People usually refinance auto loans to obtain a better interest rate. Others might want a lower monthly payment, achieved by extending the loan term or putting money down toward the refinance even if the rate is not significantly better. Whatever your reasons may be, plan your budget and overall expenses appropriately.
Calculate Budget and Expense
Use an auto loan calculator to find out the benefits of refinancing you car loan. Edmunds.com, an automotive information resource, offers one for free. If you believe you can lower your interest rate, plug your values into the auto loan calculator with different interest rates to view overall payback amounts and monthly payment differences. You might find you save substantial money or very little at all. Considering overall cost and benefits of pursuing a refinance allows you to choose your best option.
Check Your Credit
Make sure your credit report is accurate before applying for a refinance. If you want a lower rate, you'd likely need good to excellent credit to do so. Annualcreditreport.com offers one free credit report each year from the three major credit bureaus. If you do find inaccurate information on your report, correct it before you apply for a new loan. Contact the creditor who reported your information incorrectly and the credit bureaus to have the matter resolved, although it may take several weeks.
Shop Interest Rates
Visit bank websites to view current rate offers. Some banks only show new-car offers; you might have to call for rate information. Rates are usually higher for used cars, so keep this in mind while reviewing websites. Check credit union rates, which usually remain consistently lower than other local bank offers. Once you do find a worthwhile bank, apply for a pre-approval to find out the rate you qualify for. If you're unhappy with your approval rate, reapply elsewhere. A different bank may view your credit history differently and offer a lower rate.
Put Money Down
Rather than transfer your entire balance over, consider putting money down and borrowing a lesser loan amount. This discounts your monthly payment and decreases your overall payback amount. Some people may be required to put money down if extending the loan term for a lower payment; the bank requires decreasing equity and loan payoff amount to remain in line with one another. To gauge the benefits of putting money down, use the auto loan calculator to view the monthly payment discount and overall payback amount.
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