How to Refinance a Car Loan
- Gather all relevant information about your current auto loan and car.
- Compare refinance quotes from various financial institutions.
- Choose a refinancer and complete their application process.
Read below for more detailed steps on how to get an auto loan refinance.
Whether you're feeling a pinch in your household income, or you just don't want to pay more than you have to on your car loan, refinancing your auto loan can be a great way to save some money. Refinancing applications are shorter and easier than the loan applications you originally completed, but they still take a little time and organization.
Know Your Goal
When looking into auto loan refinancing, it is important to understand your expectations for your refinance. Typically, people refinance auto loans to:
- Reduce the interest rate of an auto loan, which will save money in the long run.
- To reduce the cost of monthly payments by extending the loan and maintaining current rates.
The second option may cost you more over the life of the loan, but can be very helpful in the short run if you need to make adjustments in your budget due to changes in your income.
Before applying for an auto loan refinance, consider using one of the various refinance calculators available online. This will show you how much a lower interest rate could save you every month. It won't always be worth it to refinance, so it's important for you to know what new interest rate you'd like in order to make the switch to a new finance company.
Gather Your Information
As part of your auto loan refinance application, a lender is going to need some key pieces of information from you.
Your Current Auto Loan
Be prepared to provide the following in your auto refinance application:
- Current interest rate.
- How much you still owe on the original car loan.
- How many more months are in the term of your auto loan.
You will also need to provide some information about your car, such as:
- Make and model.
- Current value.
- Odometer reading.
Once you've gathered this information, the next step is to find a lender.
Find Refinance Auto Lenders
Several financial institutions, including the following, will refinance car loans:
- Banks, including insurance companies with bank branches.
- Credit unions.
- Some car dealerships.
With several lenders to choose from, there can be high competition for your business.
Companies You Know
The first place to start is with companies that you already know, trust, and have a relationship with. This could be your bank, your credit card company, or even your insurance company.
Since you are an existing customer and they know your credit and payment history, there is a good chance you can get a good deal with them.
If you cannot get a car loan refinance from a lender you already know, consider other well-known lenders with whom you can build a new history.
Many lenders offer pre-qualification and auto refinance quotes online, so you don't even have to leave your home to see whether you can find a better rate than you are paying now.
Compare Refinance Loan Quotes
Different lenders are going to give you different quotes. In order to compare them apples-to-apples, make sure that the following are clearly spelled out:
- Loan rate.
- Length of the loan.
- Any specific terms and conditions of that lender.
For example, it's very hard to compare a loan at 6.25% over 48 months to a loan at 5.75% for 60 months unless you have all the details of the loan in an easy-to-read format.
Read the Small Print
As you are getting quotes either online or from your local bank, be sure to understand all the conditions of the loan. Check for the following to help you avoid bad surprises down the road:
- Pre-payment penalties.
- Penalties for late payments.
- Finance charges,
- Conditions for repossession.
Once you have found an auto loan refinancer who meets your expectations, complete that lender's application process.