Refinancing your auto loan can save you money in interest or lower your monthly payment. Here's how to refinance your auto loan.
Locking in a low interest rate should be your first priority when financing a car or when financing anything, for that matter.
Over time, cars depreciate, while the cost of maintenance and repairs add up. Considering the double whammy of lower value and higher costs, it’s smart to pay as little as you can in interest on your car loan.
You might want to refinance your car loan for any of the following reasons: Your interest rate feels disproportionately high, your monthly payments are too much, your original car loan makes it impossible (or exceptionally difficult) to pay it off early, or your old loan used precomputed interest, which means that you’ll pay the same amount of interest regardless of whether it takes you the original four-year term or half that.
It’s also possible that the lending landscape has changed since you took out your loan: Rates might be lower, and your credit may be improved.
It’s also possible you’ve taken a job at a lower salary, or experienced an unexpected job loss, and need to make lower payments on your loan.
Why you might want to refinance your auto loan
We already know lower interest rates are the main incentive for refinancing your auto loan. A lower interest rate can save you hundreds or even thousands of dollars throughout the life of your repayment term. (Don’t believe this? Play around with a car loan calculator for a bit, and see how much difference one percentage point makes.)
Paying interest isn’t throwing away money (if you didn’t pay it, you couldn’t borrow money, and couldn’t buy a car!), but it’s close. I wish I had looked into refinancing my auto loan when I had one because my interest rate was very high. When I started making payments, at least $100 of my monthly payment went toward interest alone.
Another reason why you might want to refinance your auto loan would be if you’ve been having trouble making payments and would like to extend your term or lower your monthly payment.
While extending your term can most likely cause you to pay more interest over the life of your loan, it can make your monthly payments more affordable if your budget or income has changed and you need extra money to cover other expenses.
How to refinance a car loan?
Check your credit
You’ve got to have decent credit for refinancing to make sense. If your credit score is low, you may not be able to qualify for a better loan.
Confirm the details of your existing loan
Before you start shopping around for a new loan, it’s important to understand all the terms of your current loan first. This may mean dragging out all the paperwork you initially received when you financed your car.
Compare competing offers from different lenders
When you start shopping around and looking at other loans, make sure you read through the details carefully and compare different offers from lenders side by side—as well as next to the terms of your existing loan.
Ready your loan application
To submit your loan application, you’ll need:
Basic personal information like your employment status, income, Social Security number, address, etc.
Information about your vehicle like the VIN number, current mileage, model and year.
Information about your current loan like your balance and lender name