If all goes well, an auto refinance can significantly improve your current financial situation by providing relief in the following ways:
- Lower interest rate
- Lower monthly payments
- Short duration to pay the loan off sooner
Here’s how it works. You apply for a new loan, and if you qualify, the new loan is able to pay the old loan off. You can start making monthly payments for the new loan based on the new terms. In a nutshell, refinancing could mean that you get rates and terms which are more in line with your financial plans and needs. Here are some steps to help you set foot into the world of auto refinancing.
Determine Whether It’s Right For You
Remember, while there are many benefits you can enjoy through a car loan refinance, it’s important to determine whether it’s right for you.
A refinance only makes sense when you’ve answered the following questions for yourself:
- Are there any fees you could be responsible for?
- Is there a prepayment penalty?
- How old is your car? (Some lenders don’t refinance cars over eight years old)
- Is the value of your vehicle lower than the loan balance?
- Most importantly, has your credit improved since you got your first loan?
Once you have the answers to the questions, you can move on to the next step.
Compile All the Necessary Documents
Now that you’ve decided to proceed with an auto refinance, here are the documents you’ll need.
Proof of Income
- A tax return
- Paycheck stub
- Employment history
- Monthly rent or mortgage payments
- Social security number
- Previous addresses
Proof of Insurance
- Insurance card
Details About the Existing Loan
- Remaining balance
- Lender’s information
- Duration of the loan
- Interest rate
- Vehicle identification number
- The model and mileage
- The year you purchased it
- How many miles you’ve traveled
Apply For a Car Loan Refinance
If you choose to apply for prequalification before the actual auto loan, you may go through a soft inquiry. As opposed to a hard inquiry, a soft one does not hurt your credit.
However, it does give you an idea of where you stand as a borrower. Once you’ve shopped around and chosen your lender, complete a loan application and apply.
The Bottom Line
In the end, while you may want to opt for a longer-term to pay the loan off, remember, the point of refinancing is to improve your financial standing. If it doesn’t achieve the stated goal, you’re better off without it.