How to Refinance an Auto Loan When You Owe More
Owing more on a financed car than what it is worth happens frequently as the vehicle's value typically plummets faster than the loan can be paid off. This upside down situation is not a problem if you intend to just pay the original loan. However, if you want to refinance the car loan because you get a better interest rate, you will need to try a few options.
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Things You'll Need
- Your original car title
- Your original car loan paperwork
- Computer
- Internet access
Instructions
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1
Locate your car title and original loan paperwork. Note the car model and year of make. Compare your original loan amount with how much you still owe on the car.
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2
Determine your car's current value. Those numbers are available at a number of websites. Compare that figure with your outstanding loan balance to see if your loan is worth more or less than the car.
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3
Examine your cash savings. Try to pay down your loan, if possible, to get it to equal or be less than your estimated current car value.
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4
Go to a bank or lender with the reduced loan balance and apply for a car loan refinancing. Fill out the necessary paperwork and show the loan officer your current loan balance, original loan paperwork, and estimated car value per Internet sources. Wait for a loan decision.
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5
Sign the paperwork for the new loan if approved. Send the new loan funds to the original lender to pay off the original car loan if the new lender does not do so automatically. Send in regular payments on your new loan until paid off.
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Tips & Warnings
Depending on the deal, sometimes you can negotiate to have your old car traded in and your old car loan made part of a new one when purchasing a new car. The effect causes you to have a new car loan that includes the amount of the new car plus the balance of your old loan paid off by the car dealer to close the sale.
Do not falsify your information when applying for a new loan. This is considered financial fraud and you can be punished by both penalties and jail time if convicted.
References
- Photo Credit Polka Dot Images/Polka Dot/Getty Images
