How to Refinance an Auto Loan
You should always know how to save money by refinancing an auto loan if it makes financial sense for you to do so. Refinancing is a smart choice if you are looking to benefit from lower rates or lower monthly payments on your auto loan.
Keep reading to learn more about how to refinance an auto loan, how the process works, and when you should consider refinancing.
How an Auto Refinance Works
Whenever you refinance an existing loan product, you are essentially taking out a new loan with more beneficial terms to pay off the first loan and taking advantage of the new lower balance, lower interest rate, and other adjustments.
Lenders offer auto refinancing as a way of pulling in new customers and taking away business from other banks. For this reason, refinance loans are more likely to have competitive rates and other promotional offers to gain your business.
How to Refinance
There are a few basic steps that you will need to follow to refinance an auto loan.
1. Compare Options
First, you will want to compare options from a few different lenders to ensure that you have found the best possible deal for your refinanced loan. Once you have decided on a financial institution to provide your new auto loan, you are ready to begin the application process.
2. Complete the Application
The process of obtaining a refinance is fairly simple and works just like when you applied for your original auto loan. To get started, you will need to find a new loan from a credit union, local bank, or online lender and complete your application. This is typically done online or by phone, although in some cases, you may be able to go in person.
As part of the loan application, your lender will ask for the details of your basic personal information such as identity, income, employment, and address. You will likely need to submit documentation proving all of these items. You will be asked about your vehicle and your existing auto loan and may need to provide proof of your registration, title, or insurance.
3. Credit Check
The lender will run your credit to evaluate your overall credit risk or creditworthiness. Keep in mind that applying for an auto loan refinance will result in a hard inquiry of your credit and can temporarily lower your credit score.
If you are unsure whether or not you will get approved for your new auto loan or are still shopping around, you may want to consider getting prequalified instead. Getting prequalified for your new auto loan can give you a better idea of what terms and rates to expect without adding an actual hard inquiry to your credit report.
4. Get Approved!
After submitting your financial information, you will wait for a decision on your loan application, which should typically take place within a few business days.
When to Refinance an Auto Loan
So when should you consider refinancing, and when is it not a good idea? There are a few basic circumstances when refinancing your auto loan makes sense. You will need to evaluate your financial situation as well as the available refinancing auto loan offerings out there to see which decision is right for you.
If you have reason to believe you would qualify for a new lower rate, it may be in your interest to refinance. If your credit score has improved or if national interest rates have dropped, that is the perfect time to apply for an auto refi and gain access to lower interest rates that can save you thousands over the lifetime of your loan.
But, if you are close to paying off your original loan, or when it would cost you more in fees to take out a new loan, you may want to avoid getting an auto refi.
Change in Financial Situation
If your financial situation has changed, you can benefit from adjusting loan terms – such as the repayment period – to either increase or decrease your monthly payment.
You can seek an auto refinance if you are looking to extend your loan terms to accommodate for negative financial changes such as a job loss and receive a lower monthly payment that better fits your budget.
In some cases, you may want to shorten your loan repayment period. Obtaining a shorter repayment period allows you to pay off your debt much faster and save money on interest despite the higher monthly payments.
A Better Deal
Sometimes, it is as simple as finding a better deal. This can be especially true if your original loan was from a traditional bank. Credit unions and online lenders may have lower rates, more flexible terms, and a more lenient underwriting process.
Ready to Refinance?
At Members Heritage Credit Union, our members enjoy access to smart financial products with low rates, flexible terms, and other special benefits. You can save money on your auto loan with low rates and flexible loan terms. Learn more about refinancing your auto loan with us today.
*APR = Annual Percentage Rate Rate may vary depending on your creditworthiness. Please ask a Member Service Officer for details regarding how your rate is determined.
« Return to "Blog"