Do you continue to get offers about refinancing your car loan?
You may be completely happy with your current car loan.
It may be easy to make your monthly payments. Perhaps you received a fantastic interest rate when you first took out your loan.
But maybe you’re struggling to come up with those minimum monthly payments. You pay those bills with dread and feel as if you’re paying more interest in the long run than you’d like to.
Whatever the case, refinancing your car loan is definitely an option!
Read on to learn more about when and how to refinance your car loan so that you’ll feel confident making the right decision.
1. Decide It’s Time to Refinance
In this guide on how to refinance your car, we want to emphasize the value of this first step.
A lot of people hear the word “refinance” and immediately assume that it’s a good option. “Refinance” means savings, and savings are always good, right?
Before you start figuring out how to refinance your car, refinancing has to be right for you and your financial situation.
In general, you’ll know it’s time to refinance your car if or when the following situations arise.
You’ve Had a Credit Score Improvement
Your credit score plays a huge role in determining the loan amounts and interest rates you’re eligible for.
When you first took out your auto loan, you went into the deal with a certain credit score. You received your interest rate based off of that score.
If you were on the higher end of that credit score, chances are that you enjoyed a lower interest rate offer. If you clocked in at the lower end of the scale, you may have received a higher interest rate due to borrowing risk.
Your credit score can change over time for a variety of reasons. You can build credit simply by having accounts and loans open for longer period of times.
You can also send your credit score soaring by staying on top of loan and credit card payments and monitoring your credit utilization percentage. In fact, these are all great tips to follow if you’re looking for a credit fix.
Check out your current credit score. Has it increased in the last year? By a few points or many?
If you’ve had a credit score improvement, you may qualify for a lower interest rate for your auto loan. This is especially the case if you started out with a lower score and now have one that’s more competitive.
Interest Rates Are Lower
Do a little research on current interest rates for auto loans. If your research reveals that rates have dipped since you first took out your loan, it may be time to refinance.
Interest rates can dip for a variety of reasons. What’s more, sometimes first-time borrowers face higher interest rates.
This is because some lenders mark up interest rates, assuming borrowers haven’t shopped around or inspected their credit reports.
If you qualify for lower interest rates than you initially received, refinancing is a solid option.
It’s Hard to Make Monthly Payments
If you’re struggling to come up with the minimum monthly payment for your loan, it’s time to talk about how to refinance your car loan.
You may be struggling to make payments due to a change in occupation or income. Perhaps you started out with high minimum payments, and over time these have eaten away at your savings.
You can definitely chat with your lender about this. It’s possible, for example, to extend the length of your loan in order to lower monthly payments.
But a better option is refinancing. When you refinance your loan, you get a whole new lender, interest rate, and payment plan.
2. Know What It Involves
If you’ve decided it’s time to refinance, it’s time to discuss what the entire process looks like.
The good news is that refinancing a car loan is relatively straightforward.
A lender that agrees to help you refinance will pay off the balance of your current loan. Next, you’ll take out a loan from this new lender for the remaining balance of your initial loan.
Often this new loan will have a completely fresh set of terms. You’ll enjoy a lower interest rate, most likely, a different loan term length, and modified monthly payments.
In general, you won’t be able to refinance your car loan with your current lender.
When you signed a contract, you agreed to a fixed interest rate through the terms of the loan. Your current lender isn’t likely to bow out of this.
3. Assemble All of Your Information
You’ve made your decision to refinance. You know what it involves. Now, let’s discuss how to refinance your car loan.
The first thing to do is gather all documents you’ll need for refinancing.
These include the most recent payment stub or receipt from your last car payment to your current lender.
If you can, locate your loan contract. If you don’t have this on hand, you can ask for a copy from your current lender.
This will detail the interest rate you’re paying, the initial loan amount, and length of the loan term.
You’ll also need the following information when requesting to refinance your car loan: your social security number, driver’s license number, VIN (vehicle identification number) of the car you’re refinancing, and proof of employment.
4. Inspect Your Credit Report
Now let’s talk about how to refinance your car wisely.
Remember, when you signed your original loan contract you may have been signing it without awareness of your credit history.
Come to the table prepared when you’re refinancing. Request a copy of your credit report online and inspect it before you request refinancing.
Make sure you understand your current credit score, and also scan your report for any errors. (These do occur.) If you notice an error, file a dispute with a credit bureau to have it fixed promptly.
It can be good to have this credit report on hand when requesting so you can make a strong case for a lower interest rate.
5. Research Lenders
There are tons of lenders out there eager to walk you through how to refinance your car loan.
Don’t go with the first one that appears in your Google searching. If you’re hungry for preferred rates, research multiple lenders so that you’ll be able to choose the best possible offer.
What should you look for in a lender? Look for a credible institution that has a professional team of customer representatives. You want to find a lender that won’t scam you.
But you also want to find a lender that’s been around for a while and is devoted to its customers. It’s critical to choose a lender that’s backed by real people.
If you can, speak on the phone with representatives from a variety of lenders.
Make sure you explain your situation fully. In this case, you’ll likely get even more advice on how to refinance your car loan with the greatest peace of mind.
5. Submit Requests
Now it’s time to actually submit those requests for refinancing. Normally, refinancing requests are easy and fast.
You also won’t have to pay any fees to submit a request. Make sure you type all of your information in correctly.
Also be aware that submitting a request will require lenders to run a credit check. Credit checks do change your score, but only by a handful of points.
As a result, however, make sure that you submit all of your request within two weeks. This means that your requests will all be lumped under “one inquiry.”
As a result, your credit score won’t suffer as much from the multiple credit checks performed by lots of lenders.
6. Choose the Best Offer
Generally, you’ll know the interest rates that your lenders will offer you right away. But just because you see some dazzling low numbers doesn’t mean it’s time to accept.
Before you choose the best offer, make sure you assess the other terms of the loan offers. Some offers may have shorter term lengths, meaning higher monthly payments.
If you’re not sure, plug some numbers into a calculator that’s designed especially for auto loan refinancing.
You’ll be able to see what your monthly payments will be with your new rates and how much money you’ll save over the loan’s term.
7. Speak to a Consultant
If you’re wondering how to refinance your car loan the right way, you can speak to a consultant or representative for expert advice.
At Bonsai Finance, for example, we’re all about helping our customers meet their financial needs. Start a conversation with us at any time for refinancing assistance.
How to Refinance Your Car Loan: Final Thoughts
If you’re wondering how to refinance your car loan, rest assured that you’re in for an easy process. Make sure you’re choosing to refinance for the right reasons, and do your research well when it comes to finding a new lender.
What’s more, spend some time with your credit report before you start requesting from certain lenders. The more credit score awareness you have, the better interest rates you’ll find.
At Bonsai Finance, we love helping our customers choose the loans that are right for them. Learn more about the personal loans we offer today!