What do I need to know about auto loan refinancing?

What to know about auto loan refinancing

Compared to refinancing your home, refinancing your car loan is much easier to do. The process of refinancing your car can save you money while being much simpler and quicker than refinancing your house.

When you should consider refinancing

If the APR (annual percentage rate) on your existing car loan is at a much higher interest rate than you see currently advertised, it may be time to shop around for other lenders willing to refinance your car loan.

Oftentimes, a car buyer who has less-than-perfect credit has to contend with a high interest rate at the time of purchase. But after a few months or years of making prompt payments, that buyer’s credit score could potentially improve, and, in turn, that buyer may now be able to secure a loan at a lower interest rate.

Another scenario involves a car buyer with good credit who secures an auto loan only to see interest rates drop on auto loans months after his/her purchase. In both of these cases, looking into refinancing the current loan could be a wise move.

How to refinance your car

If you have decided on refinancing your car, make it a point to get a copy of your credit report and your credit score. Knowing your credit score can give you a decent idea of what kind of interest rate you should be able to obtain.

Call your current lender and ask for the outstanding balance on your car loan or the payoff amount in case there are penalty fees for prepaying your current loan. Seek quotes from multiple lenders and compare the different loans. Scrutinize your options closely. Upon approval of your refinancing, the new lender should supply you with instructions on how to pay off your current car loan, forward the title, and transfer the lien accordingly.