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How To Refinance A Car Loan

How To Refinance A Car Loan

One of the most common reasons why people refinance a car is because they cannot afford the payments anymore. However, if you have started missing payments, then you are going to have a lot of trouble trying to refinance your car. You need to make it clear that you are serious about paying back the loan, which may mean waiting six months or even a year after your last missed payment before applying.

You can refinance a car if you have missed a few payments recently, but the companies that deal with you will  have very high interest rates that will land you in much more debt than you are in right now. Here is how you refinance a car.

Step 1 – Call Your Current Lender

The first thing you may like to mention is that you are looking to refinance your car, and ask them if they can offer you a better deal on your car. You may like to make a few arguments in your favor, such as how your higher credit rating means you can get a better deal elsewhere, and how interest rates are now in your favor so it is a good time to refinance. Ask if your current lender is willing to make a deal to lower your interest or give you a better deal.

Step 2 – Ask Your Current Lender For Your Current Debt Amount

You need to find out just how much debt you are in because your refinancing company will need to take that figure into account. Do not be too confused if you have X amount on your loan, but they are saying you owe less than that. Such things occur because of the interest you are paying. It may be that if you pay your entire loan off right now that you get a discount through the loss of interest you would have paid. Your refinancing company will use this information to come up with a deal for you.

 Step 3 – Find Out Your Current Credit Score

When you refinance a car, you may come across a company that asks you for your current credit rating (FICO score). Some companies ask you, and other companies will look it up when you apply. If your credit score has gone down since you took out the loan, then you may not get a good deal when refinancing. If your credit rating has dropped below 600, then many refinancing companies may not deal with you. If your credit score has increased by around 50 points since you took out the loan, then you may find that many companies chase use

 Step 4 – Find Out If Interest Rates Are Up Or Down

A car refinancing company is allowed to use whatever interest rates it likes to create your deal. Some use the interest rate that is set by the federal committee. The refinancing company that you approach may use current interest rate as its own. If that is the case, then it means that when current interest rates go down, then the eventual price of your refinanced car loan will go down too.

 Step 5 – Find A Company That Allows You To Shorten The Loan

If your car loan is between five years and eight years, then you are in a very lengthy loan that you may like to shorten. If you shorten the loan, make sure you are getting a favorable deal. Try to make sure your monthly payments are lower than what you pay now, and try to make sure the length of your loan has been reduced.

 Step 6 – How Much Is You Car Worth?

Car refinancing companies are less willing to offer refinancing to a car owner who has a car that is worth very little. The reason the company may say no is because your car is not very good collateral. They are more likely to say yes to refinancing a newer car because it is worth more when it is sold. You can check the Blue book value of your car to see how much it is worth. Remember that the company is more likely to say yes if your car is in good shape and care has been taken to maintain it well. It is also a question of car branding. Some cars will age better than others and retain their value for longer.

 Step 7 – Look On Different Comparison Websites

Each comparison website has its own priorities. They are all being paid by different companies to promote their services while appearing fair. That is why you need to try a few comparison websites to get a feel for what is out there. You also need to start looking at independent refinancing companies too. These are often not on comparison websites because they are smaller companies. They are handy for figuring out what your options are and what sort of interest rate you should be shooting for. When you refinance, you want the interest to go down by at least 1% or there is very little point in refinancing at all.

 Step 8 – Pick Your Refinancing Company

You will have to apply and hopefully they will give you your refinancing deal. You will have to go through the whole sign up and apply process. They eventually tell you that you have the loan, and then one of two things happen. Either they will contact your current lender and pay off your car loan, or they will write you a check and you have to pay off your car loan yourself.

