How To Refinance a Car Loan
Refinancing a car loan can be done at any time, and for many different reasons, from reducing monthly payments to getting a better interest rate. Some of the most common questions are :
The option to refinance a car loan is pretty much available to anyone whatever their original loan, whether it be dealership financing or having obtained a loan or credit from a bank, financial institution or credit union. There are many reasons why people refinance a car loan, some of them of necessity and others through choice. In either event it can often be relatively easy to do, and can often offer the individual significant savings.
Refinancing a car loan simply means obtaining or taking out another loan that pays off the original loan and replace it with a new one, normally with a completely different lender.People often think that once they have a car loan or an auto loan then they are tied to it for the period of the loan.In fact anyone can try and refinance a car loan pretty much from the day they take out the original one.
Depending upon the length of the original loan, it is likely that the majority of the repayment costs in the first year possibly 18 months will be interest only, or at least mainly interest, so refinancing early on in the life of a loan can often make a lot of sense.
Refinance Car Loan – Reasons Why – Lower monthly payment
People refinance a car loan for different reasons. Sometimes their circumstances change and they need to alter the length or terms and conditions of the loan.Sometimes their financial situation improves or worsens and the need to adjust their payment schedule accordingly.
Sometimes it is external factors such as a general lowering of interest rates in the economy which makes them realise they could possibly get a better deal. One of the main reasons people refinance a car loan is to reduce their monthly payments. It is probably fair to say that most people when taking out a car loan work out how much it cost them on a monthly basis.
This is then used as a guide as to their own budgeting for other household and personal responsibilities. If the individual’s circumstances change then it is sometimes necessary to lower the monthly payments are they make on their car loan. This can normally be done either by extending the period of the loan, or paying off some of the capital amount of the loan, thereby reducing the monthly payments. Both of these options would require the refinancing of the original car loan.
One of the features of any car loan or lease agreement that it will include a fixed rate of interest for the period of the loan. This gives a sense of stability to both sides, and allows individual to plan and budget them to repayments accordingly, knowing that the amounts repayable will be saved every month. If however interest rates change, and it’s possible for the individuals get a better rate of interest, then by refinancing the original car loan they can do this and save themselves sometimes a significant amount of money.
Length of loan
The length of the car loan is normally fixed at the outset, providing a degree of stability for both sides. However if the individual wishes to change the length of the loan, either to shorten it to extend it then it will be necessary to refinance the original car loan for a different period of time.
When someone applies for a loan and has either poor or bad credit, one of the conditions of granting the loan is often that a co-signer effectively guarantees the loan. A cosigner is normally either a parent or a guardian, someone who is willing to effectively guarantee the repayments in the event that the applicant fails to meet the payments themselves or for any reason defaults on the loan. One of the most common reasons for refinancing a car loan is when for a number of reasons case either has to come off the original loan. This can either be done to circumstances in the cosigners own life or financial situation, or because there have been problems with the other applicants payment history and the cosigner no longer feels able or capable of being a co-signor on the original loan.
It is quite possible that during the period of a loan the individuals credit history will improve. This is especially true if the individual has had a poor or bad credit when taking out the loan, and has taken significant steps to improve his credit score during the term of the loan itself. In the event of an improved credit history and subsequent credit score, it makes a lot of sense for the individual to refinance the original loan, and either save a significant about money, get a better rate of interest or generally better terms and conditions.
Refinance Car Loan – information
Refinancing a car loan is in some ways the same as applying for the original loan, but there are certain information that the new lender is going to require as well. Having this information to hand can make the the whole process much easier and simpler. It is important to gather as much information about the car as you can. This information should have been given to you when you purchased the car, and should include very specific details of up manufacturing model and number and manufacturing details generally.
Make sure you also have inflation such as its servicing history, mileage, any warranties or extended warranties in place and any vehicle protection plans that were part of the original financing arrangements. The new lender is going to want to know details of the original loan. Who it was with, how much the original loan was for, how much has been paid off and if there had been any payment problems either by way of missed payments or late payments. The vendor is also going to want to know if there were any special terms and conditions applied to the original loan.
Refinance Car Loan – Problems
Before refinancing a car loan it is important to check certain things. Firstly check that you have all the information referred to above and that it is to hand when you approach a new lender. Find out if there are any financial penalties that may be imposed by the original lender if you terminate the loan early. If there are penalties charges find out what they are, and see if the total aggregate of these charges make the refinancing of the original loan worthwhile or not.
It is also important to check what extras were included with vehicle by way of things such as vehicle service contracts, special tire and wheel insurance policies, breakdown and mechanical protection plans etc. Sometimes is included as part of the loan agreement, and refinancing a loan might mean that you have to pay for them additionally. This is really just to simply check what the components of the original loan were, and if by refinancing the original loan you are going to have to pay again for certain items that were deemed to be part of the which loan agreement.