How to Refinance a Vehicle Loan
There are many reasons to consider refinancing a vehicle loan. Maybe you are changing banks and want to have your auto loan with your new bank, or perhaps you want to lower your payments by extending the term of the loan. In an article for Cars.com, John Ulzheimer, president of consumer education at Credit.com, stated that you should even consider refinancing if your credit score improves by as little as 50 points to get a better rate.
- Difficulty:
- Moderately Easy
Instructions
Things You'll Need
- Vehicle identification number
- W-2s, tax returns and/or bank statements
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Refinancing Your Vehicle Loan
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1
Decide on the length of term you would like. The longer the period of time you make payments for, the less your monthly payment will be. However, financing your car for longer also ends up costing you more in interest. The most commonly available loan terms range from three to five years.
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2
Shop for rates. Call local banks to find out what their rates are for auto loans with your chosen terms. Ask about any requirements for the loan, such as the age of the vehicle and whether or not a discounted rate is available to people who set up automatic monthly payments from their checking account.
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3
Decide on a repayment schedule. If the rate you have found is lower than your current rate, decide whether you would like your monthly payments to be less, or whether you would like to pay off the car in a shorter time. A lower interest rate will save you money either way, but you may consider at this point in the process whether to amend your decision about your loan term and make your payments the same as they currently are in order to pay off your loan faster. Ask the banker to run a couple of different payment and term scenarios to help you decide.
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4
Apply for the loan you have chosen with the bank that is offering it, and inform them of your timing and payment choices. During the application process, the bank will need your vehicle identification number, found on a plate on your driver's side dash. The bank will also likely require verification of your financial information with documents such as W-2s, tax returns or bank statements.
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5
Wait for approval and loan funding. Once you are approved and sign the documents, the bank will take care of changing the title of your vehicle to reflect the fact that it now holds the lien and will likely also pay off your previous loan without your involvement. Begin making payments to your new lender.
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1
Tips & Warnings
Keep your eyes open for special deals or promotional rates on car loans on a regular basis, and refinance if you find it will save you significant money.
Ask your lender before you refinance about any prepayment penalties. There can sometimes be a fee for paying a loan off within the first six months to one year.
