Do you know that you can save a lot of money when you refinance your auto loan? Your interest rate is greatly reduced, which helps pay off your loan quickly or reduce your monthly payments. Yes, these are some of the perks that come with refinancing your vehicle. However, it is not available to everyone. There are certain criteria that must be met to qualify you for this option. In this article, we will discuss everything you need to know about auto refinance loans.
To begin with, what happens when you refinance an auto loan? In a situation where a vehicle loan is being refinanced, a new loan is taken to offset the outstanding balance on the current car loan. This can happen when there is an increase in one's finances or an improvement in one's credit. Having good credit opens you up to better loan deals. Also, you may want to remove the co-signer from the loan originally taken.
By refinancing your car loan, you can access more convenient rates and terms that suit your current financial needs and plans.
When Is It Ideal To Refinance A Car Loan?
As stated earlier on, an auto refinance loan is not available to everyone. You need to have certain requirements that would qualify you for this option. There is no limited time for an auto loan can be refinanced. This can even be done right away after purchasing your vehicle - prior to making the first payment. What is more important is that you are provided with a better deal.
Besides, you need to know if it is necessary to refinance your current auto loan or not. In some cases, you may not really need to do so. However, you may need to refinance your car loan under these circumstances. There are situations where one would need to have documentation from the state's Division of Motor Vehicles (DMV) before the individual can be allowed to refinance a car loan.
In order for you to refinance a loan on your vehicle, you need to meet the following requirements:
You must have a new loan which comes with more improved pricing and terms than your current car loan.
There would be a need to provide details about your existing auto loan. These details should contain your account number, the name of your current lender, and the outstanding loan.
Vehicle information, which includes the make, model, year, and vehicle identification number (VIN).
Evidence showing that you are capable of repaying the loan. The documentation contains tax returns or pay stubs.
How To Refinance Your Auto Loan?
Sometimes, an individual may have no idea how to go about refinancing an auto loan. It is not as difficult as it may sound. Following the right steps, you can refinance your existing loan with ease. Here is a guide on how you can go about that.
1. Find Out If It Is Reasonable To Refinance Your Loan
You can't just decide to refinance your car loan just because you have all the requirements met. It is important to know if you truly need this loan. Does it meet your current financial situation? How would this be beneficial to you? These are questions that you must ask before taking any action.
Find out if there is a prepayment penalty. Whereby your existing loan has this type of penalty, then it will not be ideal to refinance your loan. What does a prepayment penalty mean? It implies that you would be charged with a fee if you pay off your loan too early.
It is essential to note the fees you will be paying for refinancing your auto loan. There may be a need to re-register your car and move the title after refinancing it. Such fees differ from one state to another. Hence, you need to know how much you will be paying.
Note if your outstanding loan is higher than your car value. Whereby the value of your vehicle is lower than your loan balance, it may be difficult to get a new loan. Although, some lenders may permit you to include the outstanding balance in the new loan. However, you need to understand that this would increase your overall debt.
Determine the age of your car as this would determine the approval state of your loan. Some lenders may restrict auto refinance loans on vehicles over eight years with a mileage of over 100,000 miles. If your car falls in this category, you may have a hard time refinancing your loan.
Finally, evaluate the state of your credit. Good credit gives you better loan deals which include better interest rates and loan opportunities. If your credit is in bad shape, then it may be difficult refinancing your loan. You can check your credit report and score to determine your credit status and loan eligibility. Bad credit can be repaired with the help of a credit repair lawyer.
2. Gather All The Documents Needed To Refinance Your Loan
There are certain pieces of information and documentation you have to provide for your loan to be approved. They range from your personal information to your vehicle details.
You would have to provide information about yourself such as your address, social security number (SSN), and the amount of your monthly mortgage or rent payment.
Lenders need to be sure that you can repay your loan; hence, they would need to view a proof of your income. This includes either a tax return or a paycheck stub. They may also request for your employment history.
Auto Insurance Document
This document is a must-have for your loan to be approved. If you do not have evidence of your auto insurance, then you would need to provide an insurance card or any other documentation of your insurance.
Details Of Your Current Loan
It is important to have an idea of the outstanding balance on your existing auto loan, your lender's information, loan duration, and the interest rate. Having all these details would help you secure a better loan deal.
3. You Can Apply For Prequalification
The best place to start when shopping for flexible loans is to apply for prequalification. To be considered eligible for this option, you need to have certain information, of which your credit and vehicle type are part of. This form of qualification is often referred to as a soft inquiry. With such an inquiry, your credit is not affected. Nonetheless, it does not guarantee the approval of your loan.
You need to go through the main process when applying for the loan. Shop around and compare various loan offers. While searching, look out for loans that qualify for an autopay discount. Why is this feature important? It reduces your interest rate while ensuring that you do not skip a payment.
Most individuals are tempted to go for longer loan terms with lower monthly payments. However, they would be paying more in interest rates, which can be financially draining. Most importantly, conduct intensive research before applying for a loan.
4. Apply For A Loan
You can apply for an auto refinance loan after you have gathered all the necessary documentation you need, shopped around for different loan offers, and come to a decision. Having selected your preferred lender, you would have to fill a loan application. Your documentation will be listed in the application which is regarded as a hard inquiry. The application has an effect on your credit score - by a few points though. Hence, ensure that your documents are great.
Should your application be approved, you would be required to sign the loan paperwork supplied by the lender. Once this is completed, the lender would provide you with a document containing the terms of your new loan. It is necessary to keep copies of this document as you may need it later on.
5. Ensure That Your Old Loans Are Paid Off As You Make Your Monthly Payments
Some lenders allow you to move your current loan balance to your new loan. While others may pay off your outstanding debt. At the same time, contact your previous lender for confirmation of the balance being paid in full.
Once you have paid off your original loan, make sure you make prompt payments on your new loan without skipping any. In doing so, your credit will improve.
Avoid making these mistakes: stretching your loan out, extending the life of your loan, prepayment penalties, missing payments, and waiting too long to refinance. You can use a car loan refinance calculator to determine the amount you would need to pay monthly.
Benefits Of Refinancing An Auto Loan
There are some perks that come with an auto refinance loan. You get to pay less interest rate and make lower monthly payments.
1. Less Interest Rate
Getting an auto refinance loan implies that you get to pay less interest rate which helps you pay the loan faster and more conveniently. The interest rate is included in your monthly payment which makes it easier to manage your monthly cash flow.
2. Lower Monthly Payments
Refining your auto loan leads to lower monthly payments, which is great if it is being done at the beginning of your loan period. However, if you procrastinate for years before refinancing your loan, then you would have to restart the interest cycle which would lead to more payments.
You can achieve so much more financially by refinancing your auto loan. If you would need a helping hand refinancing your loan, please visit this link: how to refinance a car.