If you’ve purchased a new vehicle in the last few years, you understand how challenging things have been. Financing a vehicle has advantages and disadvantages when compared to leasing a new car, but ultimately, if you take care of your investment, you can create a lot of upside for yourself. That being said, high monthly car payments can become challenging on a car you plan to keep for a while. We’ve talked in the past about signs that you might be in a good place to refinance an auto loan, but today we want to go through some things you should do once you actually decide you are going to refinance.
Here are 5 Steps to Refinancing Your Car Loan
Take a Look
The first step is the biggest, and if you’ve read this far, you’ve made it past step one. That is, just taking a look. Assessing where you stand and where you want to be. Refinancing can be a great option, but that doesn’t mean it’s a great option for everyone’s financial situation. Take stock of where you are when it comes to your current monthly payments, APR, Interest Rate, the amount of your remaining loan balance, the amount of time remaining on your loan, and the value of the vehicle.
Here are a few signals to look for when looking at your situation:
| Signs You Should Just Finish the Loan Out | Signs You Should Consider Refinancing |
| Monthly Payment- Manageable
Small Amount of Time Left on Loan You owe more than your car is worth |
Monthly Payment- Difficult
High Interest Rate Your Car is more recent, less than 100k Miles |
Check Your Credit
The better your credit score, the less risky you look to lenders. Once you’ve assessed your situation and have an understanding of being in a good situation to start the process, see where you currently stand. Get a full credit report to assess for full accuracy and have any errors corrected prior to applying for any loans. If your credit isn’t making you confident, see what steps you can take to potentially get your score up prior to applying.
Start Getting Rates from Lenders
Different lenders will offer different rates and options to you based on your situation and theirs. You should always shop around to get a few prices and rates to have a full understanding of your options. This means reviewing various banks, credit unions, and other lenders, and finding out more information on their interest rates, loan terms, and any associated fees with refinancing that they require.
Some lenders offer pre-qualification options, similar to pre-qualifying for a mortgage, which don’t require a hard inquiry on your credit. Prequalification USUALLY only involves a soft inquiry credit check, which shows on your report to you but not to lenders.
Beware Prepayment Penalties
You also may want to review your ORIGINAL lender agreement to see if there are any prepayment penalties or fees associated with paying your loan off (with them) early. The costs could mount, and thus, make refinancing much less attractive in this case. Be wary that lenders may charge substantial fees to refinance your auto loan, and avoid those companies.
As long as your savings exceed the costs, proceed!
Gather Your Necessary Documentation
Once you’ve found comfort with a lender and checked all the boxes and feel you’re ready to move forward, you’ll need some important information. Lenders will vary, but as an example, if you were applying with TVFCU, you would need:
- Current proof of income
- Insurance binder showing the vehicle is covered by comprehensive and collision insurance.
- Purchase offer showing the VIN and the current mileage.
Special considerations:
- TVFCU will not finance a salvaged title vehicle.
- Only collateral registered and titled in NYS will be considered.
Check with another lender for the documents they require.
Apply, Finalize.
Once you’ve reached this step, you’re almost there. Now you’re applying and submitting your application to the lender. At this point, you can expect a “preliminary” decision to be made, subject to all terms and conditions being met, on whether or not you are approved. Next, you will work with the lender to finalize the loan terms, which will involve the lender asking for additional information beyond what was used on the application.
The documents are drawn up, you sign them, and the loan goes into processing. At this point, the lender will pay off your existing lender and inform you of your new loan terms. You’ll soon receive information that will commence the new monthly payment of your auto loan!
If you or someone you know is talking about refinancing your auto loan, we recommend reaching out and applying with TVFCU! You can start the application process online, or you can stop into our branch at 10 Jefferson Ave. in Batavia to speak with someone today! You can always speak with someone over the phone by calling (585) 343-5627. We look forward to meeting you!
