Refinancing your car loan may seem overwhelming. You know you can save a lot of money by doing so, but it’s hard to know where to start.
While it may seem complicated, refinancing is actually quite easy (and quick!) So if you are thinking about refinancing your car loan, follow our five simple steps and start saving money today!
First off, you need to figure out if refinancing is right for you. There are a few different things you will need to consider.
While you are able to refinance your loan at any time, there are certainly times where it makes more sense to do so. Experts recommend waiting between six months and one year to refinance. This will give your credit score a chance to bounce back after the initial hard inquiries, and will give you an opportunity to make consistent payments. All of this will lead to securing a lower APR.
Refinancing your car loan is more beneficial to you the earlier you do it. Car loans are front-loaded interest bearing loans, meaning that in the beginning of the loan more of your payments go towards interest payments, and towards the end of the loan more of your payments go towards the principal. So the earlier you refinance, the more you will affect the amount of interest you are paying.
It is most likely not worthwhile pursuing refinancing if you have less than a year left on your original loan. At this point most of your payments will be applied to the principal. But it is always a good idea to do the math yourself to decide if you will save money or not.
If your original loan has penalty payments for paying off your loan early, it may not be worth it for you to refinance your car loan. Read the terms of your current loan very carefully to determine what the penalties may be. If you are unclear on the prepayment penalties of your loan, be sure to contact the lender to find out.
If your credit score has improved, you will be more likely to secure a lower interest loan. If your credit score has not improved, refinancing might not be worth it.
Your credit score depends on the following categories:
The most important factors in your credit score are your payment history and your accounts owed, also known as your credit utilization ratio. If you have been more consistent with on time, full payments, your credit score may have increased a good deal. If you have paid down some of your debts and lowered your credit utilization ratio, this also may have increased your credit score significantly.
Check your credit score to see where you are at. Better yet, get a copy of your credit report. You can get a copy of your credit report for free three times per year. Read through it thoroughly to check for errors and report any discrepancies. Catching errors early on can save you from a huge headache in the future.
Interest rates depend greatly on the market rates in general. If you first secured your loan when the rates were high and they have now decreased, it’s probably worth looking into refinancing.
Pro Tip: Market rates are set to increase this year, so now is the perfect time to refinance your car.
You need to ensure that your car is eligible to be refinanced in the first place. If your car is more than eight years old or has more than 100,000 miles on it, you may not be able to refinance.
If you’ve gone through the details of your loan and your credit report and determined that it does make sense for you to refinance, you will need to gather up all of the necessary paperwork. You will need the following information:
Once you have all of your documents together, you can start looking around at different lenders to refinance your car loan. You won’t really be able to compare rates and terms until after you apply and the offers start coming in. You should try to apply for refinancing with three to five different lenders. This will give you a few options to choose from, as well as give you some negotiating power. Start by looking around at a dozen or so lenders, including credit unions, traditional banks, and online lenders, and whittle your list down from there. Keep your eyes open for deals, and try to get your list down to three to five lenders.
Be sure to apply for all of your loans at once. When you apply for financing, it triggers a hard inquiry on your credit report that will affect your score negatively for about a year. If you apply for all of your loans within a fourteen day period, they will count as one hard inquiry on your credit. If you were to space out your applications, it would count as multiple hard inquiries and affect your credit score negatively.
Pro Tip: Using a company that specializes in auto refinancing, like Auto Approve, is the most efficient way to apply for refinancing. They have relationships with top lenders across the country so they can be sure to get you the best rates possible. Plus, they handle the paperwork so you don’t have to.
Once you have all of your offers, you will have to decide which one works best for you. Be sure to consider the following when making your decision:
There is a lot of information to consider, so determine what is most important to you when it comes to choosing a lender.
Once you’ve picked a lender, it’s time to sign all of your documents. Most lenders and refinancing companies will take care of most of the paperwork for you. This will involve paying off the balance of the old loan and beginning payments on the new loan. It’s always good to reach out to the previous lender to ensure the loan was paid off in full.
At Auto Approve, we know what a headache all of the paperwork can be. That’s why we collect all of the documents you need and send them to you electronically. All you need to do is e-sign and we handle the rest (even the DMV paperwork!)
Refinancing your car loan doesn’t need to be scary or overwhelming. We’ve designed Auto Approve to be a one-stop-shop for your refinancing needs. All you need is your personal information and your car’s information, and that’s it! We will shop around for quotes and help you decide what makes the most sense for your situation. Just follow our five steps and you will be saving money in no time at all.
Don’t wait, get started today!