Refinancing your car loan may seem like a daunting process – from researching lenders and interest rates to evaluating the auto loan market and your personal financial situation, it can be difficult to get started.
Fortunately, there are plenty of options available for prospects looking to refinance their auto loans. This helpful guide will help you understand the refinancing process, what key factors to consider and how to find the deal that best fits your unique needs.
Step 1: Understand your current auto loan
Before you begin evaluating your refinancing options, it’s important to unpack the details of your current auto loan. To ensure you are getting the best deal possible, you should first understand the terms of your original loan, your current interest rate and any associated fees or prepayment penalties. The most important factors to review include:
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Factors of Auto Loans |
Considerations |
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Loan Term |
This determines how long you will be paying back the loan. |
|
Interest Rate |
This is the amount a lender charges a borrower and is a percentage of the principal—the amount loaned. The interest rate on a loan is typically noted on an annual basis known as the annual percentage rate (APR). |
|
Minimum Monthly Payment |
The minimum monthly payment determines how much is owed each month. Refinancing can ideally lower your minimum monthly payment but may increase your total cost. |
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Annual Percentage Rate (APR) |
This is the interest rate plus any extra costs or fees that the lender may charge. In other words, it's the true cost to borrow the principal over the course of a year, expressed as a percentage. |
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Remaining Loan Balance |
If you are close to paying off your car in full, then refinancing to a loan that would have you making payments over a longer period probably doesn’t make much sense. |
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Prepayment Penalties |
Some lenders may charge penalties for paying off your original loan early. If there’s a fee, you’ll want to factor that in when considering refinancing with a new loan. |
As you review the details of your current auto loan, we always recommend you seek guidance from a trusted financial professional to ensure you choose the right solution for your specific needs.
Step 2: Check your credit
One of the most important factors to check when considering refinancing your auto loan is your credit score. If your credit score has substantially improved since you applied for your first car loan, you may be able to refinance with a lower interest rate and could potentially save on interest. A strong credit score and a history of on-time loan payments show potential lenders that you are a reliable prospective borrower, which gives you stronger refinancing options. If your credit score hasn’t greatly improved since your first loan, you may consider paying down other debts first to increase your credit score.
Step 3: Gather your documentation
Once you’ve understood your current loan terms and financial standing, you’re ready to start gathering the necessary documentation you’ll need to apply for auto loan refinancing. To make the process run more smoothly, you should have the following essential documentation handy:
- Valid driver’s license
- Social security number
- Car’s registration
- Insurance information
- Proof of income (e.g., recent pay stubs, tax returns, W-2s, 1099s)
- Vehicle mileage
- Vehicle identification number (VIN)
- Current car loan information (e.g., lender, account number, current balance)
Step 4: Find the best auto refinancing lender option
Now that you have your necessary documents together, you’re ready to start evaluating different lenders and auto loan refinancing offers. When researching potential refinancing options, make sure you compare offers from several lenders such as banks, credit unions or online lenders. This will give you a clear idea of the auto refinancing market and the information you need to choose the best deal possible.
While lower monthly payments are likely a core consideration, you should also think through the following factors as you narrow down potential offers:
- Interest rates
- Loan amount
- Term options
- Potential fees
- Customer service
Throughout the research stage, we encourage you to regularly check in with a trusted financial professional to help you select the best solution for your needs.
Step 5: Apply for auto refinancing
Once you’ve narrowed down lenders, it’s time to apply. Some lenders may use a soft credit check to prequalify you, while others may require you to complete a full application with a hard credit check. Credit reporters will consider new auto loans inquiries in the span of 14 to 45 days as a single inquiry, which means it’s ideal to submit applications to different lenders within a short time frame.
Once you’re approved and you’ve accepted the new terms of your auto loan refinance, your new lender will pay off your original loan so that you can start making payments on the new one.Refinancing your car loan with First Republic Bank
If you’re looking to potentially lower your monthly payments, refinancing your car loan with First Republic’s Personal Line of Credit could be a good option.
A Personal Line of Credit can also be used to cover many of life’s other expenses, from refinancing student loans to funding minor home improvements and much more.
Note: Currently, all payments for certain types of federal student loans are suspended through December 31, 2022, per an executive order by the President. Interest will not accrue during this time period. (Note updated on 10/19/2022)
