If you’ve been wanting to get a lower interest rate or reduced monthly payments on your auto loan, you may have considered refinancing your auto loan. Auto loan refinancing allows you to get favorable conditions on the interest rates and monthly payments of your auto loan.
But is it easy to refinance an auto loan? Well, it is actually simpler than refinancing a house loan. Let’s see how easy it is to refinance an auto loan and what steps are involved in the process.
Is It Easy to Refinance an Auto Loan?
Car loan refinancing is an easy process that only takes four simple steps. Moreover, there are no origination fees or appraisals required, like in the case of house loan refinancing. So it is much easier than you may think.
Here’s how you can refinance your auto loan in four simple steps:
1. Check Your Credit Score
In order to get the best interest rates on your new loan, you will need a high credit score. A credit score of 660 and above is considered good among lenders. But if you have a credit score of 700 or above, you can get the best interest rates. You can check your credit score on your online account or credit card statement.
2. Calculate Your Loan-to-Value Ratio
The next step is to figure out your loan-to-value ratio. If your car has depreciated a lot, you may owe more on your car than its actual value. Check your last auto loan bill to figure out how much you owe on your loan, and then check your car’s current market value using any online tool. If it is still worth more than the amount you owe, you can go ahead with refinancing.
3. Consider the Specifics
Some more things that you need to consider before applying for refinancing include a prepayment penalty and the time remaining on your loan term. Check if your current lender requires a prepayment penalty. If so, determine if it’s worth it to reply.
Next, check how far along you are in your loan term. If there are only two or fewer years left, refinancing is not the best idea.
4. Prepare the Documents and Apply
Finally, prepare all the documents, including your driver’s license, social security number, tax forms, pay stubs, proof of insurance, VIN number, and your current loan balance. Once you have all these documents ready, shop for the best deal by contacting your local lenders and then apply.
Now that you know how easy it is to refinance an auto loan, go ahead and talk to a few lenders to get offers. Once you get a deal that includes lower interest rates or favorable terms for you, apply. Good luck!