Refinancing a car or auto loan entails the transfer of the title of your car from one lender (creditor) to another. One can refinance their car as long as they have an existing car loan. Car refinancing has long been ignored as an innovative way of saving money. The underlying principle is that the new loan will have a lower APR (annual percentage rate) than the previous one which will save a lot of money in interest.
Refinancing a car or auto loan is a lot simpler than mortgage refinancing. It is especially recommended in cases where: interest rates have decreased, one’s credit score has improved since the car was bought (hence qualifies for reduced rate) or the car was financed through dealers, who normally levy higher interest rates. The process of how to refinance a car or auto loan involves several stages.
Before shopping for a new loan one needs to analyze the status of the current loan. This entails analyzing interest payments, the loan period left, current pay-off amount and any penalties relating to prepayment. To begin the process of obtaining a car loan refinance, one also needs to be ready with the loan papers of the current loan. The car identification number and current mileage are also needed.
The next step is to assess whether the car meets the requirement for refinancing. Most lenders avoid refinancing vehicles that are over 7 years old, are for commercial use or have a loan balance below 7,500 dollars. Other reasons for declining car loan refinance include having a mileage of over 100,000 or if the car is a salvage title vehicle meaning it has undergone massive repair. Other lenders lock out certain car motor vehicle makes. Additionally motor cycles and recreational vehicles (RV) are normally not refinanced. It is essential to know one’s credit score before embarking on car refinancing process. This affects the rate that the lender will offer. The credit score can easily be obtained from online sites that provide this service. On getting the credit report, one can then correct any mistakes in the credit history. This increases the credit score and will save money due to the lower loan rates based on the improved score.
After assessment, one can start researching and comparing the prevailing interest rates. This can be through calling local banks or checking online sites, which may have general rates for used car. Using an online auto loan calculator, one can then get an idea of the savings accruing from the car refinancing loan.
If one finds refinancing is the viable option after doing calculation, analysis and comparisons, it is time to contact the lenders. It is crucial to question these lenders (banks or credit companies) about expected fees. These may include title transfer, re-registration and processing fees. It is also important to ask if there are pre-payment penalties if the loan is paid off early. After looking at all the options, one can submit the car refinancing loan application to the lender with the best deal. The loan is finalized after all the paperwork is reviewed.
It is important to note that banks prefer to refinance car loans from other lenders, not loans from their own customers. It is also not advisable to take cash out refinancing for car loans. Cash out refinancing is where one takes a bigger loan than the original, and withdraws the cash difference. These are longer loans which will only increase the borrower’s cost burden