If you find yourself asking how to refinance a car, you’re probably paying too much for the vehicle you drive. It’s not an uncommon situation for many drivers who don’t shop around for the best car loan, and it leaves many drivers wondering if they can lower a vehicle payment the same way they refinance a home and lower their mortgage payment. The good news is that you can refinance a vehicle, but it’s not as common as refinancing a home. When you shop around for an auto loan, you almost always get the best deal.
However, when you don’t shop around for an auto loan, you run the risk of paying too much. Lenders who work with automotive dealers often charge higher rates and don’t give you the best option for a loan. The people who end up with a loan from the dealer’s lender almost always want to know how to refinance a car so they can pay less, save more, and feel a little more comfortable with their new payment. No matter where you found your auto financing, it’s entirely possible that you can learn how to refinance a car and get a lower rate and payment if you understand the process.
Benefits of Refinancing Your Car
Learning how to refinance a car leaves you with several financing options that might benefit you in the long run. If you’re unsure why you might refinance your car when you’re already a few months or even years into the loan, here are a few of the biggest benefits.
You Get A Lower Rate
Nothing is better than a lower interest rate since that money doesn’t benefit you. Interest is the money you pay to the lender who gave you the money to finance your car in the first place. When you pay the lender interest, you make your vehicle more expensive. You can save a little bit of money by getting a lower rate and spending the money you’re saving on something else. It’s a winning situation.
You Could Lower Your Payments
Not only can you lower your payments by getting a new rate that’s lower than the one you had before you refinanced your car, but you can also get a lower payment if you extend the payment terms on your loan. For example, if you bought a brand-new car and decided to make payments for five years, you could extend the loan for another year and pay for six.
While you might not want to pay longer for your vehicle, the significantly lower monthly payment might be more beneficial to you right now due to life circumstances you didn’t see coming.
You Could Get Additional Cash
If you have a car with equity in it, you could refinance it for more than you owe and have a little cash in hand. This cash could be used for an emergency car repair, to fund a nest egg, to paint your house, or to go on vacation. You can use it for anything you want, and there is nothing wrong with that. It’s your money, so you can take out the equity in your car if you want to pay a little longer on it than you were before. It’s up to you.
Things to Consider
Before you decide to learn how to refinance a car, there are a few things you must consider. Not all refinance options are designed to benefit you. Knowing the cons associated with refinancing a car can help you make the most of your decision and get the best possible deal for your money.
You Could Pay More
Sometimes you don’t realize you’re paying more for your vehicle because your monthly payment is lower. You might refinance a car for a lower rate or monthly payment thinking you are saving money, but extending your payment terms only makes it more expensive. Do the math to see if you are spending more money by refinancing or if it’s simply more affordable to keep the vehicle financed with your current lender.
You Could End up with a Higher Rate
If you want to know how to refinance a car to get fast cash in your pocket, you must understand this is a bad idea. Not only are you paying more for your car, but you are also more at risk of losing it if you miss even one payment because you cannot afford the new interest rate. If you need fast cash, a refinance might not be the best option for you unless you can find a lower rate and a longer term.
Do the math, find out what you can afford, and be very careful when you refinance a car in a hurry because you need the cash.
You May Not Be Able to Refinance
The simple truth is that some people cannot refinance a loan. There is nothing that you can do if your car doesn’t have equity. If your car is not worth what you owe on it, you might not be able to refinance for extra cash.
You may be able to refinance for a longer term or lower rate, but not for any additional cash to put in your pocket. That’s one thing many consumers don’t realize when they try to refinance for an equity loan.
How to Refinance a Car
When you’re ready to learn how to refinance a car, you must know how the process works. It’s streamlined and relatively simple, but it can be intimidating if you’ve never done it before. Here are the proper steps to take if you’re looking to refinance.
Gather Your Documents
You need to know right now how much you owe on your car, who the current lender is, and what the 10-day pay-off on the car is. You must know all these details so you can provide them when you apply for a new loan. You cannot complete an application to refinance without it, so gather it before you begin to save yourself a small headache.
Search for Better Rates
Now is when you need to find a new lender for your auto loan. If you want to know how to refinance a car the successful way, it’s by finding a lower rate than the one you’re paying now. Check these places to find the best rates.
If you aren’t sure where to begin looking for a new lender, start with your credit union. They are more likely to offer you a lower rate and a better term than another lender, and that’s always the best place to start. You can also look online for auto refinance companies. However, remember to submit all your applications around the same time. This looks like one hard credit inquiry rather than multiple inquiries if you spread them out over a few weeks.
Check the Quotes
Now that you’ve submitted your applications, you need to know how to refinance your car with the right company. The right company is the one that’s offering you the best rates. It might be a credit union. It might be an online lender.
However, the numbers will be better, and you can work out a better deal with one company than you can the rest. Check to see what’s being offered compared to what you are already paying and pick the loan that works for you. It might be the one with the lowest rate if your refinance is to save money over the life of your loan. It might be the one with the lowest monthly payment if your refinance is to save money right now.
Sign the Documents
Now that you’ve chosen a company to refinance your auto loan, you must complete the process. You’ll need to read all the fine print to ensure you’re signing only documents that you agree with. You’ll need to gather your current information, provide the payoff and other information to your new lender, and submit your paperwork.
Sometimes, you can do this all online or through email if you are willing to send information that way, but be sure everything you copy, send, and print is clear, legible, and what you want from your refinance. There’s no point in learning how to refinance a car if you’re not going to make sure the process is handled correctly through the end.
Learning how to refinance a car is simple. It’s the part of the process you have to ask yourself why you are doing this that is the most complicated. If you are in a hurry to refinance because you need to borrow money against your car, you might consider other options first. This is not always the best way to borrow money as vehicles are already considered a bad debt. They depreciate fast, and you can end up paying in the long run if you don’t get what you need for pay off when you trade in your car or if something happens to it in an accident. If you aren’t saving money, you shouldn’t refinance your car.
Featured photo via Pixabay
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