Review your existing auto loan
Locate the contract for your existing vehicle loan and compile the following data:
- Amount of your current monthly payment.
- APR for your current loan.
- Number of months left to repay your current loan.
- Amount to pay off your existing loan. (Payoff amount and remaining loan balance are not always the same.) ).
Payment amount and APR should be in your contract. The customer service department of your lender can provide you with the remaining months on your loan as well as the payoff amount. For certain lenders, you can access this data by logging into your online loan account.
Determine the value of your car
Since car prices have reached all-time highs in recent years, it’s critical to understand your car’s current worth. When the price of new cars began to fall in 2023, some car owners discovered that the remaining balance on their loan was greater than the value of their vehicle. This is referred to as being upside-down on your auto loan or having negative equity.
If you don’t have excellent credit, refinancing a car loan with negative equity can be challenging. If you discover that your debt exceeds the value of your vehicle, you probably won’t be able to refinance until you have positive equity. The best way to accomplish this is to continue making your monthly extra payments, no matter how little, and on time car payments. Make sure your lender is allocating any additional funds to the principal of your loan rather than to interest.
Edmunds and Kelley Blue Book are two resources you can use to estimate the value of your car. com. Additionally, you can use cash offers from online auto retailers like CarMax and Carvana as a starting point.
Evaluate your credit
Understanding your credit status can help you determine whether it makes sense to refinance your auto loan at this time, how easy it might be to get approved for a loan, and what kind of interest rate you might expect.
To find out where you stand, you can obtain a free copy of your credit report, which is a history of your credit activity, or you can check your credit score. This type of research won’t affect your credit score because you’re reviewing your own credit.
Your credit may have improved if you’ve paid off all of your credit card debt on time for the past six to twelve months and maintained the integrity of your other credit accounts. If so, your chances of getting an advantage from refinancing your auto loan to a lower interest rate are higher.
Remember that when granting loans, lenders take into account factors other than credit score. Refinancing may be approved by a lender even if your credit score is low, but the new loan might not be better than your existing one.
Gather information for your application
Depending on your lender and application stage, different information is required to refinance a car loan. Most lenders will eventually ask for the following details, so be ready by compiling all of this information in advance.
- Your driver’s license.
- Vehicle registration.
- Proof of insurance.
- The vehicle identification number, or VIN, of your car.
- Pay stubs from your current employer or proof of employment.
- Your Social Security number.
- A statement of loan payoff amount from your current lender.
Compare lenders and rates
Apply as many times as you can to lenders who provide pre-qualification with a soft credit check. Pre-qualified loan offers with estimated rates and payments will be sent to you so you can decide if refinancing to a new loan will be beneficial. A soft credit check will not affect your credit score.
You can compare pre-qualified loan offers to your current loan with the aid of an auto loan refinance calculator. First, enter the details of your current loan, including the total amount borrowed, the interest rate, and the loan’s duration in months. Next, enter the loan term and rates from your pre-qualified offers along with the amount you wish to refinance, which is typically your loan payoff amount.
This will help you decide where you want to apply and show you how much you could potentially save on your monthly auto payment.
Pay attention to auto loan terms when you compare loans. Although some loan offers might be for a longer term than you currently have, you are free to keep your loan length the same.
Lenders frequently recommend a longer term to reduce your monthly payment. A longer term might give you some financial breathing room if your budget is tight, but it also means you will pay more interest over the course of the loan. Still, it’s preferable to skipping payments and destroying your credit record.
Shortening the length of the loan is also an option. If your finances have improved, you may be able to refinance to a shorter term, maintain a similar monthly payment, and pay off the loan sooner. As a result, you will pay less interest over the course of the loan, saving you money.
Apply to refinance your car loan
Obtaining final loan approval from one or more lenders is the final step, as pre-qualification only provides estimated offers and does not equate to loan approval. Adding more information to your application for approval might be necessary, depending on what the lender asked for when you pre-qualified.
To compare firm loan offers, if you choose to proceed to the approval phase with multiple lenders, you must do so within a 14-day window. During this time, similar queries are usually combined and handled as a single query, minimizing the effect on your credit score.
There are lenders who have time limits on when you can refinance a car loan. Additionally, a loan’s lenders might stipulate that in order to refinance it, a certain number of months must pass. So make sure you meet any lender restrictions before applying.
You will be sent new loan documents to sign as soon as you decide on a lender and inform them that you wish to complete the refinancing of your vehicle. Your auto loan will be restarted upon refinancing, meaning the lender will make a new loan with the new interest rate and duration that you agreed upon.
Either your new lender will pay off your old loan, or they will provide the money so you can). Even if your new lender guarantees that the previous loan will be paid off, it’s a good idea to confirm this.
The last thing you need to do is wait for your new lender to contact you with details on when and how to begin paying back your auto refinance loan.
Your unique circumstances will determine whether and how much you can save by refinancing, but here’s an example
Should you have a $30,000 auto loan with a 9% interest rate and a 60-month loan term, you will be required to pay a total of $37,365% at the conclusion of the loan. After a year of making monthly payments of $622. 75, your loan balance would be $25,025. Now, should you refinance the car for twenty-four eight months at a lower interest rate of seven percent, the monthly payment would drop to $599. 25 and save $3,626 overall. Add the $4,975 you paid for the first loan to the $28,764 total of your refinance loan to determine the savings. Take that amount ($33,739) and deduct it from the $37,365 total of your initial loan.
Long-term credit damage from simply refinancing your car won’t occur as long as you keep up your timely payments. However, before approving your loan, lenders will run a hard credit inquiry when you apply for a refinance. Our credit score may temporarily decrease as a result of this, but it should rise again after a few months of on-time payments. How much can I save by refinancing my car?.
Your unique circumstances will determine whether and how much you can save by refinancing, but here’s an example
Should you have a $30,000 auto loan with a 9% interest rate and a 60-month loan term, you will be required to pay a total of $37,365% at the conclusion of the loan. After a year of making monthly payments of $622. 75, your loan balance would be $25,025. Now, should you refinance the car for twenty-four eight months at a lower interest rate of seven percent, the monthly payment would drop to $599. 25 and save $3,626 overall. Add the $4,975 you paid for the first loan to the $28,764 total of your refinance loan to determine the savings. Take that amount ($33,739) and deduct it from the $37,365 total of your initial loan. Does refinancing a car hurt my credit?.
Long-term credit damage from simply refinancing your car won’t occur as long as you keep up your timely payments. However, before approving your loan, lenders will run a hard credit inquiry when you apply for a refinance. Our credit score may temporarily decrease as a result of this, but it should rise again after a few months of on-time payments.
Simply respond to a few questions to receive customized findings from our lending partners.
FAQ
Is it smart to refinance your auto loan?
You can keep more money in your pocket each month by refinancing and extending the term of your loan, but you may end up paying more in interest over time. However, you will pay less overall if you refinance to a lower interest rate for the same or a shorter term than you currently have.
Does refinancing a car hurt credit?
Your credit score may drop a few points as a result of refinancing, but this effect will only last temporarily. Applying for a loan generates a hard inquiry. If interest rates have decreased since you obtained your loan, refinancing might be worthwhile.
How does refinancing work with a car?
Through the process of car refinancing, you can apply for a new auto loan to replace your current one. Refinancing primarily serves to modify the terms of your loan. For instance, refinancing can help you extend the loan’s term if you need more time to pay it off or lock in a lower interest rate.
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