Auto loan refinancing is the process of replacing your current car loan with a new loan by contacting a different lender. People opt for auto loan refinancing to secure lower monthly payments or a reduced interest rate. Refinancing your auto loan is a great idea as you get to save money on interest in the longer run. However, not everyone qualifies for auto loan refinancing.
Read on to learn more about its requirements, when it makes sense, and how you should go about it.
Auto Loan Refinancing Requirements
Every lender has different requirements for auto loan refinancing. Make sure you check the requirements of your lender for yourself, your current loan, and your vehicle before applying:
- You should have a continuous source of income, good credit, and a low debt-to-income ratio.
- You may need to show proof of residence, such as your utility bill, mortgage statement, or lease agreement.
- Your lender will ask you about your car’s mileage, make, model, year, and vehicle identification number (VIN).
- They will also need to know about your current loan balance, payoff amount, and monthly payments.
To learn about the exact requirements, talk to your lender.
When You Should Go for Auto Loan Refinancing
There’s no rule as to when you should refinance your car loan. If it makes sense for you and saves you money, you should do it. It is ideal for refinancing your auto loan in the following scenarios:
- When you have an increased credit score as compared to when you originally took out your loan. You can get a lower interest rate if you have an improved credit score.
- When auto rates have gone down in your market. Auto rates change based on the prime rate, and if you purchased your car a few years ago, there’s a high chance that car loan rates may have gone down.
- Your initial loan is a bad deal, and you got higher interest rates than the credit unions and the banks.
- You are unable to handle your monthly payments and need lower monthly payments. You can refinance your car loan to get more affordable payments by extending your loan term.
The main reason why you should consider auto loan refinancing is to get lower interest rates and save money in the longer run. You can refinance your car loan whenever you want. Talk to your lender to check their requirements.