Auto refinancing can help you get a lower payment or interest rate or reduce your loan term. It’s a simple process that shouldn’t take much of your time if you take the proper steps to get a new loan. In this guide, you’ll learn more about how car refinancing works, key benefits and drawbacks, and how to apply for a new loan.
What Is Car Refinancing
In a nutshell, car refinancing involves swapping out your current auto loan for a new one. Once you’re approved and the transaction is finalized, the new lender will pay off the old lender, and you’ll commence repayment on the new loan until it’s paid in full.
Steps To Refinance Your Car Loan
Refinancing your car loan doesn’t have to be challenging. Take these steps to simplify the process from start to finish:
Weigh Pros and Cons Of Auto Refinancing
For starters, you should evaluate the benefits and drawbacks of refinancing your car loan to determine if it makes sense financially. Here are some key considerations:
- You could get a more affordable monthly payment.
- You could get a lower interest rate and possibly pay less interest over the loan term.
- You could pay your auto loan off sooner.
- You could pull equity out of your vehicle.
- You could pay more in interest in the future.
- You may owe more than your car is worth for some time.
- You could spend a fortune if your current lender assesses prepayment penalties.
Assuming there are more pros than cons, auto refinancing could work if you have a new vehicle with lower mileage, your current lender doesn’t charge a prepayment penalty, and you’re not upside-down on the loan. You should also have a steady source of income and a solid credit score.
Check Your Credit
If you decide to refinance your car loan, the next step is to check your credit, as it plays a significant role in if you’ll get approved. You’ll likely qualify for a new auto loan with competitive terms if your credit score is good or excellent. But if it’s too low, you could have trouble qualifying for auto refinancing or only be offered loans with higher interest rates.
Get a copy of your credit report from each of the three credit bureaus – Experian, TransUnion and Equifax – by visiting AnnualCreditReport.com. View the contents of each and file disputes for inaccurate or outdated information right away as it could drag down your credit score.
Get Details About Your Current Loan
You’ll also need to provide the new lender with this information about your current loan:
- The year, make, and model of your vehicle
- Your current mileage
- Your vehicle identification number (VIN)
- Your remaining loan term and outstanding balance
- Your current interest rate
- Your currently monthly payment
Refer to the original loan contract to confirm this information. If it’s not readily available or you have misplaced the documents since purchasing the car, reach out to your lender to request a copy of the contract.
Gather the Necessary Documents
When you complete the formal loan application, the lender will also request the following:
- Personal identifying information, including your name, address and Social Security number
- A copy of your most recent pay stubs (or other proof of income)
- A copy of your driver’s license
- A copy of your vehicle registration
- Proof of insurance
You should gather the necessary documents and information before you apply. That way, you’ll avoid potential delays or hiccups when the lender processes your loan application.
Compare Auto Refinance Lenders
Don’t settle for the first loan you’re offered from your bank or credit union. Instead, get quotes from other lenders – some offer quick pre-approvals with no impact on your credit score. You can also use a website like Auto Approve, where you can just fill out a form to get quotes from several reputable lenders in minutes.
But if you apply right away without shopping around first, you’ll get a hard inquiry on your credit report that could ding your credit score. The upside is the FICO-scoring model counts several hard inquiries within a certain period as one if you’re rate shopping for an auto loan.
Apply For Financing
Once you’re ready to apply for auto loan refinancing, complete the loan application in its entirety. The lender will perform a hard credit check, review your loan application and make a lending decision.
You can also use Auto Approve if you want a streamlined financing experience. The online platform leverages technology to the advantage of the consumer to provide an easy, stress-free application process.
Auto Refinancing FAQs
Below are some frequently asked questions regarding auto refinancing.
In most instances, auto refinancing doesn’t take long. You’ll generally get a quick decision and can complete the transaction within a day or two.
Yes, some lenders allow you to convert a portion of your car’s equity into cash. To illustrate, if your vehicle is worth $25,000, you may have the option to refinance into a $30,000 car loan and pull out $5,000 in cash.
Not necessarily. Most credit scoring models allow rate shopping, which combines several hard inquiries made for auto loans within a few weeks into a single inquiry that only counts against you once.
Before you head to your bank, credit union or apply for a refinance with an online lender, consider what Auto Approve has to offer. It’s an online platform that simplifies the refinancing process from start to finish, and you could be eligible for a new loan with a rate as low as 2.25 percent.
Simply request an online quote, and Auto Approve will shop your information around to banks and credit unions in its network to find the most competitive offers. It’s fast, easy and won’t impact your credit score. Even better, Auto Approve will handle the paperwork for you so you can focus on the things that matter most.