Do you have a car, but you’re not entirely happy with your car loan? This is a common problem. Fortunately, refinancing can be a great way to reconfigure your loan costs and APR to help you save money. The process can be a bit confusing so we’ve compiled this guide for how to refinance your car loan and be on your way to long-term savings.
What Is An Auto Loan Refinance?
Refinancing is when you use a new loan, typically with new conditions, to pay off your existing loan.
Refinancing can lower your monthly payments, decrease your interest rate, or shorten your loan term, saving you money over the life of the loan. However, refinancing is not always the wisest financial decision. It all depends on your situation.
Steps For How To Refinance Your Car Loan
Here are the steps to determining when and how to refinance a car loan.
1. Check your Credit Score
Knowing where your credit stands is essential to knowing whether it is a good idea to refinance your loan. If your credit score has gone down significantly since you purchased your car, now may not be the best time to refinance.
If your credit score is good or significantly better than when you originally took out the loan, then it might be a great time to refinance. If this is the case, you may have access to APR and loan conditions that weren’t available to you with your previous credit score.
Even if your credit score is the same as when you originally purchased the vehicle, you could still explore your options. Depending on when you got your current loan, interest rates may have decreased.
2. Gather Information and be Mindful of Terms and Conditions
You will need to know exactly how much money is left to repay on your auto loan, how much your current APR is, the amount of time left on your loan, and any restrictions on refinancing.
For example, some loans have a prepayment penalty that can cost you a significant amount.
It’s a good idea to be in contact with your current lender to make yourself aware of any penalties. Knowing how many months are left can also help you decide if it is wise to refinance your auto loan. If you only have one year remaining, the savings that you obtain may be outweighed by potential refinancing fees charged by your current or new lender.
3. Find out How Much You Owe and the Car’s Current Value
If you bought a new car, there’s a good chance that the car is worth quite a bit less than it was when you first got in the driver’s seat.
If you estimate your car’s value and find out that you owe more than the car is worth, it may not be a good time to refinance. In this case, it is probably better to wait until you’ve built up more equity before deciding to refinance.
4. Determine Your Goal in Refinancing
Are you looking for a shorter loan term? Lower interest rates? Lower monthly payments? If you can’t afford your current car payments, refinancing to have lower monthly payments can be a viable solution, but you will likely pay more in interest over the extended term of the loan.
If you are looking to negotiate for a lower interest rate, your monthly payments may remain the same, but the loan length could shorten by a significant amount, saving you money in the long run.
5. Shop Around
With any loan, whether refinancing or not, it’s important to shop around at multiple lenders before settling on a loan. Comparing interest rates, loan terms, and refinancing fees allow you to get the best rate available to you.
Sometimes the best lender is the one you already have. Many financial institutions will waive or reduce refinancing fees if you refinance your auto loan with another loan from the same company.
6. Use a Loan Calculator to Calculate Savings
Comparing APR, monthly payments, and loan terms can get confusing when each financial institution offers slightly different conditions.
You can use an auto loan refinance calculator to help determine how much you can save by refinancing the car. It’s really easy to use. You enter your remaining loan balance, current monthly payments, current APR, and some details about your new potential loan. This gives you an understanding of exactly how much the new loan will save you over its life.
Start Exploring Refinancing Options Today!
Best Reward Federal Credit Union is a great resource for all the information you need to refinance your auto loan! We offer competitive rates and have a team whose goal is to help you understand the terms and conditions of your new loan.
You are in safe hands when you borrow with us. Find out more today!
Car Loan Refinancing Options