Drivers typically look into auto refinancing in order to better manage the cost of the car loan with more favourable terms. Refinancing a car loan means taking a new loan, usually from another lender, in place of the existing one. The refinanced loans that drivers look out for include lower monthly payment, reduced interest rates and longer/shorter loan tenure, whichever is more desirable for them.
Let’s get down to the crux of how to refinance your car loan:
1. Check Your Credit
To obtain the lowest interest rate possible, you will require a good credit score. Knowing your credit score is an indicator of your financial health and scores are rated from AA to HH. A credit score rating of AA is the highest whilst HH rating ranks the lowest.
In the case of a not-so-ideal credit report, more time will be required to work your ratings up with timely payments. It also means higher interest rates, which is not what you are looking for. Before you embark on shopping around or approaching new loans, it is best for you to first check your score so that you do not waste your effort.
2. Shop Around For The ‘Best’ Deal
It’s always beneficial to look around before settling for a deal as rates are highly competitive across the board. Not only will you pick up a knowledge or two, shopping around will give you a bargaining tool to ask for more favourable terms from your lender.
3. Understanding Loan Terms
Before you seal the deal, be sure that you are fully informed of the terms on your current loan as well as the new one you are interested in. Comparing the two loans is a good way to determine if the new loan is worth it, especially since a certain period of time and repayment has been cleared off the current loan.
The car loan-to-value-ratio should also be considered. With depreciation, you could end up owing more than what your vehicle is worth. If your car’s worth is more than what you owe, the option of refinancing may then be a feasible one.
4. Prepare Your Refinancing Documents
Should you decide that car refinancing is the right choice and have found the best deal catered to your needs, waste no time and gather the required documents for the lender. You will need the following:
- Personal information including your income details
- Vehicle’s information like the title, registration, insurance proof, VIN number and mileage
- Loan information such as the lender’s name and your remaining balance
5. Process Your New Loan
Have your documents submitted for your lender to process it. If you are given the green light on your refinancing application, your lender will pay off your previous loan, and future payments will be paid to your new lender. You should receive the paperwork after all is completed along with your car’s title transferred to the new lender.
It is highly encouraged that prior to agreeing to any attractive offers, an actual calculation of the numbers is done. This makes certain that any payment from your pocket will not burn a big hole or land you in a worse situation. Only keep the loan term as short as your budget allows, combined with the lowest interest rates that you qualify for. Take the time to find the right deal for you!