Here's What You Need To Refinance Your Auto Loan
Refinancing your auto loan can be a great idea if your credit score has improved recently. It can help you transfer your current loan to a lower rate, which will help lower the monthly amount. If you meet the requirements, getting a refinance is a huge help to your budget.
Read on to learn what you need to refinance an auto loan quickly and easily.
Review Your Credit Score
The very first step is to check your credit score so that you can apply for a good rate of interest on the new loan. A score of 660+ is considered good, but if you have a score that’s higher than 740, you become eligible for the best rates.
Apart from your credit rating, make sure to also review your report. You’ll want to check for any kind of errors that may cause trouble down the road. You can get this report from your bank or from the issuer of your credit card.
Get An Estimate Of Your Car’s Loan-To-Value (LTV) Ratio
The value of a vehicle depreciates over time. This means that every passing year, the market cost of the car decreases. Therefore, you’ll need to determine what your vehicle is worth in the current market.
Then check if the value is more or less than the loan amount that you wish to refinance. The relationship between the vehicle’s worth and the loan amount that’s due is the loan-to-value ratio.
For example, the worth of your car in the current market is $10,000 and the pending loan amount is somewhere around $5,000. In such a situation, you can surely think of refinancing your auto loan. You can make use of different online tools in order to check out the depreciated value of the car.
Find out the loan-to-value ratio of your vehicle before making the decision of refinancing.
Review The Prepayment Penalties
The prepayment penalty is a fee that you have to pay to the loan company when you’re paying off the leftover loan amount before the agreed time period. Some lenders may charge this while others won’t.
That said, it’s always a good idea to check through this detail so that you don’t land up paying extra fees while refinancing your auto loan. Usually, the prepayment clause can be found on your loan agreement. If not, contact the lender for further clarification.
Calculate The Time Remaining On Your Ongoing Loan
Before you refinance your existing auto loan, it’s very important that you check the remaining time that you have on your loan. If you see that you have just a year or so remaining, it’s not a great idea to refinance.
Though you may get a lower monthly amount, you may still have to pay extra to go through the process. Refinancing can be a great idea when you have a long repayment term. In such a situation, you can get better interest rates and other benefits.
Collect Quotes From Lenders And Compare
You may come across a number of vendors offering to refinance your existing loan. You’ll need to compare them based on a number of factors such as the rate of interest, repayment procedures, and extra charges.
Check through each point carefully before you apply for the service. It’s also important to go through the reviews of the service provider to verify if you’re getting into an agreement with the right lender.
Gather The Required Documents And Apply
Finally, when you have decided that you’ll go for the refinancing of your current auto loan, the next step is to arrange the required documents. Most lenders will require similar documents. These include:
- A driver’s license and a Social Security number for your personal identification
- Income information in the form of tax forms and recent pay stubs
- Information about the vehicle such as registration, insurance proof, VIN number, and so forth
- Details of the current auto loan that you have. This includes the name of the loan lender, the amount that you have borrowed, and the amount of loan that’s pending with the loan vendor
Refinancing helps save a lot of money, especially when the new loan rates are lower than your existing ones. However, to benefit from this process, you’ll need to take into account multiple factors. Take time to review your ongoing loan’s status, check for penalties, and compare multiple quotes to get the best deal.