How to Refinance Your Car Loan- Refinancing your car loan is a quick and efficient way to save money. Refinancing your car loan is an act of getting a new loan to pay off your current car loan. The reasons why you should refinance your car loan vary. Refinancing your car loan can help lower interest rates and the total amount of interest required, especially if you have improved credit from your original loan. 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 of refinancing your car loan will be completed.
Factors to Consider Before Refinancing a Car Loan
Before proceeding to refinance your car loan, you need to consider some factors. These factors help you make better choices in refinancing. Understanding the feasibility of refinancing depends on various factors, including requirements, repayment time, prepayment penalties, and financial health.
How to Refinance Your Car Loan
There are 6 basic steps to follow to refinance your car loan. Following the steps below gives you the easy
Analyze Your Existing Car Loan
Review the information concerning your current car loan. Gather information on the monthly repayment amount, current loan APR, remaining repayment months, and payment amount for the current loan.
Regulate your car’s 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 falls below 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 get good equity, you cannot refinance your car loan.
Estimate your credit
Being aware of where your credit stands can help you determine 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 to a lower rate.
Put Together Information for Your Application
The information needed to refinance your car loan is different depending on the lender. Lenders typically require vehicle registration, driver’s license, car insurance proof, identification number, social security number, proof of employment, and a loan payoff amount statement from the current lender. Prepare this information along with any other requests by your lender to refinance your loan.
Differentiate Lenders and Rates
If possible, apply for refinancing with different lenders that offer 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 lesser 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 offered.
Apply to Refinance Your Car Loan
The pre-qualification process only shows the loan’s estimated 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 to go 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 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 term length.
Does Refinancing My Car Loan Hurt 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 would go back to normal after a few months of punctual repayments.
