Have you recently secured an auto loan but aren’t too happy with the terms? Whether it’s the high-interest rate or a sudden decline in your income, dealing with a bad loan can have a more significant impact on your life than you realize. Hence, if your existing loan isn’t doing it for you, it may be time to consider refinancing it.
How Does Auto Refinancing Work?
Auto refinancing allows you to replace your existing loan by taking out a new one. This way, not only will you have yourself a brand new loan but also new terms. As a result, you may as well land a lower interest rate and, consequently, lower monthly payments. It sounds like a perfect deal, doesn’t it?
While it does work, what must you consider before making a leap? Is the intention to refinance enough? Or do you need more? Here’s everything and more you need to know about a car refinance.
When Is It Not a Good Idea to Refinance Your Vehicle?
The best way to find out whether refinancing is right for you is to determine whether it will help you save money. On the other hand, if you eventually end up refinancing to a higher interest rate, you may not be able to reap any perks from it. In fact, it will only make your loan more expensive than the last one.
At the same time, you may also have to figure out if there are any prepayment penalties or extra costs linked with a new deal, as they can offset any savings you get.
The next important factor to keep in mind is, nonetheless, the condition of your vehicle. If it’s too old and has racked up quite a lot of miles, it may not be as attractive to lenders. Age and history definitely play a role when it comes to refinancing vehicles.
Last but not least, your credit score is also an important determinant of how good or bad the auto refinancing deal turns out to be. Hence, if it hasn’t significantly improved yet, you may want to hold back on the idea of an auto refinance.
What Documents Do You Need?
Once you have established that refinancing is, in fact, the right choice for you, the next step is to learn what documents your potential lender may require. For starters, you will most likely require the following:
- Details of your existing loan (interest rate, monthly payments, remaining balance, duration, etc.)
- Proof of insurance
- Proof of income
- Paystubs, insurance cards, utility bills, etc.
- The vehicle’s model, make, mileage and VIN
The Bottom Line
In the end, remember that no two lenders will weigh your financial history, credit score, and eligibility the same way. Therefore, it’s imperative you shop around and compare rates different lenders in the market are offering.
Once you have at least three potential lenders in mind, apply for prequalification and let a soft inquiry do its work before you take the plunge.