Just because you took out a car loan with a particular lender doesn’t mean you have to stay with that lender for the duration of the loan. Refinancing allows you to transfer your car’s title (essentially a certificate of ownership) and your debt from your current lender to a different one. There are several advantages to refinancing, including:
- saving money over the life of the loan if you can get a loan with a lower interest rate
- lowering your monthly payments
Generally, you’ll need to take these steps:
- Shop around for a lender that offers better interest rates than what you currently have. Most lenders won’t refinance their own loans.
- Submit a loan refinance application to a new lender. You’ll need your current loan payoff amount, as well as your car’s make, model, age, odometer reading and vehicle identification number (VIN). You don’t need a new car appraisal.
- Make sure when you get approved for refinancing that your new lender sends a check to pay off the loan to your former lender. Your former lender will transfer the car title to your new lender. You may also have to pay a title transfer fee, the amount of which may vary from state to state.
When Refinancing Makes Sense
It makes sense to refinance when you find yourself in one of these situations:
- Interest rates have dropped. If interest rates have decreased by a percentage point or two since you purchased your car, you may be able to save money on interest by switching to a different lender and loan.
- You’ve improved your credit score. You may qualify for a more favorable loan interest rate or loan terms after you’ve made some on-time payments and improved your credit score.
- You need to reduce your monthly payments. If you’re having financial difficulties, refinancing allows you to extend the length of the loan and thereby lower your monthly payments to an amount that is more manageable.
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