Refinancing your car does not take much time to get approved after your application gets through.
Refinancing requires you to get a new loan to repay your current loan and replace it with a new term and interest rate.
The new loan you sign for will probably have a lesser interest rate than your previous one or a different repayment period.
Your application for a new loan takes less than an hour to process, and the lender offers a loan decision almost immediately.
The reasons for refinancing a car may vary, either your credit rating has increased since the time you took the original loan, or a lender offered you a high-interest rate.
- Refinancing a loan may help you get a lower interest rate that suits your financial needs.
- This lowered interest rate will help you reduce the total payable amount than if you have a high interest rate.
- It will also help you in case you’re facing problems paying your monthly car dues and reduce your overall monthly payments.
Here are the steps to refinance your car and probably maximize your savings.
1. Reviewing Your Current Auto Loan
The first step to refinance your car loan is reviewing your current auto loan and gather vital information like:
- Current monthly payment amount
- Current loan APR
- Time left to repay your current loan
- Remaining balance of your existing loan (Remaining balance might be different than the total payable amount)
The APR and payable amount will be present in your contract.
The payoff amount and the time left to repay the loan will be provided by the lender’s customer service department.
- Some lenders also provide you with this vital information on your online loan account.
2. Evaluate The Current Value Of Your Car
The past few years have seen magnificent growth in car prices, so it is vital to evaluate the current value of your car.
- People in 2023 are finding that the value of their new car is depreciating quickly and is valued less than the loan balance that they owe.
- It is known as upside-down on your car loan or negative equity.
Unless you have good credit, refinancing a car with negative equity is difficult.
- You cannot refinance your car if your car is not worth more than the balance you owe unless you have a positive equity position.
The best way to have a positive equity position if you have a negative equity is:
- Time your monthly payment accurately.
- Paying more money, even if it is only a small amount.
You just have to confirm that your lender is not applying to the interest but to your loan’s principal.
There are sites where you can estimate your car’s worth such as:
- Kelly Blue Book
3. Credit Evaluation
The loan approval gets easy if you evaluate your credit rating and know if it is good.
- If your credit score is good, you will get an idea of when your loan will get approved, the interest rate that the lender will offer you, and whether to refinance your car now or later.
You must take a look at your credit report or at your credit score to know if it is a good rating or a bad one.
Checking your score by yourself will not decrease your score.
- If you have repaid your loans and car loan payments at the due date, your chances of getting a low-interest rate will increase.
- You will get a lower interest rate because your credit might have improved if you timed your repayment.
The criterion that every lender seeks before offering a loan to you with a low interest rate is a healthy credit score.
- If you have a low credit score, you might find a lender for refinancing that will offer you a loan with the same term rate as the current one.
4. Information For Your Application
When you apply to refinance your car, lenders require specific information to proceed with the process.
The information that every lender asks you is:
- Driver’s License
- Vehicle Registration
- Insurance Proof
- VIN or Vehicle Identification Number of your car
- Proof of employment or current employer pay stubs
- Social Security Number
5. Comparing Rates and Lenders
To get the best interest rate, you must apply with different lenders that run a soft check.
- These lenders will provide you with an estimate of the interest rate that you will get.
- It will help you figure out whether refinancing your car is a good decision.
Getting a term that is longer than your current term will help you have extra time to repay your debt,
- However, it also means you need to pay more interest over time.
A term shorter than your current term will require you to have more income but will have you pay less interest rate.
Refinancing your car might be a good move if your credit score has increased. Here are the steps to refinance your car to maximize savings.