When finances are tight, some people may consider refinancing one or more of their loans. Replacing your current loan with a new one with a lower interest rate (APR) or a longer loan term is known as refinancing. Refinancing an auto loan may be a good option for those who want to reduce their monthly payment.
There are several steps to follow when refinancing your car, including reviewing your current loan, checking your credit score, meeting certain requirements, and finding the best refinancing option. We’ll walk you through four steps to refinancing your auto loan.
Step 1: Check on Your Current Loan Agreement
Most lenders require you to have a minimum loan amount to qualify for refinancing. Checking your current loan agreement can help you understand your payoff sum (to see if it meets the minimum loan amount), the exact amount of interest you have been paying, and your monthly payment.
This information will also be pertinent to compare your current loan to the offers you will be given.
When you apply for pre-approval, use an auto loan calculator to calculate your current loan’s payment and compare it to your refinancing options. This enables you to negotiate the best price.
Step 2: Review Your Credit Score
When you apply to refinance your car, lenders heavily consider your credit history and score. If you’ve made wise financial decisions, your credit score might have increased since your last loan application. As a result, lenders will see you as less of a risk, and they may offer you better terms.
Before applying, check your credit score. Not only is it good to check your credit score regularly, but you’ll be able to use your score to identify potential refinancing offers and rates. In most cases, a higher credit score will allow you to qualify for lower interest rates.
Step 3: Ensure You Meet the Requirements
You must ensure that your loan and vehicle meet the requirements, even if you are qualified for refinancing. Since each lender has a different set of rules, comparing lenders is a good next step. Look for a lender whose policies suit your situation and who can offer you the best deal for lowering your monthly payment.
A good or higher credit score is not the only prerequisite for refinancing a car loan; the following guidelines also apply:
- The sum borrowed – Your loan must be within the new lender’s acceptable range regarding the loan amount.
- Vehicle age and mileage requirements – Your vehicle must adhere to the lender’s established vehicle age and mileage requirements.
Step 4: Shop Around for the Ideal Terms
Finally, shop around and find the best deal for your needs. Remember to consider the following in your search:
- How credible is each creditor?
- What does the fine print say?
- What is the total cost (including interest, fees, and any other stated costs)?
Refinancing your vehicle is a great way to save money and decrease your interest rate. It can also help to free up some cash flow. The steps above provide a framework to help you find the best options for your needs.