You purchased your car when your credit wasn't particularly good and you are now paying double-digit interest on your note. An elevated interest rate makes your monthly payments larger than necessary, perhaps pinching your budget and causing you much stress.
Some consumers are under the impression that when they are approved for a car loan, they must make payments to the same financing company for the next 48 or 60 months, if not longer. However, that's a trap that can easily be sprung, especially if your credit has improved. Please read on for some tips on how to refinance your car note for a better financing deal.
1. Review your credit
One of the three credit reporting bureaus, Experian, says that a credit score of 700 or higher "reflects good credit management." With good credit, you should be able to obtain better loan terms, saving you money by reducing your monthly payments, shortening the loan term or both. That score can be obtained by visiting MyFico.com and paying a small fee for your score. If your score is 700 or higher than skip step #2 and go to step #3.
2. Fix your credit
Consider not applying for car refinancing if your score is below 700, especially if it is below 600 or in sub-prime lending territory. You need to work on raising your score, something you can do by obtaining copies of your three credit reports and evaluating each one carefelly. Consumers are entitled to receive one free copy of each report from TransUnion, Experian and Equifax annually. The website where these reports can be obtained for free is at AnnualCreditReport.com. Examine each report and notify the respective company of mistakes found or old information that should be purged from their records. They have 30 days to make the correction or that information must be removed from your report automatically. Wait another 30 days to obtain your credit score again. Your new score should improve, perhaps enough to raise it into "good credit" territory.
3. Find a lender
You have two choices when applying for a new loan. The first choice is to ask your current lender to refinance your loan. The advantage here is that your lender already knows you and may be willing to waive your application and loan closing fees. Your other choice is to seek a new lender. This could be your credit union, a local bank or a lender anywhere in the country. One of the easiest ways to find a lender is to google "refinance car loan" and you'll see several ads and search engine placements for lenders. Carefully read each offer before applying. Look for offers where your fees are reduced, your payments are deferred or a rebate is given. Your new lender will pay off your old lender and take title to your car.
4. Choose your best offer
With several choices available, choose the car refinancing option that is right for you. They'll be a few things you'll need to make a loan worthwhile. The first would be a lower monthly payment. If your payments aren't reduced by at least $20 per month, then refinancing may not be such a good deal for you.The second thing to look for is your loan term. Will the new loan lengthen your pay back period, keep it the same or shorten it? You'll want to use a loan refinancing calculator such as one found on Saylending.com to ensure that the deal you're considering saves you money.
What if you're turned down for new loan and cannot refinance your car? Don't be distressed. If you're refinancing to save money, then simply continue with your payments and apply for credit again once your credit score improves. If the monthly payments are manageable and you have the ability to handle larger payments and want to pay off your car loan faster, then contribute an extra full monthly payment once or twice annually or add at least $25 to your payments every month. With this option, you'll get out from your car debt faster and end your car loan sooner without switching lenders.