While you may know plenty about buying a car, you may feel lost in the dark about refinancing your car. Your financial situation changed for the better since you bought your car, and you want it to improve even more with the right refinancing. Keep these tips in mind to make the most of your time, effort and money.
Gather All Necessary Paperwork
To make the refinancing process more efficient, gather all the documents and information you need to complete the process. You’ll need your previous address, your Social Security number and your rent or mortgage payment amount. Grab a recent pay stub or tax return for proof of income, and prepare to show your employment history, just in case. Lenders may also request proof of auto insurance, information on the vehicle and details about your current loan.
Determine Your Refinance Readiness
While you may feel ready to refinance your vehicle, you could reconsider after sitting down and doing your due diligence. One of the first things to do is get your free credit score and credit report. Know what lenders see when they decide whether to approve you for refinancing. You should also check your current loan paperwork to determine if you must pay a prepayment penalty for repaying the loan early.
Research your state’s latest laws about whether you must pay to transfer your title and reregister your vehicle after you refinance. Are you upside down on your car loan? That means you owe more on your vehicle than it’s currently worth. Check your car’s current value and compare it with how much you owe on your loan. If you’re upside down, you may not receive approval for refinancing, or you may not see much change in your current loan terms.
Look Into Prequalification
For a better idea of the refinancing offers you can expect, consider applying for prequalification. One great thing about this option is prequalification does not hurt your credit, because it’s a soft inquiry. That said, even if you complete prequalification, it still does not guarantee a lender approves you for refinancing.
Narrow your options by researching reputable lenders who offer great interest rates and fair loan terms. It also doesn’t hurt to choose a lender who offers autopay discounts, so you save money paying off your vehicle and don’t miss a payment. One word of advice about autopay is to make sure you always have the money in your account before your due date. That way, you avoid overdraft fees from your bank and late payment fees from the lender. Also, opt for a shorter loan term, so you don’t pay as much in interest for your new loan.
Take Rejections in Stride
After applying for refinancing, a lender may reject your application. If this happens, focus on the reason rather than the rejection itself. You may need to do a bit more work to pay off a credit card or another debt to boost your credit score more. On the other hand, the rejection may have nothing to do with your credit score and everything to do with the lender’s criteria. If you’re willing to submit another application and endure another hard credit inquiry, you could get approved after applying with a different lender.
Look Over the Refinance Paperwork
Once you get approved for refinancing, don’t get too ahead of yourself. Read carefully over your new loan terms to ensure you understand everything and do not endure hidden fees or penalties.
Refinancing your car could help put you in the driver’s seat of your finances. Use the above tips to better your chances of receiving loan approval.