If you borrowed to buy a car, you are not stuck with the original loan. You may be able to save money with better credit, which is easy to do if you refinance your existing loan. So when can you refinance and how does the process work?
You do not have to wait for the minimum amount of time before refinancing your car loan. In fact, you can refinance immediately after your purchase – even before you make your first monthly payment.
Just be sure to actually end up with a better estate and not pay more for your vehicle anymore.
Refinancing doesn’t always make sense – even if you end up with a lower payout. But there are several situations where refinancing is a good idea.
Better interest rate
If you can borrow at a lower interest rate, it might make sense to refinance. That lower rate (assuming all other things are equal) means that they will pay less for your car after considering interest costs. Since interest rates are also part of your monthly bill, your payment needs to be reduced. As a result, you have a slight cash flow each month.
If you can replace an existing loan with the same loan at a lower price, it is best to refinance as soon as possible. Most automatic loans are loan amortization, which means that you pay a fixed monthly payment with interest, the costs built into the payment.
Over time, you will pay off your debt, but most interest costs are paid at the beginning of the loan – so move that course shortly before it starts to cut costs.
The depreciation table can show you how much you will save.
Better credit scores
If your credit has improved since you got your existing loan, you have the opportunity to get better credit. You may qualify for a lower rate, lock in at a low fixed rate, or you can remove a cosigner from credit.
When you make payments on time (or negative items drop from your credit reports after seven years or more), your credit improves. These successful payments can raise your credit scores to the point where you have more options. Even a year is plenty of time for improvement – it’s so worth finding out if your results have improved enough to qualify you for better credit.
Lower monthly payments?
Refinancing can result in lower monthly payments, but it’s not always a good thing. If you get lower payments as a result of a lower interest rate, you can end up saving money (as long as you refinance at the beginning of your loan). If you just add years to your credit, you will pay more.
How to Refinance?
To get a new loan, you need to sign up with a new lender. In most cases, the process is relatively painless – your lenders will work together to deal with everyone behind the scenes, and you just have to apply.
- Gather information on your existing loan. Your latest statement from your lender will have everything you need.
- Get information about your vehicle (if you won’t have the vehicle with you). Your VIN, make, model and year will be helpful to have at your disposal.
- Get proof of income so lenders can confirm that you have the ability to repay your new loan. A few newer paystubs should be enough, but check with a new loan for details.
Submit your application along with any required documentation and answer any questions the lender has. Most lenders can give you an answer the same day you apply, but some institutions take a day or two to review your application.