You can refinance a car loan by qualifying for a new loan, showing a good credit history, and being current on payments. Your car will act as the collateral for your refinanced loan. The new refinanced car loan will have a fixed interest rate and fixed monthly payments for the length of the loan based on the offer that you qualify for.
How to Refinance Your Car Loan
The car refinance process is determined by the lender you choose and usually will have you complete these four steps before a new refinanced car loan is extended to you:
- Do your research. Make sure you spend at least a few days researching for the best rates and the right offer that fits your financial profile and needs.
- Submit application. Submit an application to see if you pre-qualify to refinance your current auto loan
- Select offer. Choose the offer that you want and complete a credit application that will result in an inquiry posted to your credit report.
- Finalize and sign. Finalize your offer and sign the loan contract. You will need to provide your Vehicle Identification Number (VIN), your current lender details, and any supporting documents requested.
What Does Pre-Qualification Mean?
Pre-qualification is when the lender reviews your application to refinance your car to determine if you meet the criteria they have established to extend credit. There is no impact on your credit scores. If they determine that you are pre-qualified, then you will be able to see estimated monthly payments, interest rates, and the length of the loan.
74.7% of new vehicle loans had terms longer than 60 months while only 59.2% of used vehicle loans had terms longer than 60 months.
Is a Car Refinance Loan Difficult?
A car refinance loan can be difficult depending on how much you owe on your current car loan, your credit history, and the current value of your car—since that will be used as the collateral for the new refinanced loan.
Lenders usually make a risk assessment based on all those factors, plus your reported income, to determine whether they will agree to a refinance. If you happen to owe more on your loan than your car is currently worth, sometimes lenders will let you roll over the owed amount into your new loan.
Though it may not be the best decision to make, depending on your financial situation because of the added debt, it can be an option if offered.
Can I Refinance My Car if It Is Old?
You can refinance an older car, but some lenders will not offer a refinanced loan for vehicles that are older than five-to-eight years, depending on the make and model.
Each lender may have different limits on how old a car they will consider refinancing and may require that the payoff amount of your current auto loan fall between certain amounts to even be considered. Some lenders may not refinance an auto loan that you already have with them as well.
The average new vehicle loan was $30,329 in Q3 2017, an increase of $291 vs. the previous year. The typically used vehicle loan was $19,291, up $56 from Q3 2016.
Is It a Good Idea to Refinance a Car Loan?
It can be a good idea to refinance your car loan depending on your financial situation and whether interest rates for the new refinanced loans are at a better rate than your current car loan.
If that is the case, then it may be a good idea for you to consider a car refinance. By doing so, it could end up saving you money each year and even more over the lifetime of the loan.
It is always a good idea to check with different lenders such as a bank, credit union or online lender to understand what is the best available car refinance loan. An automobile is a large purchase so preparing as much in advance as possible can be beneficial and help save you money.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.