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How to refinance your car loan Part of refinancing an Auto Loan This video series will help you refinance the Car Loan







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

Rebecca Betterton is the auto loans reporter for Bankrate. She has a specialization in helping readers with the details of taking out loans to purchase an automobile.







Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are dedicated to helping their readers feel confident to take control of their finances with precise, well-researched and informative facts that break down otherwise complex subjects into digestible pieces.









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There isn't a perfect fit for everyone when they apply for the first car loan. Refinancing your vehicle loan could be . It is the process of replacing your present loan with a fresh one with an additional length, interest rate, or both. A lower rate can help lower your monthly payments and the costs you'll pay over the course of your loan. However, to get the most benefit of refinancing, you'll require good credit and a record of timely payments. 7 steps to refinance an auto loan Refinancing a vehicle loan is the same as applying for any other car loan but with a couple of extra steps. Check your financial situation as well as loan documents, and then search for the best lender that can meet your requirements. 1. Determine if refinancing is the right financial move There are two main reasons to refinance: If you can get a better rate, or if you're . The first scenario is common in the event that you took out an auto loan when were high or your credit score was poor. If you've had a credit history since you took out your loan, lenders will likely offer you better terms, which will help you save money over the duration that of your loan. However If you think you're overstretched with your budget monthly by paying your current bill You can refinance your car loan to a longer term. Extending your repayment term decreases the amount you pay each month but you'll likely be paying more interest in the long run. The most important thing to remember
If refinancing your car can help you save money, it's likely the right choice for you. If you aren't able to get , it is not a great option. A refinance with a higher interest rate could make your loan more costly even if the monthly payments decrease.


2. Re-evaluate your current loan A majority of lenders allow for refinances. Therefore, you'll be required to know the payoff amount to determine if you are eligible. It's also crucial to be aware of the exact amount of interest you've been paying, what your monthly payment is, and the total amount the loan is if you complete the whole term. Take this information and compare your current loan with offers you'll receive in future steps. Key takeaway
Education is the key when you're trying to get the best deal. Use an to understand how much you are paying on your existing loan and then compare it with the refinance options available when you have applied for preapproval.


3. Check your credit score Your credit score and credit history are among the main factors lenders look at when you are applying to refinance. If you've made good money decisions since then and have made timely payments for instanceyou'll be able to improve your credit score. Lenders will view you as less risky and could offer lower rates. Before you apply. This will guide you toward lenders you qualify for and also help predict rates. Even those with a credit history the ability to qualify for a loan by finding the perfect lender. Key takeaway
The better your credit score is, the lower the interest rate you will likely receive from an lender. Your credit history can be a factor as well.


4. Estimate your car's value The price for your loan isn't the only factor to think about when deciding whether to refinance. It is also important to be aware of . Resources like and make estimating your car's value simple. If you have a car that is more recent with low miles and a substantial balance that will still take years to pay off refinancing may make you money as well as stop your from being upside down on your loan. If it's worth less than what you oweon it, you might not be able to refinance. And if your vehicle is nearing its final payment it's not a good idea to refinance as interest only comprises a small percentage of the remaining balance. Key takeaway
Understanding the worth of your vehicle will help you determine whether lenders will allow you to allow you to refinance. If your car isn't valued at all, refinancing might cost you more money than what you'd be able to save.


5. Shop around for the best refinancing rate. Each lender weighs your credit score as well as your financial history and eligibility in different ways. If you decide to refinance begin with the credit union or bank that you use for other services. Some financial institutions offer discounted interest rates to existing customers. Then compare the rate you are currently paying your bank with to get a clear view of what the top lenders have to offer. Once you're ready, with at least three lenders. With multiple preapproval offers you will be able to determine which option is the best for your financial goals. The most important thing to remember
Rates of interest vary greatly and it is advisable to compare several lenders before you make a final decision. -- but make sure to check at your financial institution because there may be discounts for current customers.


6. Find out your savings after shopping around for rates, you can do the math and see how much you can save by refinancing your vehicle loan. Utilize an application to make the process of comparison simple. Check the current loan for charges. It is not unusual for lenders to charge that makes it more expensive to refinance. Be sure to have a clear understanding of your goal. If you're looking to cut your monthly installment, you must make sure that the new loan will not cost you much more, if you go for . If you're refinancing with an lower interest rate, be sure you're saving enough interest to cover any costs. A shorter loan time frame is recommended if there is additional funds for it in the budget. It will get you there quicker and could save on interest dependent on the terms you receive on the new loan. Making the calculations ahead of time will let you know how much the new rate will save you on the interest rate, monthly payments or both. 7. Make sure you have all your paperwork in order It's important to get your paperwork in order but it's not necessarily an end to the road. If you're applying, you should plan to supply the lender with these documents: proof of income, which includes W-2s or your most recent pay stubs. Proof of residency Recent utility bill lease agreement, monthly mortgage statement or tax statement Insurance proof: the most recent monthly statement or insurance cards Details about the current loan (such as balance or interest rate loan period and monthly payments) Specifics about your vehicle include year, make, model as well as the mileage and vehicle identification number (VIN) Make sure you examine your application and the documents to make sure there are no mistakes before you submit. After you have submitted the application and get full approval you must follow up with each lender. If you receive a check be sure your previous lender gets it and then applies it to your loan. If your lender is a new lender is paying off the old one, follow up frequently to make sure that there aren't any missed payments due to errors in clerical processes. The most important thing to do is organize your paperwork ahead of time to speed up the refinancing process. Be prepared to make contact with both lenders to ensure your repayments and payment are in the right place. Things to think about prior to refinancing Before jumping into the process of refinancing, be sure it makes sense for you. Requirements for refinancing: Every bank or lender has its own criteria to determine if you are eligible for refinancing. Make sure that you're not paying on time for payments. The remaining amount on your loan is an additional requirement to be eligible. Lenders will often require at least six months of payments on your loan, and you should have at minimum six months left. Prepayment penalties: Many auto loans contain clauses that specify how and when you can make payments on the loan. Often these clauses include a , a fee assessed in the event that you repay the loan early. Not all lenders charge this, but it could affect the total savings. The remaining time on the loan: If you are close to the expiration date the current loan, it may make sense to pay it off , rather than putting cash and time into refinancing. Your financial health: Your debt-to-income ratio is one of the many factors that lenders consider when granting loans. The more you know about it prior to applying for the new loan the higher chance of receiving favorable loan terms. There is an internet-based calculator that can compute your debt-to-income ratio. The bottom line Refinancing your vehicle loan will have an impact on your financial situation. Before you make an application to a lender be sure to research auto loan costs and contrast their terms with the terms that you currently have on your loan. Through comparing rates and working to improve your credit score if needed it is possible to cut down on the total amount you pay or get lower monthly payments by changing lenders.


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Authored by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the ins and outs of securely using loans to buy a car.



Edited 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 manage their finances with precise, well-studied information that break down complex topics into manageable bites.






Auto loans editor




Up next Part of Refinancing the purchase of a car Loan

1 minute read Mar 24 2023










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