Refinancing your current car loan can make sound financial sense if you have recently improved your credit score or there has been a decrease in overall interest rates.
Most people can save a significant amount by refinancing in a low interest rate market environment. However, you need to be careful to get the refinancing done in the early phase of your car loan as the initial monthly premiums are more interest-heavy.
But car loan refinancing can become a losing proposition if you are not careful about certain critical factors. Here are the steps listing out the ideal ways to get your car loan refinanced in the minimal amount of time.
Confirm the Current Credit and Loan Status
It is important that you check your credit score even before you begin to think of refinancing your auto loan. You may not get a decent interest rate if your credit score is low.
You may have access to better deals and lower rates if you have been paying your premiums on time. Remember, that your credit score gets affected by all debt. Your credit score will be negatively impacted if you are running a huge credit card debt.
Make sure that you evaluate the terms of your existing loan before you start shopping around for a new one. Knowing the ins and outs of your loan will keep you confident while you negotiate with a lender. It will also be easier for you to determine whether a new loan deal is worth it or not.
This means you need to bring out your paperwork and learn more about details like current APR, remaining loan term, and remaining balance among others. Dig out your loan contract or speak to a customer care executive of your loan provider to determine prepayment penalties or any other similar charges.
Get Your Documents Ready
Make sure that you have all your documents required for a new loan ready. This includes the existing loan contract. Don’t worry if you have lost the paperwork.
You can always request a new one from the customer service department. You will need additional items such as the vehicle identification number of the car and your driver’s license.
You will also require your Social Security number and salary slips as a proof of employment. Lenders also require a proof of residence to know where a vehicle is garaged in case you default on payments. Bank statements, utility bills, or property tax bills among others usually suffice.
Start Shopping Around
This is going to take a major chunk of your time. It is best to get this over with during a free weekend. While it is possible that you might get the best deal on your first try, it is imperative that you keep shopping around. Most would agree that it is worth you approaching a minimum of 3 to 5 lenders to feel out different lenders before settling on one.
You can use various online calculators to do the math on your available loan options. Enter your existing loan details and remaining balance. Next, enter the interest rate you are hoping for and the loan term. This will get you the monthly payout amount.
This is also a salient time to check the value of your car. You know you won’t qualify for refinancing if the balance of your loan is greater than the value of your car.
Factors to Consider for Your New Car Loan
Here are the factors that you need to consider while selecting for the best auto loan for refinancing.
It is important that you understand the impact of loan term on monthly premiums. A shorter term might make it difficult for you to pay off the loan as the monthly premiums will drastically increase.
In comparison, a longer loan term will keep the monthly payouts on the low side. However, you will end up paying more in the long term as the interest will accrue over the entire period of the loan.
Annual Percentage Rate
Do not just judge a loan based on the low interest rate. It is possible for a low interest loan to be costlier than one with a higher interest rate. It is best to go beyond the interest rate and look at the APR figure.
APR consists of the interest rate plus any additional fee and charges. Many lenders attract new customers by quoting low interest rates and adding on additional fee to the figure.
Added Fee & Charges
There are additional fee that are not part of the APR. These include funding fee, origination fee, document fee and title fee. Some lenders add on a prepayment penalty as well. These are important factors to consider as you might want to pay off a loan early and not be able to do so because of the penalties levied.
Apply To Multiple Loans
Once you have zeroed in on some options, it is time to start applying. Do not hesitate in applying to multiple lenders because the application process is free. However, you need to make sure that you apply to all lenders within 14 days of each other.
Most lenders perform a credit check while processing your application. Similar queries within a short period of time are grouped together and considered as one. Your credit score will not take multiple hits.
You also don’t want multiple hits when it comes to driving your car. Your insurance rates may certainly go up!
Finalize on the Application
Once you zero in on a lender, it is time to complete the application. Your old lender will transfer the title of your vehicle to the new lender.
Your new lender will pay off the existing auto loan and you will begin making monthly payments to the new lender. Some new lenders might deposit the amount in your checking account rather than paying off the loan themselves.
It is important that you continue making payments to your existing lender till the refinancing process is completed. Otherwise, you might be slapped with late fees and penalties. You may want to contact the new lenders and let them know if a payment due date is approaching.
Refinancing could help you make monthly payments more affordably when you think the premium on your existing car loan is going beyond your budget. A longer term will certainly bring down the amount. You might also get more favorable terms and conditions as your credit score improves.
Make sure you turn off auto payments on your old loan and set up a new one for the new lender so that you do not default. You could also consider making extra payments to pay off your car loan sooner.
If we can put a man on the moon you can certainly do this! Stop going out to eat that much and pay off your car even quicker.