How to Refinance an Auto Loan
By Arthur B. —
Published February 15, 2018
At some point in our lives, the desire to purchase a new car is bound to get the better of us. Getting a car loan to finance the purchase of your new car is relatively easy and you can just as easily refinance an auto loan, enabling you to pay it off faster. Refinancing your auto loan is a good idea, especially when interest rates are low. Refinancing can actually help you save a lot of money during the period in which the loan has to be paid off.
The first step is to find out when you should be refinancing your auto loan. Refinancing is best under the conditions mentioned below.Low interest rates
If interest rates have dropped right after you have purchased your car, you might want to consider refinancing your loan. This can help you save some money over the life of the loan even if the rates have dropped by a very small margin.If you are not doing well financially
If you are under the pressure of financial burdens, refinancing could help you increase the term, thereby lowering the periodic payments that have to be made by you. This can ease your financial burdens for the time being.If your credit score has improved
In such a situation, you will probably be eligible for low interest rates. In addition, if you have been making your periodic payments on time, your lender may show the willingness to refinance your auto loan at a lower interest rate. Remember that a good credit score can have a great impact on refinancing your car loans.
Before deciding to refinance your auto loan, there are a couple of conditions that have to be met.Is your vehicle worth the loan balance?
Your vehicle should be worth the loan balance or more. No lender will be willing to refinance a vehicle that is worth much less than the outstanding loan balance.What is the age of your vehicle?
The age of your vehicle must fit into the refinancing requirements. For instance, some lenders won't refinance a vehicle that is more than seven years old.What is your outstanding loan balance?
The outstanding loan balance to be refinanced must also meet certain requirements. Some lenders only refinance loan amounts between $7,500 and $40,000.What is the make and model of your car?
Your car has to meet certain requirements regarding the make and model. Motorcycles and RVs have very less chances of being refinanced.Other factors
You also have to determine certain factors such as the current interest rate on your loan, the outstanding balance, and the number of months left for you to pay off the loan. In addition, you should also be aware of any penalty in case the loan is paid off early. This impacts the amount of money that you can save with refinancing.Finalizing your loan
Once all these conditions are met, the next step is to compare the interest rates charged by different lenders. Calculate how much money you can save from refinancing using factors such as the current interest rates and the interest rate on refinancing.
If your calculation shows a sizable amount in terms of savings, then you can apply for an auto refinance loan. But, if the calculations show that you do not stand to make much profit, it is much better not to apply for a refinance loan.
When applying for refinancing an auto loan, you will need to submit papers of the current loan and the paperwork for your vehicle. Finalize the loan after you have arrived at the best option.