Want to Refinance Your Car Loan? 5 Things You Must Know

Want to Refinance Your Car Loan? 5 Things You Must Know

Refinancing your car loan can come a long way in solving many of your financial situations. Refinancing is taking an old loan and replacing it with a brand new one. Typically, this loan is taken through a new lender, although in some cases, some lenders offer to refinance their old loans.

Before refinancing, there are variables that you must consider; they include your credit score, your current interest rates, and of course, the terms of the already existing loan. Generally, refinancing is meant to save you money through interest over the loan course.

Loans accrue interest that you must pay over a period of time in the form of monthly installments. It’s important to understand loan rates, the monthly installments, and any other borrowers’ responsibilities when taking a loan or refinancing. Here are five essential points that you must consider

  1. The best time to refinance

The most suitable time to refinance your car loan is when it will save you money in the long term. These times include when the car loan rates have fallen, when your credit score has improved, when you need to change your dealer, maybe from a dealership to credit unions or banks, and when you need to lower or slow down your monthly installments.

  1. Check If Your Original Dealer Has Good Deals.

When you decide to refinance, the first person you consider is the one who offered you your original loan, maybe because you had a positive experience with them. However, it might not be the best decision yet. According to Lantern by SoFi, “Shopping around offers you options because different lenders offer different loan terms, rates, and fees.”

Can you refinance your loan with your old dealer? Yes, you can. Is it always the best deal? You never know until you shop around.

  1. What to Do Before Refinancing Your Loan

When the time comes, and you decide to refinance your auto loans, there are several things you must do. They include:

  • Shopping around for different refinancing types: comparing terms and interest rates from other lenders is critical. This is because different lenders use different formulas to calculate their loans; therefore, receiving quotes from different lenders gives you a general idea of what to expect and a rough idea of the loan costs.
  • Comparing lenders’ terms with those from banks and credit unions gives you a clear picture of what to expect and whom to consider for refinancing.
  • Considering the fees: the original loan terms might include a prepayment penalty where if you pay your loan before the stipulated time, you pay the penalty. This means that when you choose to refinance, you would have to clear the penalty in cash as the lender for the refinancing pays for the loan debt. Some lenders also impose charges such as processing fees.
  1. Put Together All the Refinancing Requirements

If you decide to refinance with a new lender, it’s essential to gather as much information about your last loan as possible. This includes your monthly payments, the loan balance, and the payoff amount. You will also be required to provide information and documentation on your employment and income to certify that you can make the monthly installments.

Before refinancing, the lender must determine your vehicle’s worth. They, therefore, will require information such as your car’s identification number, car makes, year and model. Other lenders also ask for proof of residency.

Also, always be armed with your credit score, auto insurance information, and your income details because they will be required.

So, when can you refinance a car loan? There is no time limit to refinance your car loan. You can do it days after, months, or even years after your original loans. What matters is the change in the variables. Has your credit score improved, has the rates fallen, or has your financial situation improved? If your answer is yes to any of these variables, you can choose to refinance.

 

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