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Refinancing your car loan Part Of Refinancing a Car Loan In this video, we will discuss refinancing the Car Loan







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Paapa Kwasi Gyamfi-Aidoo/EyeEm/Getty Images
5 min read Published 23rd March 2023
Written by Rebecca Betterton Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the ways and pitfalls of borrowing money to purchase a car.







The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate from late 2021. They are dedicated to helping their readers to control their finances through providing clear, well-researched facts that break down complex topics into manageable bites.









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Not everyone when they first take out an auto loan. Refinancing your car loan could be . It involves replacing your current loan with a fresh one with a different length, interest rate, or both. A lower rate can aid in reducing your monthly payment and also the amount you'll have to pay over the life that you pay for the loan. However, to get the most benefit of refinancing, you will need good credit and a history of punctual payments. Seven steps for refinancing your auto loan Refinancing your car loan is the same as applying for any other vehicle loan but with few additional steps. Examine your finances along with your loan documents, and then search for the best lender that can meet your requirements. 1. Determine if refinancing is the best financial decision. There are two primary reasons to refinance: If you could get a better rate or if you are . The first scenario is common if you took out your auto loan while you were in high debt or your credit score was not high. If you've been in the market since getting your loan, lenders will likely offer you better terms, which will help you reduce your expenses over the course for the loan. However, if you feel like you're stretching your budget for monthly expenses by paying your current bill You can refinance your vehicle loan for a longer period. The extension of your loan term will reduce your monthly payment however, you'll likely have to pay more in interest in the future. The most important thing to remember
If refinancing your car can save you money It's likely to be the best option for you. If you aren't able to get , it is not a great idea. A refinance with a higher interest rate could result in making your loan more costly even if your monthly payments are lower.


2. Review your current loan Most lenders have a refinance option. This means that you need to know your payoff value to figure out if qualify. It is also important to know exactly the amount of interest you've been paying, what your monthly payment is and the total amount the loan will be if you finish the entire time. Take this information and compare your current loan with the offers you'll get in the future. The most important thing to remember is
Education is the key when you're trying to get the most value for money. Make use of this information to determine the amount you're paying for your current loan and compare it to the refinance options available when you have applied for preapproval.


3. Examine your credit score credit score and history are among the main factors lenders look at when you are applying for refinancing. If you have made smart choices with your money since then -- and you have been making timely payments for instance- your Lenders will consider you to be less of a risk and could offer higher rates. Before you apply. This will assist you in navigating toward lenders you qualify for and also help predict rates. Even those who aren't eligible might still be able to get a by finding the best lender. The most important thing to remember is
The better your credit score higher your credit score, the lower interest rate you'll get from the lender. Your credit history can be a factor too.


4. Calculate the value of your car amount for your loan isn't the only thing to take into consideration when deciding to refinance. You will also want to know . These resources allow you to estimate the value of your car simple. If your vehicle is older with low mileage and a substantial balance that's still going to take years to pay off, refinancing could make you money as well as stop you from going upside-down in your loan. If it's worth less what you oweon it, you may be out of luck. And if your car is close to being paid off and you're in a position to pay it off, it's less sensible to refinance as interest only comprises a small percentage of your remaining payments. The most important thing to remember is
Knowing the value of your car can assist you in determining if lenders will be willing to refinance. If your car isn't valued at all, refinancing might cost more than the savings you'd make.


5. Find the most competitive refinancing rates . All lenders evaluate your credit score, financial history and eligibility in different ways. If you choose to refinance begin with the credit union or bank that you use for other services. Certain financial institutions offer reduced interest rates for existing customers. You can then compare the rates you are currently paying your bank with to get an idea of what top lenders offer. Once you're ready, with at least three lenders. With multiple preapprovals you will be able to determine which option is the best for your financial needs. The most important thing to remember
The interest rates can vary therefore, it is recommended to look at a variety of lenders before deciding. However, you should check with your current financial institution because there are discounts available to existing customers.


6. Calculate your savings. After looking at rates, do the math and see how much you can save by refinancing your vehicle loan. Use an to make the comparison quick. Review for fees on your existing loan for charges. It is not unusual for lenders to charge fee, which can make refinancing more costly. It is also important to be clear on your goals. If you're looking to cut your monthly installment, you must make sure that the new loan won't cost too much more, if you go for . If you're refinancing at a lower rate, make sure that you are saving enough interest to offset any fees. A shorter loan term is also worth considering if you have more money for it in the budget. You'll reach the finish line faster and may save on interest depending on the terms that you get on your new loan. Doing the math ahead of time will let you see how much money a new rate could be able to save in terms of the interest rate, monthly payments or both. 7. Get your paperwork in order It's important to get your paperwork in order but it's not necessarily an end to the process. If you're applying, you should plan to supply the lender with the following documents: proof of income, including W-2s or most recent pay stubs Proof of residency such as a recent utility bill or lease agreement, monthly mortgage statement or tax invoice Proof of insurance: recent monthly statement or insurance card Details regarding your current loan (such as balance and interest rate, loan term and monthly payment) Details about your vehicle such as year model, make, mileage , and VIN. (VIN) Make sure you review your application and the documents to ensure that there are no errors before you submit. After you have submitted the application and receive approval from the lender and follow-up with each lender. If you get a check, ensure that your previous lender accepts it and adds the check to your loan. If the lender is a new lender is paying back the previous one, be sure to check in frequently to avoid missing payments due to errors in clerical processes. The bottom line: Organize your documents prior to time to speed up the refinancing process. Prepare to contact both lenders to ensure that your repayments and payment are in the right location. Factors to consider before refinancing Prior to launching into the process of refinancing, be sure it's appropriate for you. Requirements for refinancing: Every lender or bank lender has their own set of criteria to determine if you're eligible for refinancing. Make sure that you're not and are current on payments. The remaining time to your loan is an additional requirement to be eligible. Lenders will often want to see at least six months of repayments on your loan and you should have at minimum six months left. Prepayment penalties: A lot of auto loans contain clauses that specify the time and method to pay off the loan. Most of the time, these clauses contain a , a fee assessed in the event that you repay the loan early. Not all lenders are required to charge this, however it could impact the overall savings. There is still time left on the loan If you're close to the end on your existing loan, it may make sense to pay the loan off rather than pouring cash and time into refinancing. Your financial health: Your debt-to-income ratio is among the many factors that lenders consider when granting loans. The more before applying for an additional loan the higher chances of getting competitive loan conditions. You can use an internet-based calculator that can calculate your debt-to-income ratio. The bottom line Refinancing your car loan could have a significant impact on your financial situation. However, before you sign a contract with a lender look into auto loan costs and contrast those terms with the terms that you currently have on your loan. By shopping around and working to improve your credit score, if necessary it is possible to cut down on the total amount you pay , or obtain a more affordable monthly payment by switching lenders.


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Writen by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers to navigate the ways and pitfalls of borrowing money to purchase the car they want.



The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to take control of their finances through providing concise, well-studied and well-researched content that break down complex subjects into bite-sized pieces.






Auto loans editor




Up next Part of Refinancing the purchase of a car Loan

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