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

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5 minutes 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 using loans to buy a car.

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

Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping their readers to manage their finances with concise, well-studied information that breaks down complicated topics into bite-sized pieces.

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It is not the case for everyone when they first take out an auto loan. Refinancing your car loan could be . It involves replacing your existing loan with a fresh one with a different length, interest rate or both. A lower rate will reduce your monthly payments and also the amount you’ll have to pay over the life of the loan. To get the most out of refinancing, you will require good credit and a history of punctual payments. The 7 ways to refinance your auto loan Refinancing your car loan is similar to getting a type of car loan, with few additional steps. Review your current finances as well as loan documents, and then locate the right lender that can meet your requirements. 1. Determine if refinancing is the right financial move There are two main reasons to refinance: If you could get a better rate or . The first scenario is common when you take out an auto loan when were high or your credit score was poor. If your since you got your loan, lenders will likely provide better terms, which can enable you to save money over the duration for the loan. On the other hand, if you feel like you’re overstretched with your budget for monthly expenses with your current payment, you can refinance your car loan for a longer period. Reextending your repayment period will lower the monthly cost of your loan however, you’ll likely pay more in interest over time. What’s the most important takeaway

If refinancing your vehicle will save you money then it’s probably the best option for you. If you’re not able to obtain a refinancing deal, it’s not a great option. The refinancing process will result in higher interest rates could result in making your loan more costly, even if your monthly payments shrink.

2. Re-evaluate your current loan A majority of lenders allow to refinance. So, you will need to know your payoff quantity to see if you are eligible. It’s also essential to know exactly the amount of interest you’ve been paying in monthly payments, what the monthly amount is, and the total amount the loan will be when you finish the entire period. Gather that information to compare your current loan with offers that you’ll be receiving in the next steps. What’s the most important takeaway

Education is power when you’re trying to get the best deal. Use an to understand the cost you’re paying for your current loan and then compare it with your refinance options after 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’ve made good money decisions since then — and you have been making timely payments, for example -then your Lenders will consider you to be less risky and may offer you higher rates. Before you begin applying. This will assist you in navigating to lenders you can qualify for and also help predict rates. Even those who have may still be able to obtain a loan by locating the best lender. The most important thing to remember is

The higher your credit score, the lower the interest rate you will likely receive from the lender. Your credit history can be a factor, too.

4. Estimate your car’s value The amount that you pay for the loan isn’t the only factor to think about when deciding whether to refinance. You should also know . The internet has many resources that make estimating your car’s value easy. If you have a car that is more recent with low miles and a substantial balance that’s still going to take several years to pay refinancing may help you save money and keep you from going upside-down on your loan. If the value of your car is less than what you owe, you may be out of luck. And if your car is nearing its final payment it’s not a good idea to refinance since interest currently is a tiny portion of the remaining balance. The most important thing to remember is

Understanding the worth of your vehicle can aid in determining whether the lenders are willing to lend you money. If your car isn’t worth much, refinancing could cost more than you’d save.

5. Find the most competitive refinancing rates All lenders weigh your credit score as well as your financial history and eligibility in different ways. If you choose to refinance first, you should contact the bank or credit union that you use to get other products. Some financial institutions offer discounted interest rates to existing customers. Then compare the rate offered by your current lender to gain the most accurate picture of what the top lenders have to offer. If you’re prepared, you should have at three lenders. With multiple preapprovals you will be able to determine which one is best for your financial needs. The most important thing to remember

The interest rates can vary, so compare a few lenders before you make a final decision. However, you should make sure to check with your current financial institution as there could be discounts available for current customers.

6. Find out your savings after shopping at rates, do the math to determine the amount you could save by refinancing your vehicle loan. Use an to make the process of comparison simple. Check the current loan for fees. It is not unusual to see lenders charge fees that makes it more expensive to refinance. You should also be clear about your objectives. If you are looking to reduce your monthly payment, make sure the new loan isn’t going to cost much more, if you go for . If you are refinancing at the lower rate, make sure that you are saving enough interest to cover any costs. A shorter loan term is also worth considering if you have more money for it in the budget. It will get you there faster and may reduce interest costs, according to the terms you’ll receive with the new loan. Making the calculations prior to the timeframe will help you see how much money the new rate will save you on interest, monthly payments or both. 7. Make sure you have all your paperwork in order The preapproval process is crucial but it’s not necessarily the end of the road. When you apply, plan to supply the lender with the following documents: proof of income, which includes W-2s or the most recent pay stubs Proof of residency: recent utility bill lease agreement monthly mortgage statement, or tax invoice Insurance proof: the most recent monthly statements or insurance card Details regarding your current loan (such as the balance, interest rate, loan duration and monthly payment) Specifics about your vehicle: year and make, model as well as the mileage and VIN. (VIN) Be sure to review your application and documents to make sure there are no mistakes prior to submitting. After you have submitted the application and are granted approval and follow-up with the lenders. If you receive a cheque be sure your previous lender accepts it and adds this to the loan. If the current lender is paying off the previous one, make sure to follow up regularly to ensure that you don’t miss payments due to errors in clerical processes. The bottom line: Organize your documents ahead of time to help speed up the refinancing timetable. Make sure you are prepared to make contact with each lender to ensure your pay-off and payments go to the right location. Factors to consider before refinancing Prior to launching into the refinancing process, make sure it’s appropriate for you. Requirements for refinancing: Every institution or lender has its own criteria to determine if you are qualified for refinancing. Check to see if you’re eligible in default on your payments. The remaining time on your loan is another requirement for eligibility. The lender will typically need to see at minimum six months of payments on your loan and you should have at minimum six months remaining, too. Prepayment penalties: Many auto loans contain clauses that specify when and how you will repay the loan. Often these clauses include a charge if you pay off the loan in advance. There are a few lenders that charge this, but it could impact your overall savings. There is still time left on the loan If you’re near the expiration date of your current loan It may be sense to pay it off , rather than putting funds and time into refinancing. Financial health and wellbeing: The income-to-debt ratio is among the many aspects that are which lenders take into consideration. The higher your ratio before applying for an additional loan, the greater chance of receiving favorable loan conditions. It is possible to use an online calculator to calculate your debt-to-income ratio. The final result of refinancing your vehicle loan will have an impact on your personal finances. Before you make an application to a lender look into auto loan rate and then compare those conditions with those of your current loan. Through comparing rates and working on improving your credit score if needed it is possible to reduce 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 specializes in assisting readers to navigate the details of taking out loans to purchase a car.

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

Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to control their finances by providing 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

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