How to Refinance a Vehicle
Why Refinance?
If you are working to raise a family, there are several strategies you can use to reduce debt and help you stretch your budget. If you are paying on a vehicle, then arranging to refinance it may result in an improved interest rate and lower monthly payments. This can be especially helpful if you need to invest more money in other areas of your household budget. However, before you try to take advantage of refinancing, it may help you feel more confident if you know what to expect during the process.
Not All Lenders Have the Same Terms
When you first start to contact lenders for refinancing, you may be surprised at the difference in the terms each one offers. Interest rates usually vary the widest, depending on the rules and regulations of a particular bank, your credit score, and whether a financial institution has a positive professional relationship with your current lender.
Take the time to shop your loan around town. Credit unions typically offer the most competitive rates, so if you do not belong to one, you may want to consider opening an account to take advantage of their refinancing offers.
Your Credit May Be Run Jointly
If your current vehicle is titled under both you and your spouse’s names, then a lending institution will typically run credit on you both, even if you want to refinance the car under one person’s name. While the bank needs permission to run your credit, you may be able to get a more competitive rate if you combine your income information with that of your spouse. This can be especially important if one of you has a superior credit score, which may improve your chances of getting approved.
Be Prepared with Vital Information
Being prepared to refinance your car can help you feel more confident when you take the first steps for doing so. Once you find a lender and make an appointment, take the time to gather up all the pertinent information they might ask you for. This can include employer and payroll information, including addresses and phone numbers, the name and number of your current lender, your car’s vehicle identification number, its mileage, and proof of insurance. You can contact your local insurance provider before your appointment to ensure all your information is up to date.
The Process May Be Lengthy
It is a good idea to schedule your refinancing appointment when you have no others looming because the process may take several hours to complete, especially once you get approved. There is much information to gather and then paperwork to complete, and you do not want the added stress of a time constraint as well. Some banks can give you an answer within a few minutes and others may take up to an hour or more, so you want to give yourself plenty of time.
Your New Lender Pays Off the Previous One
Once your loan is approved and you sign all the paperwork, your new lender will cut a check in the amount of what you currently owe on your vehicle and send it to your previous lender. This pays off your original loan and transfers it to your new lender. You should receive a payoff letter from your previous lender within thirty days, letting you know your financial obligation with them is fulfilled.
If you do not receive any correspondence from your original lender, it is a good idea to contact them and ensure the loan transfer is complete. This can be especially important if your previous due date is approaching, so you do not get hit with a penalty due to an oversight on their part.
Refinancing your vehicle can help you save thousands of dollars over the course of your loan. However, before you take advantage of the process, learning what to expect can help you seek a more competitive interest rate and lower monthly payments with confidence.
Procedure Recap
- Call several financial institutions to determine the rate they offer for the year of your vehicle. Remember – Credit Unions usually offer the best rates.
- Apply at your preferred institution – being prepared to have vital information/documentation and allowing yourself enough time at the appointment.
- Credit check will be performed
- Approval/disapproval will come
- If approved – new lender will pay off your old loan for you.
Money in your pocket is certainly better than a creditors…redesignate the money you’ll save wisely.