Refinance My Car
Refinancing your current car loan will probably save you money and can be relatively painless. If your credit had recently improved, there’s a good chance you can lower your interest rate and monthly payment and help keep some extra money in your pocket. If you’re wondering How to Refinance Your Car Loan, here are a few tips to help you get started and to help answer that frequently asked question ” How Do I Refinance My Car? ”
Why Should I Refinance My Car?
There are two main reasons people decide to refinance their vehicle: to get a better rate or if you are struggling to make payments. If you took out your auto loan when interest rates were high or your credit score was low it’s quite likely you can refinance for a lower rate, but if you feel like you are stretching your monthly budget with your current payment, you can refinance your car loan to a longer term.
Extending your repayment term decreases your monthly payment, but you will likely pay more interest over time. If refinancing your vehicle will save you money, it can be the right choice for you, but if you can’t get a lower interest rate through refinancing it might not be the right choice. Refinancing to a higher interest rate will make your loan more expensive, even if your monthly payments shrink.
Using an Auto Refinance Calculator can help you determine whether this is a good option for your financial needs. All you have to do is enter information about your current loan by inputting the original loan amount, your interest rate and the length of the loan in months. Then enter the balance that is remaining to be paid and how many months are left until you pay off the loan.
How to Get Started
A lot of people have the same question, “How do I refinance my car?”
Understanding the process of Auto Loan Refinancing is just as important as knowing the benefits. We’ve decided to break down these steps for you to help make this process easy, painless, simple and stress free.
Deciding if Refinancing Is the Right Move
Refinancing your auto loan makes sense if you can get a lower interest rate and monthly payment than what you currently have, but it may come at the expense of getting a longer-term loan. Extended your auto financing term could lead you to paying more interest overall.
Here are a few things worth factoring into your decision on when to refinance your car loan:
- Your Credit Score. If you have poor credit, work to repair it before you try refinancing your auto loan. This is because your credit score and history are major factors lenders consider when you apply for refinancing. If you have made smart money decisions since then such as paying your credit card debt and making on-time payments, your credit score may have improved which will help lenders view you as less of a risk and may offer you better rates. You can use tools such as Free Credit Score sites that will help guide you towards lenders you qualify for and predict potential rates.
- Review Your Current Loan. You will want to wait between six months and one year after your loan term begins before applying for refinancing, this should give your credit score enough time to recover from hard credit inquiries that were made when you took out your original loan, further helping the previous point. Most lenders have a minimum loan amount for refinances, you will need to know your payoff amount to determine if you qualify.
- The Economy and Interest Rates. You won’t be able to maximize the return on refinancing your vehicle if interest rates are skyrocketing, wait until they begin to drop to ensure you get the lowest annual percentage rate (APR) and monthly payment possible.
- Do You Want To Add an Extended Warranty. If your vehicle is past or near the end of its factory warranty, you may want to consider an Extended Warranty. When you refinance you can add the cost of the warranty to the loan. This will make the cost of the warranty more manageable. A lot of the time you can add a warranty and still lower your payment. We recommend a Mopar Extended Warranty. Even though Mopar is directly associated with Chrysler, Dodge, Jeep and Ram, you can get a warranty on any make of vehicle through them. They are also honored at the dealership of your choice.
Now that you’ve made your decision on applying to refinance your car, its time to take action! You want to go over all of your information and make sure that you’re getting the best rate and monthly payment possible. Education is power when it comes to getting the best deal.
- Estimate Your Car’s Value. The cost of your loan isn’t the only factor to consider when deciding whether to refinance, you will also want to know what your car is worth. Knowing the value of your car can help you determine whether lenders will be willing to refinance. If your vehicle isn’t worth much, refinancing could cost you more money than you would save. A couple of good references for estimating your cars value would be www.nada.org or Kelly Blue Book.
- Shop Around For The Best Rates. Interest rates vary widely, so compare a few lenders before deciding. All lenders weigh your credit score, financial history and eligibility differently, start with the bank or credit union you use for other services, some offer discounted interest rates to existing customers. Then compare the rate offered by rates from other lenders to get a clear view of what top lenders offer. To ensure you’re getting the best rate possible, prequalify with several lenders before submitting a full application, this will save your credit from taking multiple hits.
- Apply! Pre-approval is important, but it’s not the end of the process. Be sure to go over your application and documents to double-check for errors before submitting.
- When you apply, plan to provide the lender with these documents:
- Proof of income, including W-2s or most recent pay stubs
- Proof of residency: Recent utility bill, lease agreement, monthly mortgage statement or tax bill
- Proof of insurance: Recent monthly statement or insurance cards
- Details about your existing loan (such as balance, interest rate, loan term and monthly payment)
- Details about your vehicle: Year, make, model, mileage and vehicle identification number (VIN)
- When you apply, plan to provide the lender with these documents:
- Accept The Offer. Auto loan refinancing offers tend to last between one to two months before expiring, which means you can take your time assessing all of your options. Once you sign for your new loan, the lender will likely handle all of the paperwork and pay off your old loan directly. Note that some lenders may instead pay you directly and have you transfer the funds to pay off your loan balance. You’ll typically begin making monthly payments to your new lender within a month.
Things to Consider
As every financial institution is different, you may face different requirements and fees that could affect your vehicle refinancing. Before jumping into the refinancing process, make sure it makes sense for you. Here are some factors worth considering:
- Requirements For Refinancing. Every bank or lender has its own criteria to determine if you are eligible for refinancing. Be sure you are not Upside-Down On Your Loan and are current on payments. The amount of time left on your loan is another eligibility requirement. Lenders will often want to see at least six months of payments on your loan, and you should have at least six months remaining as well.
- Prepayment Penalties. Many auto loans include clauses specifying how and when you can pay off the loan. Often these clauses include a prepayment penalty, a fee assessed if you pay off the loan early. Not every financial institution charges this, but it’s worth checking since it could cost you and affect your overall savings.
- Time Remaining On Your Loan. If you are near the end of your current loan, it may make more sense to finish paying it off instead of sinking time and money into refinancing.
- Your Financial Health. Your debt-to-income ratio is one of the many factors considered by lenders. The more debt you can pay off before applying for a new loan, the greater the likelihood of receiving competitive loan terms. If you owe a lot of money on credit cards or personal loans, pay your debt down beforehand to get better repayment terms. You can use an Online Calculator to help compute your debt-to-income ratio.
Wrapping It Up
Refinancing your car loan can significantly impact your personal finances. Before you apply with a lender, investigate auto loan rates and compare those terms with the terms of your current loan, and don’t be afraid to ask questions! By shopping around and working on improving your credit score, you may be able to reduce the total amount you pay or get a more affordable monthly payment by switching lenders.
Remember that you have options. While the prospect of saving money can be exciting, a refinance is nothing to rush into. Taking time to do research and considering both sides of the coin is the best way to make a confident decision, so they next time you ask yourself ” How Do I Refinance My Car ?”, you’ll already have all the information you need to do so.