Many car owners are so haunted by memories of their first car loan process–endless paperwork, confusing terms, and the feeling of signing their life away to debt–that the thought of taking on that process yet again doesn’t feel worth it. However, those that can get past their fear quickly learn that refinancing is more like walking out of a horror flick into a success story.
When it comes to refinancing an auto loan, car owners typically fall into 3 categories:
The Optimists
Optimists dive right in, understanding how refinancing their auto loan can save money + improve their overall financial situation.
The Pessimists
Pessimists avoid refinancing like a pothole, assuming loans are loans–they’re all terrible, not worth the effort, and can’t help you at all because, at the end of the day, it’s still debt.
The Bewildered
Bewildered types don’t understand auto loans beyond their monthly payment. And because they don’t know how refinances work, they can't see the point.
The process of refinancing a car is a much smoother ride than purchasing a car. There’s no haggling over prices, there’s much less paperwork, and it’s streamlined from application to close. Let’s zoom through what the refinance process looks like in 3 easy steps, and you’ll see it’s nothing like the first time around.
step 1: prepare
- Understand Your Current Loan: Before applying, review your existing loan for the following:
- Interest Rate
- Remaining Balance
- Loan Term
- Research the Market: Shop around to find the best auto loan rates available. Compare rates from traditional banks, credit unions, and online lenders. Also, look for any special discounts you might qualify for based on your banking relationship or credit score.
- For example, higher scores typically equal lower rates, and some lenders offer repeat borrower discounts if you’ve previously had any sort of loan with them.
step 2: apply
- Evaluate Your Vehicle: Lenders need to know a little bit about your car to make sure it meets their qualifications. Here’s what they’re looking for:
- VIN
- Mileage
- Year/Make/Model
- Upgrades or Special Features
- Car Registration
- Verify Your Income: Lenders need to be sure you have the ability to repay the new loan. While not always required, here’s what to expect if you are asked to provide income verification:
- Hourly or Salary: 2 of your most recent paystubs or your annual contract
- Commision, Self-employed, Tip-based: You may be asked to present your most recent tax return documents.
- Compare Loan Conditions: The goal of refinancing your vehicle loan is to put you in a better situation than you’re in with your current loan. Here are some adjustments to consider:
- Lower Term + Higher Payment = Earlier Loan Payoff + Interest Savings
- Match Current Term + Lower Interest Rate = Interest Savings
- Extend Term + Higher Rate = Lower Monthly Payment
It’s important to note that these formulas and outcomes vary depending on your situation, so make sure to discuss different scenarios with your loan officer to understand what best suits your financial goals. The ideal situation allows you to comfortably manage monthly payments without undue financial strain.
step 3: close
- Get a 10-Day Payoff Quote: This is from your current lender and provides your new lender with the exact amount needed to pay off your existing loan, including processing time. If the payoff amount exceeds your owed balance, the current lender will usually deposit the extra funds into your account or send them back to the new lender. The 10-day payoff quote should include the following:
- 10-Day Payoff Amount
- Per Diem (daily interest rate for your loan)
- Loan Account Number
- Payoff Instructions
- Review + Question: During the loan closing process, go over all the loan disclosures carefully. Make notes of anything unclear or different from what was discussed. This is your opportunity to clarify terms and ensure there are no surprises. Ask your loan officer to explain or revise terms if something doesn’t seem right. Your loan agreement is a contract, and you need to understand what you’re signing for. When in doubt, ask.
Refinancing your auto loan isn’t a horrifying nightmare. Au contraire, it could be what wakes you from a nightmarish auto loan and gets you closer to your financial dreams. A car loan refinance is a practical solution to better align your financial commitments with your current situation, and a good deal can significantly reduce your stress and monthly expenses, providing real financial relief.
If your current lender isn’t meeting your needs, it’s time to find one who does. Embrace the transformative opportunity to take control of your financial future with a better auto loan.
Apply today to make your journey a smooth ride!
May 20, 2024
Published by SunWest Credit Union
