This post was last updated on September 5th, 2022 at 05:53 am
Refinancing your car loan is a great way to save money. You can refinance your vehicle loan anytime, provided you meet the lender’s eligibility standards and have equity in the vehicle. If your current loan is with an auto dealer, then refinancing will probably involve putting them as the lien holder. However, if you currently have an online loan from a bank or credit union, you can refinance directly with them. Here are steps on how to refinance a car.
Check your credit before refinancing
Checking your credit score gives you a good idea of what interest rate you might be offered and whether you can qualify for a lower rate. If your credit score is lower than it used to be, you will be at a disadvantage. Lenders will require a higher interest rate, so you will pay more than you were paying before.
Know your options
The first thing you will want to do is identify potential lenders to refinance with. For example, choosing a lender with a good customer service track record is best. To find the best rates, you can compare interest rates and loan terms between lenders.
Also, consider refinancing your loan to increase your loan term, which can help you save money on interest over the long run. If you refinance to a longer loan term, ensure you can make the payments. You can also refinance to lower your monthly payments by paying off your current loan early. According to Lantern by SoFi, “What’s important is to pursue a deal for the right reasons — and to make sure you’re avoiding costly mistakes.”
Get pre-approved by a lender
You need a pre-approval letter from a lender to refinance your car loan. When you refinance a car loan, you are essentially borrowing money again. You are using the equity in your car to secure the loan. To prove that you can repay the loan, you must provide documentation that you have sufficient income.
Some lenders will require a new credit check. However, if your credit score is lower than when you took the original loan, you may have to find a lender who works with people with bad credit.
Shop around and select your new auto loan
Because you have pre-approval, you can now shop around and select a new auto loan. You can either find a new lender or refinance your loan with your current lender. Finding an acceptable loan with a decent rate with a pre-approval will be much easier.
Confirm the terms and conditions before refinancing
Ensure you carefully review the new loan terms and understand them before signing and making any official changes. For example, if you refinance your car loan with the same lender, they may not want you to make any changes to your account, such as adding a co-signer. If you refinance with a different lender, you will likely need to change your account.
With car refinancing, you will likely qualify for a lower interest rate, and you can also use the same car and change ownership. Make sure you understand the process and are prepared to make any necessary changes to your account before committing.