If you’re worried about the high interest rate you’re currently paying on an existing auto loan, you may be interested in learning how to refinance a car loan. It isn’t as difficult as you may think, but it does require that you take some proactive steps.
No Appraisal Needed
Unlike a home, which often does require an appraisal in order to get a refinance processed, refinancing a car loan does not. This is a fact that many people don’t know. What matters when you want to know how to refinance a car loan is how much you need to refinance. In other words, the amount of your new loan is based on how much money you require to pay off your current loan, not on how much the car is worth.
Improve Credit Score
Anyone who wants to obtain a loan for refinancing a car or anything else is wise to work on improving their credit score. This also involves cleaning up any bad credit history, paying your bills on time and without missing any payments. You should allocate about six months to repair less than stellar credit history, longer if you have any major problems. Why is this important? Lenders base their decision to take you as a client on many factors, and your credit score and credit history are right up there at the top.
Tips on How to Refinance a Car Loan
Experts recommend that you do the following:
- Make sure the names on the car loan refinance are the same as those on the original car loan. This makes it easier for the lender to find the original loan and proceed from there.
- The amount of the refinance has to be at least $7,500 – in order to make the refinance worthwhile for the new lender.
- Don’t try to borrow more than you need to pay off the old car loan.
- Call your current lender to find out the payoff amount on your old loan.
- When you apply to refinance your car loan, make sure to have all the current information on the car, including correct vehicle identification number (VIN), year and model of car.
- Remember that the earlier you refinance a higher interest rate car loan, the quicker you’ll be saving money. If you go from a 21 percent interest rate for 60 months to a 7 percent interest rate with another lender for the same period of time, you’ll be saving thousands in interest fees (especially since interest on car loans is mosly paid early on).