Are you considering refinancing your car loan? If so, you might be able to secure a lower interest rate, lower monthly payment, or better loan terms. But before you begin, it's important to understand the refinancing process.
To refinance your car loan, you should follow five primary steps. Keep reading to learn how this process works.
1. Review Your Terms
Before you start the refinancing process, you want to be sure that it's the right choice for you. You can do this by reviewing your current loan terms to see whether it makes sense. Here are a few questions to consider.
Is there a prepayment penalty?
If your current loan has a prepayment penalty, you have to run the numbers to decide whether it makes sense to refinance it. You can do this by comparing how much you'd save through refinancing vs. the cost of the prepayment penalty. If you break even or if the prepayment penalty is more than you'd save, you might want to reconsider going through the process.
What's your vehicle age/mileage?
The condition of your vehicle will also help to determine whether refinancing your car is a good choice. Some lenders won't allow you to refinance a vehicle over a certain number of miles or after a certain age, so you want to be sure that your car will qualify for another loan by checking with your lender in advance regarding their requirements.
What's the balance on your loan?
Another condition to consider is the balance on your loan compared to the value of your vehicle. If you're upside down on your loan, meaning the loan balance is higher than the value of your car, you may want to focus on paying down the loan balance. Otherwise, you might struggle to get approval or find that your new terms aren't as beneficial.
2. Check Your Credit
If you discover that it makes sense to refinance your loan, it's time to ensure that you're in a good place credit-wise.
If your credit has improved since getting your initial car loan, you might be able to qualify for a lower interest rate or lower monthly payment. You can check your credit by reviewing your credit report or your credit score and comparing it to where it was when you initially got your loan.
3. Gather Your Documents
Once you decide that your credit and your terms make sense for a refinance, you want to start gathering the documentation you'll need to go through the prequalification and application process.
Here are some of the documents you want to have on hand, though the exact lender requirements may vary:
- Your original loan contract
- A recent statement from your initial auto loan
- Your driver's license
- Your vehicle identification number (VIN)
- Your recent pay stubs
- Your social security number
4. Submit Your Application
It's time to submit your complete application. Fort Lee FCU offers a convenient and easy online application. If you would like to discuss your options further, you can call (804) 452-0736, choose option 4.
5. Sign Paperwork
After Fort Lee FCU approves your application, you sign the paperwork, in person or electronically, and receive the official documentation with your loan terms.
Your paperwork should include important information, such as your interest rate, loan term, and monthly payment. Be sure to keep a copy of this information handy in case you need to refer to it in the future.
Next, Fort Lee FCU will pay off your original loan, and you will begin making payments according to your new loan agreement. And that's it! You will have a refinanced loan with better terms that help you achieve your personal and financial goals.
You Know How To Refinance Your Car Loan, Now What?
Now that you know how to finance your car loan, are you ready to get the process started? It will take just a bit of work on your part, but in the end, you could walk away with a lower interest rate, a lower monthly payment, and peace of mind that you have better loan terms overall.
At Fort Lee Credit Union, we’ve helped many members refinance their auto loans with better terms they feel comfortable with. We want to do the same for you so you are financially secure with a loan you can afford.