Are you paying too much for your car loan? Would you like to save some money by refinancing your car loan into a lower interest rate, even if it means extending the repayment period? You might be surprised how easy it is.
What is refinancing an auto loan?
Refinancing an auto loan entails taking out a new loan– perhaps with another lender or your current lender at a lower interest rate — on the same car, thus replacing the old loan.
You can save money by refinancing an existing car loan for several reasons, but the main one is that achieving a lower interest rate will normally result in lower monthly payments.
When is it a good idea to refinance?
Most of the time it makes sense to refinance your car loan, even if you’re not underwater on the loan or upside down on your trade; this is because lenders typically charge lower interest rates for refinanced loans than new ones. If you can save between $50 and $100 per month, then the time it takes to recoup the refinancing cost of about $300 or so is a matter of just a year or three.
Other conditions which indicate you should refinance include if your income has increased — and thus your ability to repay at a lower interest rate — since you originally took out the loan, or if you have a high credit score and more equity in the vehicle.
How do you go about refinancing your car loan?
The first thing you need to do is assess whether it makes sense to refinance, as explained above. If that’s a yes then there are some basic steps:
1) Shop around for lenders with better rates than your current one.
Be sure to check with banks and credit unions as well as the car dealership: one or more may be able to refinance your loan at a lower rate, especially if you have good credit. You can also compare all your refinance options with Driva car loans.
2) Decide whether you want to replace your old loan with a new one or simply take out an extension on it.
In either case, you will need to provide the lender with a copy of your signed and notarized loan documents.
3) Get pre-approved for refinancing so you know exactly how much money it will save you.
Remember that refinancing is not free, so get an estimate up front rather than being surprised by fees later.
4) If you have a co-signer, the refinancing company may need to speak to them.
This is especially true if your loan was originally signed by both you and someone else. Make sure the refinancing company has all of this information in advance; they will normally ask for it upfront.
5) If you are underwater (owe more than the car is worth), you may be required to pay off some, most or all of the difference between what you owe and how much your equity in the vehicle has dropped.
This doesn’t apply if you are currently underwater (have negative equity) but plan on buying another new car before refinancing; this situation happens frequently when people tradein their car for a new one every few years.
If you are current on your payments, refinancing will have no immediate effect on your credit score or report
However, if you are unable to keep up with the terms of the original loan, do not expect to be treated any differently by the lender who refinances it.