 Step 9 – What Information Will You Need To Refinance A Car

They are going to make you apply online. It is very simple since most car finance companies have a step-by-step application system that walks you through the process. You will need your personal and your contact information to hand. This includes your:

  • Social Security Number
  • Date of birth
  • Citizenship status
  • Email address
  • Your marital status
  • Home address
  • Your telephone number
  • Any previous addresses for the last three years
  • Your rent or mortgage payments per month
  • Your residence status for if you rent or own

They will also need your employment information and your income information, which includes your:

  • Employer’s name
  • Your current employment status
  • Your current occupation
  • The phone number of your boss or HR department at work
  • Information on the employers you have had for the last three years
  • Your gross income per month
  • A list of your income sources

They will also need information about your vehicle that you already have the finance deal on. They will need your:

  •  Year of vehicle
  • The loan balance that is remaining
  • Your VIN number
  • The current mileage
  • Your current lender information

 I Love MY Daddy pic

 How Long Does It Take To Refinance A Car

If you apply online, it usually takes around ten minutes to get started and get a quote and maybe an indication of acceptance. You may then need to discuss your refinance with a specialist, or move on to the section where you enter all your details, which takes around twenty minutes. Once you have completed the online application, it then takes around a day to confirm your account, and between one and two working days to get your account active. After that, the money for your refinance may arrive, or your previous loan may have been paid off and you are now responsible for the loan that has just been generated.

A Small Word Of Warning

There are still fake financing companies out there that are looking to rip you off. They try a number of tricks to get your information and then defraud you and your accounts. They have you fill out applications full of information that they use to steal your identity. Another trick is to have you pay a large fee upfront and then tell you that you cannot have the loan.

 Another Word Of Warning

If you have a poor credit rating and/or your credit rating has gotten worse since the purchase, then you should probably stay away from refinancing. If things are getting bad and you cannot afford the payments, then consider refinancing, but beware of the truly awful deals you will receive. Consider as many alternatives as possible before you take on more debt for a longer time just so you may pay smaller monthly payments.

 Under Which Circumstances Is It A Good Idea To Refinance?

A common reason why people wish to refinance is because their car lease is coming to an end and they wish to buy the car they have been driving. Here area few other reasons why you may wish to refinance a car.

 You Can No Longer Afford The Payments

This is a very good reason to refinance a car. If you are unable to afford the payments and things are getting tough, then refinance your car. It is better to refinance and put yourself in more debt that you can afford, rather than having less debt that you cannot afford. Refinance before you start to miss payments while your credit rating is still good.

 You Want Lower Monthly Payments

You may be able to afford your car payments, but you simply do not want the high car payments that you have right now. If you are smart (or lucky), you may be able to lower your payments without increasing the amount of debt you are in.

  You May Need A Pause In Your Payment Cycle

Refinancing your car just to take a break for a month or two is a pretty rotten reason to refinance, but it is a nice perk nonetheless. You may also want different payment options or different payment terms, so you refinanced to find ones that suited your needs.

 Interest Rates Have Dropped

If interest rates have dropped, then there is a chance that many finance companies will have lowered their APR rates, which means you can get a better deal with you pay less money.

 Your Credit Score Has Improved

Have your four Cs improved. They are your character, collateral, credit Score and capacity. Your character is your credit history and your trustworthiness based on what is on your credit history. Your collateral is your car, which has probably decreased in value since you bought it. Your credit score is your FICO credit rating, and your capacity is your income/disposable income aka your ability to repay your loan. If one or more of your four Cs have improved, then refinancing your car may be a good idea.

You Didn’t Get The Rate You Wanted When You Bought

When you bought the car, you may have got a rate that you didn’t want. If that is the case, you may have decided to improve your credit rating over the next six months and then take another stab at getting the rate you desire by refinancing. That is as good of a reason as any to refinance your car.

 You Have A Co-Signer Or Guarantor

If you would like to get a better APR interest rate, then get a guarantor or co-signer with better four C scores than you have. With the help of that person, you may be able to get a better rate.

 Remove A Co-Signer From Your Loan

If you have seen Judge Judy any time recently, you will know that you shouldn’t co-sign for things. When two people break up, it is often a good idea to get at least one person off the hook for the loan. Refinancing may allow one person to get off the hook for it.

Judge Judy - Dont teach a pig to sing

 Conclusion – Refinance A Car If You Can Get A Better Deal

Refinancing a car is a hassle, which is probably why many people do not keep refinancing to get a better interest rate and better terms. Listed above are a series of reasons to refinance your car. If you have one or more of those reasons, then take the time to refinance your car. If you have been working on your credit rating, then a good refinancing deal may be your reward.


About The Author

Ash The Great

After a varied career in different industries from the hospitality industry to the financial consultancy industry, Ash now spends his days working as a professional writer.


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