Refinancing a car loan means taking out a new loan to pay the existing one. This is done mainly for two purposes. Firstly, to lower the interest rate. Secondly, to reduce the monthly payment. Refinancing a car loan isn’t an easy process. It involves different complexities.
Now, the question arises as to why the borrower doesn’t consider these things in the first loan. Basically, in the first loan, the borrower’s focus is on just getting approval for the loan. They often neglect the terms and conditions, which can then cause problems.
Then, he started exploring other possible options, and loan refinancing is one of them. If you are also stuck in this condition, by the 6 steps listed below, you can refinance your car:
1. Review Existing Loan Terms and Conditions
The foremost thing for car loan refinancing is to review the existing loan. Check how many installations you have paid for and how many are left. This will give you a rough figure of your existing loan. As for refinancing, lenders require a minimum loan amount to finance your current loan. In this way, you will get to know whether you qualify for refinancing or not.
Then you need to check the terms and conditions of your first loan contract. See the total loan repayment time and check if you can repay the all amount before that time. By closely reviewing all these things, you can move to the next step.
2. Check Your Credit Score
The second crucial step is to check your credit score. You have made up your mind that existing loan conditions aren’t suitable for you. But are you sure that you will get another loan? To ensure this credit card score, matters a lot.
A good score shows your credible loan repayment history. So, with a good credit score you can get a loan with a low interest rate.
3.Asses Your Car Condition
It’s necessary to assess the condition of the car. Nobody will give you a loan, if your car is worth less. Lenders do have a very simple criteria for it. They check the model of the car. If your car is 10 years older, they won’t lend you a loan. Similarly, your car mileage should be less than 100,000 miles.
4. Find a New Car Loan Lender
After checking all the above-stated things, start finding new loan lenders. Contact online lenders and different banks. Get a rough estimate of interest rate and repayment method from them. Negotiate with suitable lenders. After getting a pre-approval from multiple lenders, choose the suitable one.
5. Finalize all the Documentation
This step is the final negotiation and documentation. In the case of dealing with online lenders, negotiate with them to minimize the interest rate. Whereas, banks aren’t flexible for negotiation. After the negotiation phase, finalize all the necessary documentation.
6. Pay Back Existing Car Loan
At this step, you receive the new loan, allowing you to pay off the existing one. With a reduced interest rate and lower monthly installments, your financial burden is eased, giving you more breathing room in your budget.
Once the previous loan is fully paid, ensure that you get confirmation from your original lender stating that the loan has been closed. Also, keep track of your new loan payments and make timely installments to avoid any penalties or negative impact on your credit score.