How to Refinance a Car Loan

Written By Mary Beth Eastman
Last updated April 23, 2018

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April 23, 2018

Simple. Thrifty. Living.

An estimated 107 million Americans currently have loans that they used to purchase vehicles. Many of those people may not known how much car they could afford or didn’t get the best interest rates, so they want to refinance their loans to make their payments more affordable.

If you want to refinance your car loan, then you’ll need to know the right approach to get approved.

Before you refinance your auto loan, you should learn the details of your current loan. If your contract includes prepayment penalties, then you need to determine whether you will save money by refinancing. In some cases, the prepayment penalty may exceed your potential savings.

Lenders won’t want to refinance your loan unless you have good credit, so you might as well get your credit report before you start exploring your options. If you find inaccurate information on your credit report, you should contact the credit bureau about removing it.

Financial institutions typically consider credit scores over 700 good and scores over 750 excellent. If your score falls below 700, you should work on improving your credit before you try to refinance your auto loan. If you need to clean up your credit report, there are several reputable credit repair services that can help.

Today’s lenders want strong evidence that you can repay your loans on time. You can prove this to them by collecting documents about:

  • Your income.
  • Your current loan’s interest rate.
  • How much money you owe on your current loan.
  • Your monthly payments.

You should also have your social security number, vehicle identification number, driver’s license and original loan contract.

The internet makes it easy to explore multiple loan refinancing options so you can get the best possible deal. Always compare several offers before you decide which one fits your budget.

Try to submit all your loan applications within 15 days. Credit bureaus may lower your credit score when institutions request information. If you keep the inquiries within a 15-day period, though, they get grouped together and don’t affect your score as much.

Refinancing an auto loan can help you lower your monthly payments, avoid excessive interest and own your vehicle sooner. As long as you take a sensible approach to refinancing, you should find that you can meet your goal.

About the Author

Mary Beth Eastman

Mary Beth Eastman serves as the content manager for Simple. Thrifty. Living, where she is dedicated to helping readers use money and credit wisely. Mary Beth believes that access to the right financial information paired with a growth mindset are essential tools for getting out of debt and building wealth. Mary Beth has a degree in Journalism from Bowling Green State University and has focused her 20-year journalism career on putting readers front and center, carefully considering their concerns and presenting information that will help them in their everyday lives. She has won numerous statewide journalism awards. Her writing on personal finance as been featured on numerous websites in addition to Simple. Thrifty. Living, including Huffington Post and Lexington Law blog. Mary Beth resides in Pittsburgh, Pa., with her family and two rescue dogs.

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