How to Refinance a Car Loan

For many people, their car loan is one of their biggest monthly expenses. This is largely due to the fact that a vehicle is a major financial purchase. But to make matters worse, many people don’t qualify for competitive interest rates when they take out a loan to purchase their vehicle. If you financed through the dealer, you most likely got a higher interest rate than you could’ve secured through another lender. Unfortunately, other sources of financing aren’t always available if your credit score isn’t good.

By refinancing your car loan, you can break free of a financially crippling monthly expense and infuse some much needed cash into your budget. When you refinance, you’re replacing your existing car loan with a new one. As part of this process, your initial loan is paid off and you will only have to make payments on the new loan.

Refinancing your auto loan can provide several significant benefits:

• Lower your interest rate – This can both lower your monthly payments and reduce the total amount of money you spend during the lifetime of your loan.
• Lower your monthly payments – You can infuse money back into your budget right away by lowering your monthly payments. This can happen either by lowering your interest rate with the same repayment term or taking a longer repayment term. Keep in mind that a longer repayment term may increase the amount of interest you pay over the life of the loan, but it may be worthwhile if your budget is tight.
• Pay off other debts sooner – If you’re carrying credit card balances with higher interest rates, you may be able to pay these off sooner by using some of the extra money you save to pay more on these other debts each month. You also can usually skip one or two monthly payments when you refinance a car loan, and this will allow you to apply the amount of your loan payment towards other debts during these months.

While there are many ways you can improve your financial situation by refinancing your car loan, it’s important to understand how the process works before you move forward.

Steps to Take Prior to Applying for Refinancing

Just as when you apply for a mortgage, a home equity line or any other significant line of credit, there are certain steps you must take prior to filling out an application. This prep work is crucial to ensuring you get the best possible deal when you refinance.

Determine Whether Refinancing Your Auto Loan Makes Sense for You

The goal of refinancing your car loan is to save money. If you’re unable to save money in the process, it’s not a good idea to refinance.

There are two primary reasons to refinance an auto loan:

• You can get a better interest rate – In general, it’s not usually a good idea to refinance if you can’t get a lower interest rate, since a higher rate will increase the total amount you must pay over the lifetime of the loan. If your credit score has improved since you took out the initial loan, there’s a good chance you’ll qualify for better terms when you refinance.
• You’re struggling to make your monthly payments – If you feel like you’re having a hard time paying your bills each month, refinancing can make it easier to stay financially afloat. This will happen with a lower interest rate, but you can also achieve cost savings by extending your repayment term.

Once you figure out if refinancing makes smart financial sense for you, it’s important to evaluate a few additional factors to determine whether you should move forward:

• Prepayment penalties – Some car loans contain prepayment penalties. This fee for paying off your loan early may negate the savings benefits you’ll achieve from refinancing. Make sure to crunch the numbers to see whether it’s still worthwhile to refinance if your loan contains a prepayment penalty.
• Additional fees – You may incur fees associated with reregistering the vehicle and transferring the title to the new lender when you refinance. These fees vary from state to state, so you’ll need to research what this will cost you before you refinance.
• Vehicle equity – If the balance on your existing loan is higher than the vehicle’s market value, it means you have negative equity in your vehicle. This is also commonly referred to as being upside down on your loan. Many lenders won’t approve you for car loan refinance if you’re upside down on your loan. In order to qualify, you will most likely have to pay the difference between the value of your loan and the value of the vehicle.
• Age of your vehicle – You may have trouble qualifying for refinancing if your vehicle is very old or has very high mileage.
• Your credit score – One of the strongest indicators of whether you’ll receive a better interest rate when you refinance your car loan is your credit score. If your credit score has improved since your existing loan was issued, you’ll most likely qualify for a lower interest rate. But if your credit hasn’t improved, you may not be able to receive better terms that can unlock significant savings.

Gather All Required Documentation

Before you start the refinancing process, you’ll need to gather the following documents to provide to the lender when you fill out your application:

• Personal information – Social Security number, driver’s license number, and how much you pay in monthly mortgage or rent payments
• Proof of income – Pay stub or tax return document demonstrating how much you earn
• Proof of insurance – This can be documented with a copy of your insurance card
• Vehicle information – Year, make, model, mileage, vehicle registration and vehicle identification number (VIN)
• Current loan information – Balance on your current loan, name of the lender, interest rate you’re paying and the amount left on your loan term

How Does Car Refinancing Work?

Once you’ve done the legwork, it’s time to start the refinance process. The first step is applying with lenders to find the best rate. iLending leverages relationships with over 50 nationwide lenders to find the best rates for you. If you are going through the refinance process on your own, you won’t have the benefit of these relationships. Instead, you’ll have to reach out to each lender individually to find the best rate.

This can be time consuming and overwhelming. You’ll also end up with vastly fewer options than you would by working with a company such as iLending. As a result, it may be more challenging to secure the best possible terms for your car loan refinance.

You’ll need to fill out the paperwork for each application separately. In addition, with each application you fill out, you’re experiencing a separate hit on your credit report. It’s simply not possible to avoid a hard pull for each credit inquiry when you apply for refinancing yourself. If you apply for enough loans to improve the likelihood of securing the best terms, the sheer number of hard pulls on your credit may have a negative impact on your credit score.

Once you choose a loan option, you have to submit any documentation the lender requires. If you organized these documents during your pre-application legwork, you should have most of this information on hand. However, the documentation requirements are different for every lender and there will be varying levels of difficulty and complexity associated with the process.

In many instances, you’ll be responsible for paying off your old lender after you receive your new loan. You may also be responsible for transferring the title of your vehicle to the new lender, which may require a trip to the DMV. You may also need to follow up with the old lender to make sure all payments were processed properly, and the old loan is down to a zero balance.

Car Loan Refinancing with iLending: An Easy and Hassle Free Process

Instead of spending hours gathering the documentation you need, you can provide us with your phone number using this form and iLending will be able to pull up all of your vehicle information. We’ll have access to all the documentation information you need, eliminating the lengthy process of digging it all up yourself.

Once you select your car on the iLending form, you’ll see some loan options presented. Click “submit application” on the loan that looks best for you, and you’ll receive a call from one of our personal loan consultants who will discuss your goals for refinancing.

iLending leverages relationships with over 50 nationwide lenders, and we’re able to provide you with multiple options without a hard pull on your credit. Instead, we perform a soft pull which doesn’t negatively impact your credit score. Once you choose the loan option you want, that one lender will make a hard pull on your credit for final approval. This process ensures you only have one hard pull on your credit, which minimizes any negative impact on your score.

Within hours, we’ll have you an approval for a new loan that’s aligned with your goals – lower payments, lower interest rates, or both. We can provide multiple options so that you can choose the best one for your needs.

If you’re ready to move forward, your personal loan consultant will send you electronic loan documents. They’re already prefilled – all you need to do is click on the link to sign the documents via DocuSign.

We’ll need to gather copies of your driver’s license and insurance information to finalize the loan. You can take pictures of these items on your phone and submit them via our custom document gathering portal.

Your personal loan consultant will also make sure your old lender is paid off and the title of your vehicle is transferred to the new lender. We’ll also follow up with the old lender to make sure the entire loan was paid off properly and there are no outstanding balances.

With our You First Approach™, iLending takes care of all the work for you. You’ll have peace of mind that everything is taken care of, and you can just enjoy the added savings from your new loan.

You can read our Savings Stories to find out how iLending has helped many of our clients find financial freedom from a burdensome car loan.

Apply now to get the car loan refinance process started.

What would you do with an extra $148* in your pocket?