Your guide to refinancing an auto loan.
Are you trying to decide if refinancing your auto loan makes sense for you? Not sure what the process entails? Refinancing your car loan is a great option for those wanting to lower their monthly payments or looking to get a better rate, but getting started can bring up a lot of questions and uncertainty.
Luckily, we’re here to help! Below, we’ll guide you through the steps to successfully refinance a car loan.
1. Understand your credit health
Understanding your credit score is important especially when considering refinancing. Lenders want to see that you’re making strides towards financial health and your credit score is a great indicator of that. NerdWallet explains that “if you have no late payments, delinquencies or collections — and your credit score is moving in a positive direction — that’s an indicator of progress that lenders will look for.”
If your credit health is not where you want it to be, it may be a good idea to stay away from refinancing your auto loan. Thankfully, there are several steps you can complete now to help improve or rebuild your credit score over time.
2. Factors to consider
There are several factors to consider when you refinance a car loan. For example, if you’re behind on your payments or have credit problems, you may not qualify for refinancing. Your current auto loan may also have a prepayment penalty which would charge you a fee for paying off the balance early and would essentially null the savings coming from a refinance. On the other hand, if you purchased your car when interest rates were inflated and they’ve since decreased, refinancing may help you save money on your monthly payment.
Another factor that may sway your decision is the current value of your car. You can estimate the value of your car using resources like Kelley Blue Book. Bankrate explains, “if your car is newer with low mileage and a sizable balance that will still take years to pay off, refinancing could save you money and prevent you from going upside-down on your loan. If it’s worth less than what you owe, you may be out of luck.”
These are just a few things to reflect on when making your decision. Be sure to do thorough research prior to applying so you’re fully prepared for the rest of the journey.
3. Get ready to apply
Now that you’ve done your research and decided that refinancing your auto loan is the right choice for you, you’re ready to apply! Gathering your documents ahead of time can help simplify and streamline the application process. Although each lender may have differing requirements, most will ask for the following information:
- Driver’s license
- Proof of insurance
- Social Security number
- Proof of income such as pay stubs
- Vehicle information such as vehicle identification number (VIN)
When you refinance a car loan, the new lender may also require information about your current loan such as the remaining balance, current monthly payment, interest rate, and time left on the loan. Remember, jumping in and submitting an application can put a hard inquiry on your credit report. Although not a full loan approval, it might be helpful to get pre-approvals from different lenders which typically don’t affect your credit report.
4. Make sure to follow-up
Once you pick a lender, your new loan will be created with a new interest rate and terms. It’s important to follow up with your new lender to ensure that they pay off your old loan and start you off on the right foot with your new one. In other words, review all your paperwork to ensure accuracy and ask questions if you have them.
Overall, when you refinance a car loan, you may have the opportunity to lower your monthly payment and interest rate. This can ultimately help you save money in the long run. However, refinancing an auto loan isn’t for everyone and it’s important to understand the process and how it can impact your financial health.
From financing to warranties to insurance, if you’re looking for more resources about the car buying journey, Clearview’s Auto Buying Resource Center is here to help!
