The process by which an auto loans is refinanced is very similar to that by which a mortgage is refinanced. With auto loan refinancing, you can pay off your current car loan using a loan issued by another lender--usually one who is willing to offer more favorable terms.
Features
You refinance an auto loan very much as you would refinance a home loan--by approaching various lenders that offer car loans and inquiring about rates and terms. The easiest means of doing this is by using a website devoted to refinancing--these will often given you multiple lenders and their rate information. You will need to provide a variety of information, including the make and model of the car, as well as your name and Social Security number, so that lenders can run a credit check.
If you don't want to use the Internet, you can contact lenders by phone and get their information that way.
Requirements
According to the website Car Buying Tips, generally, the loan for a car must be over $7,500 for a lender to be willing to make it. A loan of a lesser amount is generally not worth effort for a lender to make. Some lenders also put caps on the size of the loan. Capital One, for example, will not issue a loan for more than $30,000. According to the website Car Buying Tips, unlike homes, cars do not need to be appraised before receiving a loan.
Benefits
The chief benefit of receiving a new loan for a car is that you get better terms on the loan. In many cases, you may wish to refinance your loan because interest rates have dropped since the time you took out the original loan. By refinancing, you may be able to save yourself a large amount in interest payments.
Considerations
Before refinancing a loan, consider whether is makes financial sense. According to Capital One, states impose a fee of $5 to $65 on the transfer of a title for a loan. In addition, the company that made the existing car loan may charge you a penalty for early payment, while the new lender may charge a service fee. Together, these charges could negate the savings from the new loan.
Warning
The amount of the loan issued by lenders for cars are based solely on the amount of money that you must still pay off on the car, not on the car's actual value. Because cars depreciate, be wary of taking out of a new loan on a car for an amount significantly greater than the car is currently worth.
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