Do you wish to save money with your car loan? Refinancing can save you money by lowering the monthly car payment or decreasing your interest. The money can then go towards saving, home improvement, or paying down credit card debt. Find out how to finance a car, and when it’s best to do so.
How Does Refinancing An Automobile Work?
Refinancing a car means replacing an existing auto loan with one. The new loan cancels the original loan. You then begin to make monthly payments on your new loan. Refinance application is quick and simple. But before you jump, there are some things you should keep in mind.
Chase does offer to refinance but we will show you how to do it.
5 Steps To Refinance Car Loans
Can you refinance car loans? It is important to prepare before asking this question. The process can vary depending on which lender you are working with, but it is worth knowing the basics to help you get ready for what lies ahead.
- Determine If Refinancing Would Make Sense For Your Situation
Refinancing your car loan reduces your monthly payment and interest. The following conditions may make this impossible:
You’re behind: Late payments or other credit issues could prevent you from getting a better loan.
Prepayment fee is Possible on your current loan.
Your car’s debt exceeds its value. If your loan balance is higher than your car’s value, you may not get good terms.
Some lenders won’t finance older vehicles. Long-term, replacing your car may be more profitable.
- Credit Checks
When approving a loan, and determining the interest rate for it, lenders heavily depend on your credit reports and credit score. A higher credit score will usually result in lower interest rates.
- Get The Documents You Need
The application process can be simplified if you organize your documents ahead. Most times, you’ll require the same items that you used to get a loan.
- Your driver’s license
- Documentation proving insurance
- Pay stubs or proof of income
- Your Social Security number
- Ask The Right Questions
Do your homework before signing on the dotted line. Talk to lenders and find out how refinancing cars works. Get answers on loan terms, annual percentage rates (APR), origination fees, and penalties for early repayment.
- Request Financing Or Prequalify
You may feel ready to apply if you have found the right deal. However, this can result in a credit inquiry. Being prequalified gives you an objective view of your credit without creating an inquiry.
When Should You Refinance?
Car refinancing isn’t easy. Some situations don’t allow refinancing. Poor credit or payment history may prevent you from refinancing.
Many situations benefit from refinancing. If any of these apply, consider refinancing.
Credit Score Increased
Credit score affects loan approval and terms. If you have bad credit, you can refinance your car to lower your monthly payment or interest rate.
Interest Rates Have Dropped
If you bought your car with high-interest rates, refinancing can save you money. A 2% or 3% interest rate reduction without loan extension could save hundreds.
You Didn’t Shop Around To Find The Best Rates In The Beginning
Your original car dealer loan may have been too high. Before coming to the dealership, buyers may not have checked their credit or interest rates. This may have hurt lender terms.
Your Monthly Payment For Rent Is Too High
If your car payment is too high, consider refinancing. Lower interest rates reduce monthly payments, but may not be enough. A loan extension may increase your monthly payment.
