Having a reliable vehicle is indispensable in helping you manage your personal and professional life. But if you’re monthly payments are higher than you’d like, and your APR is making the vehicle more expensive – an auto refinance is a great way to manage the overall cost of your car.
A car refinance provides the opportunity to trim your monthly payments to make room in your budget, while allowing you to shorten the term of the loan so you pay off the balance faster and pay less in interest. Refinancing a car is a fairly simple process and has the potential to save you lots of money.
Here’s a step-by-step process of what to expect when you refinance your car loan:
Know your credit score
Your credit score will determine if you can refinance to a better interest rate, so it’s vital to know this number before you start the car refinance process. John Reither, an underwriter with South Carolina State Credit Union, says your payment history and an established relationship with your credit union or bank is an important factor.
“While a good credit score certainly helps in the refinancing process, you may still get approved if you made all your recent payments on time.”
Know your vehicle value
Car refinancing isn’t an option for everyone. If your vehicle is worth less than the loan balance (upside down) or it’s too old, a lender is less likely to refinance your loan. Reither says lenders evaluate the value of a car when reviewing an application and most don’t require a formal appraisal, instead relying on Kelly Blue Book, Black Book and the National Association of Automobile Dealers (NADA).
“You can get a pretty clear estimate by using the same vehicle pricing sources and any credit union or bank will be more than happy to look up the value of your vehicle for you and tell you what they would lend on it.”
Research car loan interest rates
Shop around to get the best offers – that includes banks, credit unions and online lenders that offer a variety of rates, convenience, speed of approval and flexible terms. Don’t limit your search to any one financial institution – search the interest rate and the potential fees charged. Fair Isaac Corporation (FICO) considers multiple inquiries for the same loan as a single hard inquiry if made within 45 days. You can avoid lowering your score by shopping and applying for rates within that short period.
When you find the ideal refinance offer that best fits your car refinance needs, you will need to submit information about your current loan (balance/payoff amount, term and interest rate, number of remaining payments and your current monthly payment). In addition, you will need to provide the following personal information:
- Name, address and Social Security number
- Employer name/proof of income (W-2)
- Federal tax returns
- S. citizenship status
- Purchase agreement
- Car registration
- Car title
- Balance/Payoff amount
- Vehicle Identification Number (VIN)
Submit a loan application
In most cases, you can submit your loan online and approval is quick – usually under 24 hours. In rare instances, you may have to physically visit the lender to fill out the paperwork in-person.
Pay off existing auto loan/title transfer
Your new lender will work with your former creditor to pay off the original loan amount. The process can take a couple of weeks, so it’s your responsibility to make any payments before the new auto loan kicks in. Once it’s complete, your new lender will notify you about your account and when to start making payments.
Reither says that before you agree to a car refinance, make sure you do your research and estimate the potential savings by comparing rates, fees, limitations or restrictions. After all, the main goal of a refinance is to save money by paying it off the vehicle sooner…rather than later.