How to Refinance a Car Loan (2022 Guide)
Not everyone is entitled to low interest rates on car loans. Borrowers with bad credit often have to settle for dealer loans with high interest rates. An auto refinance loan allows you to take out a new loan to replace your current loan, usually giving you a lower monthly payment and a lower interest rate. And while it might seem like the right decision, researching how to refinance a car loan can help you make your decision.
Home Media’s appraisal team will explain how automatic refinancing works and tell you what factors to consider before taking out a new loan. We will also provide recommendations to lenders who offer the best auto refinance rates in the industry for 2022.
4 steps to replace your current car loan
Car refinancing generally follows the same process as taking out a new car loan. It’s important to review your finances and the terms of your original loan to decide if auto refinancing is right for you. If so, your next step is to research auto loan rates and compare your options.
Below we provide detailed information on four steps to refinance a car loan.
1. Decide if refinancing your vehicle is the right decision
Refinancing your car loan makes sense if you can get a lower interest rate and monthly payment than you currently have, but it can come at the cost of getting a longer-term loan. Extending the term of your car financing could cause you to pay more interest overall.
Here are some things to consider in your decision when to refinance your car loan:
- Your credit score: If you have bad credit, work to fix it before trying to refinance your car loan. Indeed, your credit history will affect your eligibility for car refinancing as well as the rate and conditions granted to you.
- How long have you had your car loan: Wait between six months and a year after the start of your loan before requesting a refinance. This should give your credit score enough time to recover from the serious credit inquiries that were made when you took out your original loan.
- The economy and interest rates: You won’t be able to maximize the return on refinancing your vehicle if interest rates soar. Wait for them to start dropping to ensure you get the lowest annual percentage rate (APR) and monthly payment possible.
2. Gather all necessary documentation
Applying to refinance your car loan is similar to applying for a new loan. During the application process, you will need to provide documents to verify your identity, creditworthiness and the value of your car.
You must prepare these documents before applying for an auto refinance loan:
- Personal information: Have your driver’s license, address, phone number, social security number, proof of income, and proof of insurance ready when you apply.
- Vehicle Information: Have your vehicle identification number (VIN) and the year, make, model and registration number of your car ready for the lender.
- Current loan details: Gather your current lender information, account number and existing payment amount.
3. Shop around and compare lenders
Each lender weighs factors differently when calculating auto refinance rates and offers. Start with local banks and credit unions when shopping. Most financial institutions offer car loans and you can get special discounts from the bank you are a member of. Once you have these rates in hand, compare them to offers from other lenders to get a better idea of who is offering the best deal.
4. Accept the offer
Auto loan refinance offers tend to last between one and two months before expiring, which means you can take your time evaluating all of your options. Once you’ve signed up for your new loan, the lender will likely take care of all the paperwork and pay off your old loan directly. Note that some lenders may instead pay you directly and have you transfer the funds to pay off your loan balance.
You will usually start making monthly payments to your new lender within 30 days.
What to consider before refinancing your car
As every financial institution is different, you may face different requirements and fees that could affect your vehicle refinance. Here are some factors to consider:
- Prepayment penalties: These are fees charged if you repay your loan early. Not all financial institutions charge for this, but it’s worth checking as it could cost you.
- Time remaining on your loan: If you are close to paying off your loan, it may not be worth refinancing your car.
- Your financial situation: Lenders will look at your debt ratio when you apply refinance car loan. If you owe a lot of money on credit cards or personal loans, pay off your debt ahead of time to get better repayment terms.
Our recommendations for car refinancing
Automatic refinancing can help you get a lower rate and lower loan repayments. But finding a new, trustworthy lender can be tricky if you don’t know where to start. We recommend contacting Auto Approve and myAutoloan to discuss your existing auto loan and submit loan applications.
Automatic approval: first choice for refinancing
Unlike most lenders, Auto Approve specializes in refinancing auto loans. The company offers great flexibility, working with a network of lenders to provide refinancing for the following types of vehicles:
- Standard cars, trucks and SUVs
With Auto Approve, qualified borrowers can benefit from refinance rates as low as 2.25% APR. The lender has a solid reputation as a financial institution. The company is accredited by the Better Business Bureau (BBB) and has a A+ rating organisation.
Read more: Automatic Approval Review
MyAutoloan: best low rate option
The myAutoloan online marketplace allows you to compare lender offers in one place. With auto loan refinance, borrowers with good credit can find APRs as low as 1.99% for a loan term of 36 months or less. Those with less than ideal credit may also be able to refinance their auto loans through myAutoloan since the company’s minimum credit score is 575.
In the auto loan industry, myAutoloan has favorable ratings. The market has a A+ rating of the BBB and is accredited by the organization. Customers on Trustpilot give the company an average of 4.3 stars out of 5.0.
Read more: myAutoloan review
Because consumers rely on us to provide unbiased and accurate information, we’ve created a comprehensive rating system to formulate our ranking of the best car loan companies. We’ve collected data on dozens of loan providers to score companies on a wide range of ranking factors. The end result was an overall score for each vendor, with the companies scoring the most points at the top of the list.
Here are the factors taken into account by our assessments:
- Reputation (30% of total score): Our research team considered ratings from industry experts and each lender’s years in business to assign this rating.
- Availability (20% of total score): Companies that cover a variety of circumstances are more likely to meet the needs of borrowers.
- Loan details (15% of total score): We considered the loan types, terms and loan amounts available from each lender to determine this score.
- Prices (25% of the total score): Auto loan providers with low APRs scored highest in this category. Available discounts have also been taken into account.
- Customer experience (10% of total score): This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness and helpfulness of each lender’s customer service team.
*Data correct at time of publication.