Are you thinking about refinancing your auto loan to get a lower monthly payment? It could be a sound idea, but you’ll want to ensure it’s a smart financial move.
In this guide, you’ll discover when it makes sense to refinance your auto loan, how to pull it off with ease and an online platform you can use to simplify the process.
Benefits of Refinancing Your Auto Loan
There are several benefits of refinancing your auto loan.
1. Access Lower Interest Rates
If your credit score was low when you applied for your current auto loan, chances are you received a steep interest rate. However, assuming your credit score has since improved, you could access a lower interest rate, save hundreds or thousands over the life of the loan and possibly reduce your monthly payment.
2. Decrease Your Car Payments
A lower interest rate isn’t the only way to lower your car payment, though. You can also refinance your auto loan to stretch out the repayment period, which means the monthly payment will be lower. Of course, the downside is you’ll pay more in interest over the loan as the lender will have more time to collect from you. Still, you have the option to refinance and repay the loan early to curb interest costs if the lender doesn’t charge an early prepayment penalty.
3. Get a Shorter Term on Your Loan
You could also opt for a shorter term on your auto loan when you refinance. The monthly payment will likely be higher, but you could avoid spending a fortune in interest.
When Should You Refinance Your Auto Loan?
It could be sensible to refinance your auto loan in these situations:
Interest Rates on Auto Loans Are Lower
What are the current market conditions? Suppose they were fiercely competitive when you applied for an auto loan but have since cooled off. In that case, the average interest rates across the industry could be lower.
You’re Paying Too Much Monthly
Does your monthly auto loan payment seem unaffordable? You could be overpaying for your auto loan. Or maybe you have a reasonable rate, considering your credit score and overall financial health. But refinancing to get an extended loan term could help reduce your monthly car payment and free up funds in your budget.
You Have a Better Credit Score
The best interest rates are usually reserved for borrowers with good or excellent credit. Even if you don’t have perfect credit, you could get a lower interest rate if it’s far better than it was when you initially applied for your current auto loan.
How to Refinance an Auto Loan in 5 Steps
When you’re ready to move forward, below is a step-by-step guide to refinancing your auto loan with ease:
1. Determine if Auto Refinance Is Right for You
First, run the numbers to gauge if refinancing your auto loan makes sense. Then, consider the fees associated with refinance transactions. Also, ask the lender if there are any origination fees or prepayment penalties.
2. Find Lenders Offering Auto Refinance Loans
Refinance loans are offered by traditional banks, credit unions and online lenders. There’s no shortage of lenders to choose from in these categories. So consider using a platform like Auto Approve that presents you with the best offers for your financial situation. More on that shortly.
3. Review Lenders Requirements
Ask the lenders you’re considering about their loan requirements. Many have a minimum credit score you’ll need to qualify. Some also have restrictions on the age and mileage of vehicles they’ll consider for refinancing. Generally, your car should be less than eight years old and have fewer than 100,000 miles.
Visit each lender’s website and use the pre-qualification tool (if available) to gauge your approval odds and view potential loan terms. This will help you determine which lender to apply with.
4. Prepare Documentation for the Application
Not all lenders require the same documentation. However, these documents are usually required across the board:
- Copy of your driver’s license and vehicle registration
- Proof of auto insurance
- Your last two pay stubs (or other proof of income)
- A 10-day payoff statement from your auto lender
- Current mileage on your vehicle
- The vehicle identification number (VIN)
Also, expect to provide your name, address, phone number and Social Security number. Some lenders will also request your previous address, whether you currently rent or own, and the amount of your current monthly housing payment.
5. Apply with a Lender to Get Approved
Once you’ve gathered the necessary documents, submit a formal application with your top choice. Be sure to review the forms before submitting them and reach out to the lender if questions arise to avoid an accidental rejection.
How to Refinance an Auto Loan with Auto Approve
You can spend hours scouring the web for lenders to refinance your auto loan. Or you can use an online platform, like Auto Approve, to simplify the process.
The latter is the wiser choice. You can complete a brief online questionnaire and view refinance loan offers in just seconds from an extensive network of lenders. This means Auto Approve will do the legwork and shop around, so you don’t have to. Plus, there’s no impact on your credit score unless you decide to move forward.
Even better, you can speak with a loan consultant that can help you evaluate your options. Auto Approve will also work with the lenders on your behalf to get the loan processed and funded.
If you currently lease your vehicle but would like to purchase it, Auto Approve also has an auto lease buyout program that could work for you.
Fill out a quick online form to get started. It only takes a few minutes of your time.