Have your monthly car payments severely hindered your ability to save money? Auto refinancing is by far one of the best ways to lower your monthly payments and decrease the interest on your payments over the life of the loan. Imagine how much money you will be able to spare for home improvements and other important aspects of your life only by refinancing your car to a lower rate. So, if you’re wondering where to start from, don’t stop reading yet.
Understand How Refinancing Works
In a nutshell, refinancing is all about replacing your existing auto loan with a new one. Essentially, the goal is to pay off your original loan and help you start making monthly payments based on the terms of your new loan. While the application process isn’t time-consuming, there are still certain things to consider before taking the plunge.
Does Refinancing Make Sense For You?
While auto refinancing may seem like the best way out of your existing loan, it won’t make much sense for you if the following factors persist:
- Your car is very old: most lenders avoid refinancing older vehicles. Hence, you may want to consider upgrading first.
- You owe more than the worth of your car: if the balance on your loan is more than the car’s value, securing favorable terms may not be possible.
- There’s a prepayment penalty on your loan: Since you can’t possibly pay the loan off early, it eliminates the chances of having much refinancing savings.
- You’re falling behind on payments: qualifying for a loan with better terms becomes problematic if you’re severely falling behind on your monthly payments.
Is Your Credit Score Satisfactory?
Loan approval relies heavily on your credit score, as it is one of the main factors that determine your interest rate. The higher your score is, the greater are your chances of landing a lower interest rate.
What Documents Do You Need?
Make sure to organize the following documents ahead of time, as it will immensely simplify your application process.
- Proof of income
- Proof of insurance
- Driver’s license
- A copy of your original loan contract, which should include your remaining balance, current monthly payments, interest rate, time left on the loan, vehicle identification number, etc.
Apply For Prequalification
If you think you’ve found the right deal but are still hesitant to start the application process directly, apply for prequalification. This way, you’ll save yourself from a hard inquiry and your credit report from a dip.
In the end, it’s important to remember that refinancing isn’t for everyone. Most importantly, deciding when it’s the right time to consider it can be quite a challenge. Moreover, the benefits may be limited for many people, especially if they have a poor history of payments or if their credit score hasn’t improved recently. Hence, make sure to consider your personal circumstances and shop around for a good offer before going ahead with an auto refinance.