words Al Woods
When it comes to buying a car, most of us can only afford it by taking out a car loan. But a car loan isn’t that bad for you. In fact, with refinancing you can improve the terms of your car loan and get a pretty good deal.
The Basics of Refinancing Your Current Car
If you are planning to refinance your car, here’s what you should know:
Why Refinance Your Car
There are many reasons why debtors refinance their cars:
- Lower Interest Rate: When you refinance your loan, you should be working to improve the interest rate of your loan. This means that you will be paying less money for your loan after refinancing.
- Lower Monthly Installments: A lower interest also means lower monthly installments. With a lower monthly installment, you will probably feel a little less stressed about your financial position.
- Loan Term Period: Many people also refinance their loans to alter the term period of their loan. You might want to add more time or reduce the term period depending on your financial condition.
- Remove Co-Signer from your Loan. You might have taken your auto loan with your wife, but for some reason,you want to remove her or add another co-signer for your loan, then you have to refinance your loan.
When to Refinance Your Car Loan
Most people refinance their cars when their credit score goes up. If you have a better credit score from the time you took your auto loan, there’s a good chance you will be able to renegotiate a better price for your loan.
You should always review your credit score before you apply for refinancing. If your credit score is below 350, we recommend waiting for a few months to improve your credit score. Your credit score isn’t written in stone. With better financial moves, you can easily improve your credit score in 4-5 months.
A good time to refinance your car loan is also when you have been paying your monthly installments on time. This shows to your lender that you have a history of paying your loans on time. You should especially consider applying for refinancing when your financial position improves. For example, you get a raise on your salary. That not only improves your credit score, but it also shows to your lender that you are in a better position to pay off your loan.
Another thing you should be keeping in mind is to refinance your car as soon as you can. Many people refinance their loans within the first year of getting the loan. That’s the best time because with new cars you will get the lowest rates. If you have that car with you for around seven years, your lender might not be interested in refinancing your car.
How to Refinance Your Car
So how does refinancing work. In refinancing, you will be asking another lender to pay off your auto debt. For this new loan, you will be drafting a different interest rate and term period.
Refinancing isn’t a long process. You are usually approved to get the loan within 14-20, after submitting the application and all the required documents. Generally, you will have to submit the following documents:
- Submit all documents of your existing loan. Everything you have. Your application, your payments, your receipts.
- Submit your car information. This includes the model, the registration number, VIN, year of manufacturing etc.
- Proof of income. You will have to submit your salary sheet or any proof of your income.
- Your Driver’s License.
Your lender would probably call you for an interview. Mostly, this happens on the same day you submit your application. For banks, it takes 2-3 days for that interview.
Remember, that not all lenders are equal, especially when it comes to refinancing. You might stand a better chance with your local bank. Also, look at federal auto financing programs. You should also look at the best refinancing options on the internet. You might be able to find the best rates here.
We recommend talking to 2-3 lenders. Get their rates. Once you do, apply within a week. Don’t wait too long. Don’t get fooled down by a very low-interest rate. Calculate how much you will be paying for every lender you will apply for. Sometimes, the rates a low but the term period is quite long. That’s why you need to get your final figures down by going with a particular lender.
In some cases, your refinancing application might be rejected. Don’t let this hold you down. If you can, find out why your application was rejected. Work on the problem and apply again.
Refinancing isn’t a very difficult thing to do. In fact, we recommend refinancing your auto loan after a year if your credit score has improved.