How Do You Refinance a Car Loan?

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Image: | How Do You Refinance a Car Loan? | When you think about refinancing, most people think about refinancing a house, more commonly referred to as your mortgage loan. While people are more familiar with mortgage refinancing, it’s also possible to refinance your car loan. Are you wondering, “Really? How do you refinance a car loan?”

It’s not about whether it’s a house or a car, but that it’s a loan from a lender. In the finance world, regardless of what was bought with the loan, loans come with many options, including the possibility of refinancing.

When you consider refinancing a car loan, you want to make sure you’ve had the loan long enough and have paid down a decent portion of the loan. You also want to keep your credit score nice and healthy by consistently making on-time monthly payments and taking care of any inconsistencies that have come up on your credit report.

Assuming you’ve kept up payments and are maintaining your creditworthiness, you should be able to get started on the process of refinancing your car.

Why Refinance My Car Loan?

If you’ve had your car for a number of years (or at least a year) and have been adhering to the lender’s terms and conditions, then you may be eligible to refinance your car loan.

One major reason people refinance their car loans is that it will save them money. It can save you money in the long run or monthly, whichever is your goal. Whether it’s a loan with a lower annual percentage rate or you’re looking to extend the term length of the loan so you’re able to take a breath and get caught up, there are serious reasons to look into refinancing a car loan.

Although extending the length of your loan sounds counterproductive and as if it goes against the goal of saving money in the long-term, it may be in your best interest to extend the life of your loan so you can make lower monthly payments if you’re working with a tight budget.

How To Refinance a Car Loan

There are five main steps you’ll need to take in order to refinance your car loan. Let’s take a close look at each of them.

  1. Get a Credit Check

Like much of the financial world, particularly when it comes to applying for credit cards, home loans, car loans, and personal loans, really, the first thing you should do is check your credit score. If you’ve made full payments on time for at least a year, your credit should show relative improvement and potentially make you eligible for a lower interest rate with a car refinancing loan. With this new loan, the new lender will pay off the previous lender in full, and your car loan will take on the new terms. 

  1. Confirm Current Auto Loan Details and Terms

Take the time to do a quick read-through and refamiliarize yourself with the terms of your current auto loan. When you’re getting ready to apply, it makes sense to glance over things so they’re fresh in your mind.

You should also collect all your documents. Make sure you have a recent pay stub or two and be ready to discuss the specifics of the current loan. You will likely need to know:

  • The current amount you’re paying each month and how much you still have to pay down.
  • How many months are left in your loan term.
  • What interest rate you’re paying.
  • A phone number for a loan representative in case you need to reach the lender with questions.

While you’re in this preparation phase, it’s important to also double-check that there aren’t any pre-payment penalties. If you cannot locate the initial contract, you can reach out to someone in the lender’s customer service department.

In addition to your pay stubs, bring personal identification documents, such as your driver’s license; the car’s VIN (vehicle identification number); and your pertinent numbers, like your Social Security number.

  1. Compare Various Offers from Competing Lenders

Start by asking your current loan holder if they can offer you different terms for your car loan. If they’re hoping to keep you as a customer, there might be something they can do.

If not, then be sure to do side-by-side comparisons of the loans and what they have to offer. Compare interest rates, loan lengths, and penalties and fees. Do the same when you compare them back to the current loan. You can apply in-person, but also have the option through many financial institutions to research car refinancing rates online and apply electronically or by phone.

  1. Prepare and Review Your Loan Application

Then, apply. If you apply to a handful of lenders offering car refinancing, you can easily compare the rates, terms, and the overall best offer.

Just a reminder: be sure to submit all applications within the same time window of about two weeks. Any time you submit an application for a new loan, your credit score will record the application. If there are too many spread out over the course of a few months, it will look like a bunch of dings on your credit report. However, if they’re done in a cluster, then it’s often marked as “one,” so there will be fewer points deducted.

  1. Close on the New Loan

In the end, if you decide to refinance, finish up the application with your chosen lender, and you’ll get moving on the paperwork. While it may seem like a lengthy process, it may only take a few hours to complete.

Come see what Rivermark Community Credit Union has to offer if you’re looking to refinance your car loan. We’re just a phone call away.