Refinancing a car loan is a financial process where a loan borrower pays off an existing auto loan with a new one. There are many reasons why people choose to refinance their cars, including getting a lower interest rate, extending a car loan term, or consolidating multiple loans into one. No matter what your reason for refinancing is, our guide will help you understand how to refinance a car with step-by-step directions.
Step 1: Check your credit score
One of the first things you should do when considering refinancing your car is to check your credit score. Your credit score is a key factor that lenders use to determine the interest rate you qualify for. The higher your credit score, the lower the interest rate you’re likely to get. If your credit score has improved since you took out your original car loan, you can qualify for a better interest rate by refinancing. Conversely, if your credit score has worsened, you may end up with a higher interest rate. Either way, it’s important to check your credit score before shopping for a new car loan so you have an idea of what interest rates you may qualify for. You can get your credit score for free from several sources, including Credit.com, FICO®, and Experian.
Step 2: Shop around for the best interest rates
When refinancing a car loan, comparing offers from multiple lenders is essential to ensure you get the best deal possible. You will also need to consider any fees associated with refinancing a car, as these can add up and offset any savings you may realize from a lower interest rate.
Step 3: Review your current loan terms
Once you know your credit score, look at your current loan terms. You will need to check the interest rate, monthly payment, remaining balance, and loan term. Knowing this information will help you quickly compare offers from prospective new lenders and determine how much money you could save by refinancing your car.
Step 4: Estimate the value of your car
To refinance your car, you’ll need to have equity in it. Equity is the difference between the value of your vehicle and how much you owe on a loan for the vehicle. Most lenders require at least 20% equity to qualify for a car refinance. So, if your car is worth $10,000 and you owe $8,000 on your loan, you have 20% equity. If you don’t have 20% equity, you may still be able to refinance your car, but you may have to pay for private mortgage insurance (PMI). PMI is an additional insurance policy that protects the lender in case you default on a loan.
Step 5: Compare car refinancing deals from multiple lenders
When considering refinancing your car loan, you’ll need to compare offers from multiple lenders to ensure you’re getting the best deal possible. You will also have to factor in any fees associated with refinancing, as these can add up and offset any savings you may realize from a lower interest rate.
Step 6: Calculate your savings
When comparing offers, you should also be able to calculate the savings from refinancing. To do this, take a look at the new loan term. A shorter loan term will typically have a higher monthly payment with less interest over the life of the loan. A longer loan term will have a lower monthly payment with more interest over time. Choose the loan term that makes the most financial sense for you.
Refinance Your Car Today
Refinancing a car can be a great way to save money on interest and lower your monthly payments. However, it’s essential to do your research on buying a car with debt before making a decision. If you’re thinking about refinancing a car, skip the paperwork and let the refinancing experts at Americor walk you through the process and get a great deal that meets your financial needs.