How to Refinance a Car Loan

Most people are familiar with the option of refinancing a home to achieve a smaller monthly payment. The idea is to take advantage of lower interest rates to slash your mortgage payments. However, a lot of people are not familiar with the option of refinancing a car loan for similar benefits. Listed below are the steps you should take to refinance a car loan.

Refinancing a Car Loan

Step one: Look over your current loan carefully. Make sure you have the option to refinance, and, if so, what the financial penalties are for doing so. Many lenders charge buyers early payment fees, so read your loan agreement to find out if your lender is one of them.

Step two: Understand the difference between used-car interest rates and new-car interest rates. Some refinancing may only be offered to those people who have taken out a new car loan, and not for people who have a used car loan. It is important to do your research so you don’t end up with a higher rate.

Step three: Consult a professional. Refinancing can have a lot of hidden costs, so make sure that it will actually benefit you financially. Some lenders will offer a seemingly low interest rate but then have outrageous application fees. A professional can sit down with you and show you how to tell a good deal from a bad one.

Taking Advantage of Refinancing

All too often, people jump into auto financing not knowing their options and what rates are available. Through refinancing your auto loan, you might be able to get a lower rate and pay less every month. Making monthly payments on your auto loan can improve your credit score over time. People with low credit scores who get auto financing tend to see their scores improve with each consecutive on-time payment. An improvement in your credit score can be great for auto refinancing because it will enable you to secure a lower interest rate with your new loan. Additionally, lower monthly payments will free up cash in your budget for other needs.

Where to Refinance a Car Loan

Finding the right refinancing loan is easy. There are many different financial institutions willing to address your refinancing needs. The most important goal of refinancing your car loan is to find a better rate and save on your monthly car payments. A great way to find auto loan refinancing is online. Typically, online auto loan lenders go the extra mile to find their customers a great low rate. Banks are another funding source and also a more common, traditional approach to refinancing. Another option is going through a dealership. Dealerships tend to charge higher rates, though, so this option might not be ideal if you are looking for the lowest rate.