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Tuesday, January 24, 2012

How to Refinance Your Auto Loan


It is easy to get in over you head when you borrow money to buy the car. You may have spent too much, or perhaps you just got a high interest loan. In any case, there are ways to lower your monthly loan payments. Following are a few tips on how to refinance your auto loan.

Start Early
If you’ve been thinking about refinancing, don’t put it off. Most auto loans require you to pay off most of the interest before the principal is reduced by much. For the first few years you’re basically paying off interest without lowering the actual amount you borrowed. So it won’t really do much good to refinance late into the loan, because by then you’re paying off the principal. Instead you should start early in the loan so you eat into the interest. Another thing to consider is that most finance companies won’t let you renegotiate a loan that is less than a certain amount of money. Check with your lender for details.

Check Your Credit Score
One of the first things you should do is check your credit score by contacting one of the three credit reporting bureaus: Equifax, Experian, or TransUnion. They are required by law to supply you with a copy of your credit report once a year for free. Knowing your credit status will give you an idea of the kind of interest rates you can expect when you renegotiate your loan. If you have a low credit rating, your payments probably won’t go down by much, but the higher your credit rating is the lower your interest rates should be. Having a high credit rating will allow you to approach lenders knowing you’ll be able to lower your payments.

Shop for a Lender
Refinancing a loan is something that is usually done through a lender other than the one you’re presently have your loan with. Shopping for a lender that can give you a good deal on a new loan is imperative, because essentially you’re going to be taking out a new loan. Call different lenders and ask for their best price, then go online and do the same thing. Limit the number of inquiries you make because it could impact your credit score. In fact, it would be a good idea to do some research into potential lenders ahead of time so you won’t have to chance contacting a lender that couldn’t possibly provide you with a loan at the type of rates you’re looking for. After you’ve narrowed down your choices to a couple of places, compare the rates and make a decision on a lender.

Know the Value of Your Car
Before approaching a lender, you should find out how much your car is worth. If its value has dropped below a certain point, it won’t be worth your while to refinance, and most lenders won’t allow it anyway. Your car must be worth enough to make refinancing beneficial to the lender, as well as to you.

Have Appropriate Information Accessible
You will need to have certain information accessible to you when you approach a lender to refinance your auto loan. Have the Vehicle Identification Number (VIN) available, as well as the mileage on the car. You will also need to know the name of your current lender and all pertinent loan details, such as the amount of the original loan, how much your monthly payments are, and when you made the first payment. You will also need to know how long the term of the original loan was supposed to run, and you’ll have to know the make and model of your car. You will also need your personal information, such as current phone number and your Social Security number. In your loan application, you will have to make sure the names are recorded exactly as they were in the original loan. If your spouse’s name was included on the loan, it may need to be on the renegotiated loan as well.

Guest post from Sasha Bell. Sasha writes for CarInsurance.net.

2 comments:

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