With car loan interest rates still at a record low, car refinancing is more popular now than ever. And for good reason – in the past two years, car loan interest rates have dropped almost 1.5% on average, which adds up to a lot of savings. Many people are eligible for lower car loan APRs than they ever thought possible.
But when it comes to actually refinancing your car loan, how do you know who to trust? Which car refinance companies are the most reliable? Today we are talking about how you can refinance your car loan to start saving money, and how you can decide which car refinance company is right for you.
What is needed to refinance a car?
The good news is that refinancing your car loan is actually very easy. With a little preparation and research you could be saving money in no time.
Review your current loan
In order to refinance your car loan, you will need to first take a look at your existing loan. Be sure to look at the following terms of your agreement:
- Current monthly payment
- The remaining balance
- The amount of time left to repay the loan in months (the loan term)
- The interest rate
- Prepayment penalties
You want to be sure that you have all of this information available when you go to apply for refinancing. Not only will you be required to provide this information, but it will help you to decide if it is worth it to refinance. Auto loan lenders sometimes charge prepayment penalties to dissuade people from paying off their loans early, so you want to be sure that any penalties you may be responsible for are not going to outweigh the amount of money you will save.
Gather your documents
Getting all of your required documents together ahead of time will help ensure that the application process goes smoothly. You will likely need the following documents to apply for an auto refinance.
- Your Photo ID, such as a passport or driver’s license.
- Your vehicle’s information, which may include the bill of sale, VIN number, make, model, and year of your car.
- Proof of income and financial history, such as pay stubs, banking information, and your credit report.
- Proof of residence, such as a mortgage statement, lease agreement, or utility bill. Note that PO boxes are not acceptable as proof of residence.
- Proof of insurance.
Place all of these documents in a secure location. If you will be applying online, scan all of your documents onto your computer for easy access.
Check your credit score and report
Before you apply, you want to know the condition of your credit score and credit report. After all, the car loan APR that you are offered will depend heavily on your credit score. Request a copy of your credit report – which you can do once per year for free – and review it carefully for any errors. Is everything accurate and up to date? Is anything misreported? If there is anything that is not accurate, contact the account associated with the mistake. You can also petition the credit bureau if there are any inconsistencies or errors. The higher your credit score is, the lower the APR that you are offered will be.
Research lenders and apply
Until you apply for auto refinance, you will not have specific offers to compare. But you can still do your research ahead of time on customer satisfaction. Research different refinance companies and lenders and pick three to five based on average rates and customer reviews.
Using a company that specializes in auto refinance, like Auto Approve, can simplify this for you a great deal. By using their existing relationships with lenders, they can expedite the application process while securing the best rates possible.
Complete all of your applications around the same time so that it will only count as one hard inquiry hit on your credit report.
Compare, sign, and save
Once you have your offers, you can compare to see what is the best fit for you. Be sure to consider the following:
- Interest Rates
- Repayment Period
- Customer Reviews
- Miscellaneous Fees
- Prepayment Penalties – There are no limits to the amount of times that you can refinance your car, so make sure you don’t agree to prepayment terms that you may regret in the future.
Once you compare all of the offers, decide which is the best fit for you. Then just sign on the dotted line and let the lender take care of the rest! They will contact your old lender to make payment on your loan.
Is refinancing a car worth it?
While auto loan refinance is super easy, you may be wondering if it’s worth it. And the answer depends on your personal situation.
You should refinance your car loan if your score has improved
If your credit score has improved since your initial financing, you may be eligible for a much lower car loan APR. Credit scores are one of the most important considerations in car loan APRs, so the better your score is, the better the offered interest rate will be. Your credit score may have increased if:
- You have been making consistent, full, on-time payments
- You have had a negative event expire (like a bankruptcy)
- Your credit limit has increased
- You haven’t had a lot of credit inquiries
- Your credit utilization score has increased.
Small changes to any of your credit categories can end up having a big effect on the car loan APR you are offered. Sometimes just the passing of time can cause your credit score to increase, so it’s worth checking on your score periodically.
You should refinance your car loan if the market rates have dropped
Car loan rates have dropped significantly in the past two years, so chances are the market rates are lower now than when you initially applied for car loan financing.
You should refinance your car loan if cash is tight
If you are short on money every month for one reason or another, refinancing your car loan can provide a bit of breathing room for you. By either refinancing your car loan to a lower car loan APR or by lengthening your repayment period, you can significantly lower your monthly car payments. If you are having trouble keeping up on payments, refinancing your car loan to make your payments more manageable may actually help your credit score in the long run.
You should not refinance your car loan if your current loan is underwater
If your current loan is underwater (meaning you owe more on the car than the car is worth), you should not refinance your car. You will most likely not qualify anyway.
You should not refinance if you have less than a year left on your current loan
As you near the end of your repayment, car loan refinancing becomes less and less beneficial. Most companies will not refinance your loan if you are near the end of the term, but even if they do, it’s probably not worth it for you. The various fees will most likely outweigh the minimal savings that you may have.
You should not refinance your existing loan is less than 6 months old
While this is not a hard and fast rule, experts recommend waiting six months to a year before refinancing your loan. This will give your credit score a chance to rebound from your initial financing.
Where is the best place to refinance a car?
If the time seems right to refinance your car, you want to know which car refinance companies are legit and which companies can get you the best auto refinance rates. While you can refinance your car through many different lenders, including traditional banks, credit unions, online lenders, and car dealerships, it’s best to use a company that specializes in car loan refinancing.
Using a company that specializes in auto loan refinance has many benefits. They know the refinance industry better than anyone else and are more equipped to guide you through the process. They make applying super easy and can help match you to the lenders that are best suited to your needs. By handling the applications for you, you can save a ton of time on paperwork (who has time for endless amounts of paperwork?). And when the offers start coming in they can help answer any questions and help you to make the best decision.
At Auto Approve, we are dedicated to making the auto refinance process quick and easy. We are just really passionate about saving people money. So if the time seems right for you to refinance your car loan, know that you will be in good hands with Auto Approve. Just ask our customers – Auto Approve has a 96% would recommend rating on LendingTree and over 2,200 five star reviews on TrustPilot.
Now is a great time to refinance your car loan, and Auto Approve makes the refinance process quick and easy.
So don’t wait any longer to start saving money.