Probably you, like most Americans, felt that you did the right thing by signing your car loan. However, what is left out is the fact that now you can reduce your interest rate or your monthly payment. And that is what refinancing a car loan can do – and the process is likely as easy as you imagine.
Refinancing car loan is nothing more than a new loan to clear your current loan. Ideally, this new loan would come with a lower interest rate, with a shorter term or lower monthly payments- all this could save you some cash or give you better budgeting control.
We will do it in stages to help you make up your mind whether you should refinance or not, and how to go about it.
1. Check Your Auto Loan
Make a thorough examination of the loan you already possess before you start shopping around. Here’s what you’ll want to find:
- Monthly payment amount
- APR (Annual Percentage Rate)
- How many months you have left
- The amount you will pay off your loan (which does not have to be your current balance)
They are normally available in your loan documents or online account. Otherwise, call your lender customer service people and they will guide you through it.
Why this is important: You will need this information to be able to compare new loan offers and to determine whether refinancing will be a financially viable choice.
2. Get a Price on your Car
Then test the value of your car today. This is particularly essential as prices of cars have been a little crazy in the recent times. There are instances where individuals owe amounts of money that are in excess of the worth of the car- that is referred to as being upside-down or having negative equity. When that happens to be the case, it may be difficult to refinance unless your credit scores are good.
The value of your car can be located using the reliable sources such as:
- Kelley Blue Book (kbb.com)
- Edmunds
- Buyers online such as CarMax or Carvana.
Hack: In case the loan amount exceeds the value of your car, then concentrate on paying off the loan balance in the present time. Small additional payments every month can do it – but be sure that the money is going toward the principal and not the interest.
3. Check Your Credit Score
The credit score is also a key factor in your ability to refinance – as well as the type of rate you will receive.
On:
- It is credit card companies (such as Discover or Capital One)
- Credit agencies (Equifax, TransUnion, Experian)
- Free apps such as Credit Karma.
The good news?
It is no harm to check your own credit. You may now qualify at a much better rate, since your credit has now improved since you took your first auto loan (perhaps you made all your payments on time or you have paid off other debts). A 1 percent decrease in interest would save you hundreds in the life of the loan.
4. Gather What You’ll Need
Refinancing can be fast and painless, particularly when you prepare in advance. Most lenders will ask for:
- Your driver’s license
- Vehicle registration
- Proof of insurance
- Your VIN (Vehicle Identification Number)
- Current pay check or evidence of income.
- Your Social Security number
- A lender payoff statement of your current lender.
Being able to have these docs on hand will facilitate the process further – and help you come up with your decision faster.
5. Compare and Shop around
You can really save a lot here.
The first step is to be pre-qualified with a variety of lenders – banks, credit unions or internet lenders. Search those employing soft credit checks in pre-qualification. This manner, you are in a position to compare rates without influencing your credit score.
Enter in an auto refinance calculator:
- The present loan information (amount loan, interest rate, loan term)
- Your loan payoff amount
- Emerging loan proposals (rate and term)
Then compare your monthly payment amounts– and throughout the term of the loan.
Pro Tip: Longer loan terms should be cautious. Admittedly, you will be paying less every month, but you can pay higher interest rates in the longterm. On the other hand, when you have a better financial position take a smaller term. You will pay the loan at a faster rate and save interest.
6. Apply and Finalize the Loan
The pre-qualification process is only an initial step. When you have found the offer that sounds the most reasonable, send your official application.
When making an application with more than one lender to compare the closing offer, do so within 14 days. In such a manner, several credit checks will be registered as a single, and the effect that they would have had on your credit rating will be minimal.
When approved the new lender will:
- Direct pay off your current loan.
- Or do you give you the money to make it yourself.
In either case, your old loan is substituted by the new. Be on the lookout of instructions issued by your new lender about when to start paying it and how to do it.
Final Thoughts: Is Refinancing Right for You?
Refinancing a car loan is not a difficult task – and when the numbers are in your favor, it can be a smart strategy getting additional money in your pocket every month.
You may consider refinancing in case:
- There is an improvement in your credit score.
- You have high interest rate.
- You require lesser monthly payments.
- You want to have your loan paid off earlier.
As usual, you should spend a few minutes and run the numbers and compose your choices. Even a simple study now may translate into huge savings in the future.
Ready to refinance? Collect your data, shop around lenders and verify your credit. You may be amazed at the amount of money you can save–and how fast the job can be done.
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Also Read : Can the U.S. Citizens who are Unemployed get Loans : 2025
