Most people know it’s possible to refinance their home, but did you know it’s also possible to refinance your car? In fact, for many people who have high-interest subprime auto loans, refinancing their auto loans can be a wise decision. How do you know when it might be a good idea to refinance your bad credit auto loan? And once you’ve decided to refinance, how do you go about it to really improve your loan situation?
Just like when you refinance your home loan, when you refinance your car loan, the old loan is paid off in full and replaced with a new loan. If your credit score was below 620 when you bought your car, your auto loan interest rate may be significantly higher than the interest rate you may qualify for today. By refinancing your bad credit car loan, your monthly payment can drop substantially. Plus, over the life of the loan, you can save several thousand dollars in interest payments.
You may be eligible for an auto loan refinance if
Your car loan has “seasoned”; that is, if he has had it for at least a year.
You have made your payments in a timely manner.
The value of your car is more than the amount you owe.
If all of the above statements are true, then it may be time to look into refinancing your car.
First, make sure you fully understand the status of your current credit report and your current credit score. Both are easily available online. You are entitled to one free credit report each year. Your current credit score (FICO score) should also be available for a nominal fee.
Second, find out the value of your car. Getting your car appraised is not a requirement to refinance your car loan, but you do need to know its value. Most auto loan refinance companies require your loan to be at least $7,500, so the value of your car must be at least that amount. There are many resources at your local bookstore and online for estimating the value of your car. Two of the most popular sources are Kelley Blue Book and Edmunds Buyer Guides. Make sure you have a realistic eye when inspecting the condition of your car, you can be sure your lender will.
Third, research available lenders. Your current lender may be willing to refinance your car. However, you should shop around for the institution that will give you the lowest interest rate and refinance for the smallest amount possible. When these two conditions are met, you will also get the lowest monthly payment available.
Fourth, as with any loan, get all offers in writing. Take the time to read the fine print and compare proposals.
Finding a lender to refinance your bad credit car loan can take some time and effort. However, the savings in your pocket each month and over the life of the loan can be worth the time and effort.