Refinancing a loan allows you to replace your current loan with a new one with better terms.
Learn about the basics of refinancing a car loan below.
Need to do some research first? Check out our free car payment calculator to determine the potential cost of financing your vehicle.
Why Would You Refinance Your Auto Loan?
Refinancing a car loan may allow you to lower the overall cost of your vehicle.
Depending on your specific circumstance, refinancing to a loan with a lower interest rate can decrease the total amount you’ll be paying over the lifetime of your loans.
When Should You Refinance?
There are 2 primary scenarios when refinancing your car loan make sense:
- Your monthly payments are too high.
- You can qualify for a better rate.
In either case, you should really only try to refinance when the new loan allows you to get a lower interest rate than your original loan.
How to Refinance a Car Loan
Before you start applying for refinancing, you’ll need to gather some information.
This includes:
- Your current loan details including the rate, length, total cost, and current payoff amount.
- Any prepayment penalty clauses in your existing loan.
- Your credit score.
- The current market value of your vehicle.
You’ll also need to be prepared with the information and details you provided when you first applied for financing, such as:
- Your name and address.
- Your Social Security Number.
- Gross income and proof of income.
- Debts.
- The vehicle identification number (VIN).
Learn more about how to get a car loan.
Once you’ve gathered all the details you need, you’re ready to start comparing.
Whenever you get a new loan offer, get ready to compare the numbers of your current loan with the new loan terms.
Be sure that your new loans meet your financial goals, which are generally:
- Lowering the total cost of the loan.
- Reducing your monthly payments.
- Shorten the length of your loan.
If you determine that refinancing will save you money, you’re ready to move forward.
Next, you’ll need to finalize your new loan with the lender you’ve chosen. After that, the lender will pay off your old loan, and you’ll begin making your future payments on the refinanced loan with better terms.