If you’re stuck in a cycle of endless payments and aren’t anywhere close to your saving goals this year, it may be time to consider refinancing your auto loan. The option will not only allow you to replace your current car loan with a new one but will also allow you to land a lower interest rate, typically with a different lender. Your car will act as collateral on the new loan just the way it did on the last one. Here’s more on how you can go about it.
Check Your Credit Score
First and foremost, check your credit score. Ideally, you can expect it to be better than it was when you qualified for your last auto loan. Taking a look at your credit score will allow you to determine whether applying for a new loan is a financially sound decision – especially in the long term. Even if your credit score needs more work, you can always refer to your credit reports to determine where the gaps are and focus your efforts there.
What Documentation Do You Need For a Refinance/Loan Application?
Your new lender will require some documentation, just like your last lender. Hence, you should have the following things ready beforehand:
- Vehicle registration documents
- Proof of insurance
- Copy of the driver’s license
- Proof of income
- 10-day payoff statement
- Proof of residence
- Vehicle identification number so your new lender can figure out the vehicle’s value.
Compare New Offers
Applying for a car loan refinance requires a thorough analysis of the market. Once you have enough options at your disposal, you must narrow the list down to one and submit your application to that lender. In some cases, it’s also possible for you to apply online or on the phone, but most require you to be present in person. However, the process is pretty much similar to the last time you applied for an auto loan.
Don’t Forget to Review the Terms
One of the most crucial parts of signing any deal is reviewing the contract terms first. As soon as you’ve applied, your new lender will determine if you’re eligible for the loan and develop terms accordingly.
Skimming through the information on the contract will only land you in greater trouble as you’ll have no clue about what you’re landing yourself into. Make sure to read through every point on the fine print and determine whether the new deal is worth giving a shot.
Once you’ve agreed to the terms, sign the contract, and your new lender will most likely pay your current loan off.
The Bottom Line
The transition from your current loan to a new one can be an overwhelming process. However, once you manage it effectively, you’ll find yourself in a much better place financially. After all, the key to saving up on your loan is a lower interest rate, and that’s what a car loan refinance aims to achieve in the long run.