Is Refinancing your Car Loan the Right Choice
Refinancing your car loan means getting a new loan with a different lender to replace the existing auto loan. Your new lender will clear off the remaining loan after agreeing how much you will be paying, hopefully with lower interests. You can also choose to extend the term of the loan if you were straining with the installments.
Auto loan refinance is right for you if your credit score has greatly improved and you can qualify for lower rates or smaller monthly payments.
How to Refinance your Auto Loan
Gather your documents
You will need at least a recent payment of your Auto Loan to determine your remaining balance and current monthly payments. Note down the interest you are currently paying and the amount of time left until you can clear the loan. Your driver’s license, car identification and proof of payment may also be required.
You should also check for penalty that could have accrued on your auto loan contract.
Check your Credit Report
Find out where your credit score stands. Chances are it is good if you have been consistent in your auto loan repayment and other financial commitments in your life. There are online sites that you can check your credit score ratings. Your credit score determines the kind of interest you will get in your new loan. It might not make sense to refinance with bad credit score.
Compare loan offers
Refinancing your car loan will save your money if you spend time shopping for a better deal or a reliable lender that you can refinance with. Refinancing your loan doesn’t take long and a lender can decide in less than hour.
Since we all have different credit rating the score you might get from your own research might not tell you exactly how much interest rates you will be charged. The alternative is to apply for the loan to find out how the interest that your good credit will earn you.
Work the numbers
Start by entering your current car loan information i.e. the original loan amount, the interest rate, the remaining balance and the months left till you pay off the loan. Then enter the approximate interest of the new loan, the months it will last (Loan Term). You will be in a position to calculate how much you will be saving. However, if the remaining amount is greater than your car’s worth, refinancing will be impossible.
After making the appropriate moves and calculations, you can then decide if refinancing is the right choice at the moment. If you are close to the end of your Auto loan, refinancing might not make sense or if there isn’t much difference.
You can decide to refinance if you want to pay off the loan quickly or lengthen the time you will take to repay the Auto loan.
Apply for Refinancing
After doing the math and choosing to refinance, the next step is to complete the process with the lender of your choice. You can then agree with the lender on the new loan details, including the interest rates and the payment length. The refinancing company will then pay off your remaining balance of the old loan.
The process can be completed within a few hours. Refinancing is not expensive since most car loans lacks a prepayment penalty. Also, there is no application fees for refinancing.
When refinancing makes sense
A dealer marked up the interest rates- Your car dealer might have charged you higher interest rates at the point of purchase if you had not shopped around for better deals, refinancing can help save lots of money.
Interest rates have dropped– Interest rates going down is another reason to consider refinancing. Increased competition among lenders, change in the economic status and policy changes are some contributing factors to low interest rates.
Late or unable to keep up with payments– Financial challenges pop up every once in a while and you might find yourself straining to make monthly payments. Refinancing your car loan might salvage the situation and give you enough time to pay off the loan.
Refinancing might mean paying more because of increased duration of the loan.