Are you unhappy with your auto loan? Maybe you’re paying a high interest rate or aren’t comfortable with the cost of the monthly payments. If so, an auto loan refinance may be right for you, but deciding to refinance is a decision that shouldn’t be taken lightly. Follow this guide to learn more about the process, and how refinancing may be what you need.
What Does it Mean to Refinance a Car?
Refinancing a vehicle usually means obtaining a loan from a new lender, who pays off your current car loan. However, it is possible to refinance the loan from your current lender if your creditworthiness has improved since taking out the loan, or perhaps economic conditions have become more favorable and you want to cash in. Whether working with your current lender or a new credit union or bank, the objective of refinancing is to gain more favorable lending terms — like getting a lower interest rate or payment — that save you money.
Wondering When Should I Refinance My Car?
Thinking an auto loan refinance may be what you need? Learning how to refinance a car is simpler than it may sound. Here’s how the process works:
1. Check your current loan. Look over your original loan contract to see if there’s a prepayment penalty. Depending on the size of the penalty, it could mean you’d be better off sticking with your current loan.
2. There are a variety of sources available to estimate your car’s current value. When the amount still owed on your loan is greater than the value of the car, this is referred to as being “upside-down” on the loan. Some lenders may not refinance your auto loan in this situation. DCU will consider financing up to 130% LTV. Subject to DCU’s underwriting criteria.
3. Assemble the information you’ll need. After completing steps 1 and 2, if you have decided refinancing a car is worth it, it’s time to gather information to fill out the loan application. Be sure to know the outstanding amount and term of your current loan, your government ID information, your monthly income, monthly mortgage or rent payment, your Social Security number, the vehicle’s mileage, and the vehicle identification number.
4. Decide on the term length. A shorter term lets you repay your loan more quickly and pay less interest over the life of the loan. Whereas a longer term divides the principal across a longer period of time, potentially resulting in smaller payments (but also in paying more interest over the life of the loan).
5. Submit the application. If you’re submitting applications to several lenders, it’s wise to do so within a 14-day period. This will result in a smaller ding against your credit score than if you sent applications over a longer period. After submitting each application, you should expect to hear about your approval or denial anywhere from the same day to a few weeks later.
6. Sign off. At this point, your lender may require additional information and document verification. Once the lender verifies your information and approves your application, you’ll be asked to sign the closing documents for your new loan, including the request to transfer the car title to the new lender. Your new lender will then pay off the previous loan. You’ll receive confirmation that the refinance is complete and can start making payments to the new lender.
Be Happy with Your Auto Loan
Ditch the loan and keep the car. Refinance your auto loan with DCU with flexible terms and competitive rates. Lower your rate, payment or both. Explore our rates, read reviews, and apply online.
Please note that membership is required to accept a DCU Auto Loan. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.
