Considering refinancing your auto loan? If not, it might be worth your time, potentially saving you money in both the short and long term. Commonly, people choose to refinance their vehicle loan for several reasons including: auto refinance rates have dropped since the original loan, you have improved your credit score significantly, refinance your car lease into a purchase loan, extending the term agreement of your loan to lower monthly repayments.
It is worth noting that if you are opting to extend the term agreement on your auto finance, that you will likely pay more interest over the long term. However, it will make monthly payments more manageable over all and may benefit you to do so.
How do I Refinance a Car Loan?
One of the first things I would suggest to anyone considering a loan refinance option is to check their credit score prior to applying with lenders. The health of your credit is the biggest determining factor in whether your application will be processed or denied.
You can obtain a free credit report from finance aggregate websites like Crediful.com, and also compare services from lenders against one another. Once you have obtained your credit report, if there are any discrepancies or issues you should file disputes immediately to have them corrected.
Falsely attributed credit issues can result in your application for refinancing being denied, so you must ensure that your credit is clean before applying.
Once you have checked your credit and rectified any potential issues you can begin the research lenders, this can be done online through comparison websites, or in person. Often a local bank or lender will be able to help with your refinancing, although applying online is often faster, and more straightforward.
Using online comparison sites is the best way of determining whether it is financially viable for you to refinance your auto loan or not. You can whittle the competitors down to the lender that will provide you with the best rates; it is also at this stage that you may find that refinancing isn’t a good option.
If all the lenders rates are too close to what you are currently paying, then it might be time to look at alternative options, or abandon the idea altogether.
If you decide to pursue a refinancing option from your chosen lenders, it’s time to submit your applications. For this you will need your driver’s license, vehicle ID number, proof of income, the original purchase or lease agreement, and the registration documents.
Side note; it may be worth reaching out to lenders before making your application to confirm what documentation they require, so you can get it ready beforehand.
Next you should submit your applications to your chosen lenders for approval, if you are worried about this having a negative effect on your credit score due to the volume of credit checks. You shouldn’t be, if several loan applications are submitted within a 30-day period, they are counted as a single enquiry and only carry the same potential negative impact as one application.
Once you have received approval from your chosen lenders, it’s time to sit down and do some math. You can do this manually or by using a refinancing calculator online. Most importantly, you are looking for the refinancing option to match your repayment goals.
Either, you are looking to save money in the long term or save money in the short term. If you are looking to save money in the long term, then the overall repayment amount needs to be lower than your current auto finance deal. For those looking to save money over the short term, you are looking to reduce your monthly expenditure.
Therefore, your chosen refinance option needs to result in a lower monthly payment than your current loan. However, you should be aware that this will likely increase your overall repayment amount.
If you are satisfied with the deal you have been offered by the lender, it’s time to review the documents one last time to understand what you are agreeing too. If everything is in order and you are happy to proceed, then you need to sign off on the documentation.
From here on out you will be dealing with your new lender regarding any issues or repayments for your vehicle loan.
What If I Am Denied Auto Refinancing?
If multiple lenders deny your application or offer you unsatisfactory rates then it’s time to change tact. Your first step needs to be addressing your poor credit history. Most lenders are happy to explain why your application has been denied, this is where you should make improvements first.
Once you have taken the necessary steps to repair your credit, you can begin the process again.