When you’re stuck with bad financing terms, it can be frustrating shelling out your hard-earned cash each month for a loan with astronomically high interest or seemingly never-ending payments. Luckily, it is becoming increasingly easy to refinance your car loan from online lenders, local banks, or credit unions.
So how can you refinance a car loan? Read on to learn more about the steps involved and how to tell if pursuing a refinance is worth it.
What is Auto Refinancing?
Refinancing is obtaining a completely new financial product with different terms from your original financing deal. Essentially, you will be using your auto refinancing to pay off your current loan with the funds acquired from the new loan.
You don’t need to seek out refinancing from the same lender where you originally received your loan, but using the same lender is an option. Sometimes there will be closing costs and fees involved that drive up the overall price of refinancing and may make it a less worthwhile option.
Reasons for Auto Refinancing
The main reasons to refinance a car loan are changes to your budget or circumstances or changes to the economy.
Personal Changes
Sometimes, due to unforeseen circumstances such as job loss (as well as other financial changes that can occur), the monthly payment you originally obtained can become unaffordable. Lowering the interest rate or lengthening the loan terms can help you get locked into a much smaller monthly payment.
On the other hand, if your financial situation has improved since you originally obtained your vehicle financing, you may want a financial product that helps you shorten the length of your loan and get your vehicle paid off faster with a higher payment each month.
Another reason some people pursue auto loan refinancing is to remove a cosigner from their loan product now that their financial situation has improved. There are many personal reasons why someone might want to remove a cosigner, including divorce and other family disputes.
Economic Changes
If interest rates are falling nationwide, it might be time to consider refinancing a car loan. A drop of even a few points can save you hundreds or even thousands of dollars annually.
How to Refinance A Car Loan Step by Step
If you are thinking about refinancing your vehicle’s loan, you will need to take the steps below to find and secure the best possible deal.
Shop for the Best Rates
Your interest rate is one of the most important factors in your loan repayment. The interest rate you qualify for can affect everything from your monthly payment to how long it takes to pay off your balance. (Check out this convenient auto loan calculator to see the difference!)
Typically, the best indicator of the rate you will qualify for is your credit score. However, the lender can make a big difference as well. Be sure to compare interest rates and loan products from several different types and sizes of lenders and financing companies before making a final decision.
Gather Your Documentation
The next step to obtaining your car loan refinancing is to get your paperwork ready for submission. In most cases, you will need to submit documents to prove your identity, address, income, employment history, and creditworthiness. Depending on the lender, you may need to submit originals or copies via fax, mail, online upload, or in person.
Submit Your Application
Once you’ve decided on your lender and gathered up your paperwork, you are ready to apply!
Many lenders are now making the process even easier by allowing for online applications. If you are applying at a national bank branch or a local credit union, you may need to visit in person for faster service.
You can usually expect to see a financing decision within a few business days. And you can expect to close on your loan within a week. At Arbor Financial you can call and speak with a lender 24/7 and get answers within minutes. Closing is fast!
How to Refinance Your Car Loan? Start Here!
Whether you are looking to shorten or lengthen the term of your loan, obtain a lower monthly payment, or remove a cosigner from your loan – a refinance can be a smart financial decision.
Now that you know more about the refinancing process and when to refinance, make sure that you are choosing the best possible lender. At Arbor Financial Credit Union, we are here to help you get a loan that works for you
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