Refinancing your car loan offers the opportunity to lower your car payment or save money over the term of your loan. You may be able to lower your interest rate, change your loan term or provide a down payment to lower monthly payments. Before applying for a loan refinance, determine if the option is beneficial.
Resources
Apply for your refinance at any bank or credit union that offers car loans. Check interest rates before choosing your car loan provider. Many lenders advertise rates on their websites. Credit unions or nationally based lenders with a local presence likely exist in your area. Online lenders without local presence are also available. If you don't find used-car rates advertised on lender websites, call to verify. Some lenders may have term or down payment restrictions depending on the age and mileage of the vehicle you want to refinance.
Term
You can change your loan term when you apply for refinancing. Most lenders offer a 24- to 72-month loan option, although rates increase for terms beyond 60 months. Because your balance has likely decreased over the term of your current loan, it should prove beneficial to obtain a shorter loan term; your payment should remain the same or decrease. Use an auto loan calculator to view monthly payment differences for rates and term options. Also, view your overall payback amount to determine which term is most beneficial.
Down Payment
You can offer a down payment toward your loan refinance, which decreases your monthly payment and overall loan payback amount. If you paid off half of your car loan with your current lender, you would not see a difference in monthly payment, although you would pay off your loan early. You may be required to provide a down payment if your current loan is relatively new. Most lenders offer 60 to 120 percent of vehicle value, based on credit rating and vehicle year, make, model, options and mileage.
Rate Considerations
If rates have decreased since your original loan, refinancing can save you money. If you didn't originally obtain a good rate on your current loan because you were unprepared, uninformed about rate options or had credit issues, you can save thousands if your credit has improved or your credit qualifies for a better rate. If you are experiencing financial hardship, you may want to pursue a loan that allows you to extend your term without necessarily lowering your rate. This way, you can lower your monthly payment even though your rate may cost you more in the long run.
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