your lender to refinance your loan.
Differentiate Lenders and Rates
If possible, apply for refinancing with different lenders that render pre-qualification with a lesser credit check. Pre-qualification discloses the loan offers, rates, and repayment plans to give you an idea of whether you can refinance your car loan. A lower credit check will not affect your credit score. Using a car loan refinance calculator, you can differentiate between pre-qualified loan offers added to your current loan. When comparing loans, be aware of the car loan terms rendered.
Apply to Refinance your Car Loan
The pre-qualification process only shows the estimated loan offers; it is not the approval of the loan. You will need to get final loan approval from a lender or more. Depending on the information required during the pre-qualification process, you may be required to provide more information for approval. If you intend on going through the approval phase with different lenders to differentiate loan terms, you will need to do so within 14 days. After making your decision on a lender, inform them you want to finalize the refinancing of your car loan. You will be sent a loan document to sign. Because refinancing does not begin with your car loan, the lender will make a new loan with a new rate and agreed-upon term length.
Does Refinancing my Car Loan Affect my Credit?
If you make your loan payments on time, refinancing your car loan in the long run does not hurt your credit. When you apply to refinance your car loan, lenders will do a deep check on your credit history before approving the loan. In doing this, your credit score may drop a little, but it’s just for a short period and will go back to normal after a few months of punctual repayments.