Thinking about refinancing on your used car loan? Refinancing is a great way to save a ton of money on your car loan. Interest rates are extremely low right now, so if you have a high rate it's definitely worth looking into. Unlike refinancing on a home, refinancing a car loan is a very quick process, and the cost of doing so is minimal. Here are some things you can expect if you decide to refinance your car loan.
1) Credit History
If you decide to refinance your car loan, whether through your current lender or a third party lender, you can expect that they will take a look at your credit history. In general, your credit report is a good indicator of how responsible you will be with the refinanced loan. The higher your credit score is, the less risk that is perceived by the lender. If you have a lower credit score presently, you may want to wait to refinance until you can build a more recent history of timely payments on your debt, or pay some of the debt you owe down.
2) Proof of Insurance
Of course it goes without saying that the company you choose to refinance your loan will want to make sure you are legally able to drive the car! You will be asked to present your driver's licence, as well as proof of insurance on the vehicle in question. In some cases the lender may require you to carry comprehensive and collision insurance, to protect the value of your car should it be wrecked.
3) Proof of Income
Your lender will want to know that you have the means with which to pay for your refinanced loan, so you will be asked to show some proof of income. In most cases, recent paystubs will be the easiest way to do this. If you are an independent contractor or self-employed however, there are other ways you can show proof of income. Bank statement can show records of your direct deposits from your clients, or you can show your tax return if you have many clients and want to show a summary of what you made last year. Rental income and alimony can also be considered as sources of income as well.
Refinancing a car loan is a relatively painless process and can usually be done on the same day that you apply. By having the required documents, you'll be able to make the process go just that much faster.
Refinancing is a hot term that is being thrown around a lot these days. Many people are looking for ways to save money, and refinancing is one of the best methods to quickly save thousands of dollars on your loan. But refinancing might not be as easy as you think. Here are some things to think about if you are wanting to refinance your car loan.
1) You can't be upside-down and expect to refinance.
If you owe more on the car than what it is worth, this is what is known as being upside-down on a car loan. There are a couple of common ways that this can happen. If you purchased a new car and didn't make a larger down payment, most certainly at some point in the loan you will be upside-down. Most cars take their largest depreciation hit in the first three years. Therefore it's highly likely that if you financing the majority of the car price, the depreciation will outpace your payments on the loan. If this is your situation, you will not be able to refinance your car loan until you owe less than its value.
2) Extend the length of the loan.
Refinancing may not be an option if you are upside down, but what can you do if you still need to lower your payments? One option is to increase the length of the loan. This will allow you to spread out the remaining balance for a longer period of time, which will make your payments smaller. It's also win-win for the bank, because they can collect interest on the loan for a longer period of time.
3) Refinancing could be dependent on your credit status.
Lenders are less likely to approve refinancing if your credit is bad. They view customers with bad credit as risky, because they have a history of being irresponsible. Until your FICO score improves, you may find it is extremely difficult to refinance. This is true even if you are not upside-down on the loan. If this is the case you may have to ride out your current loan terms for awhile until you have a history of making timely payments.
Refinancing makes sense almost 100% of the time, if you are able to do so. If you owe less than the actual value of the car, and your credit is good, you would be foolish not to refiance. The cost and time it takes to do so is minimal, yet it could save you thousands of dollars.