How to Refinance My Car

With the economy the way it is, you have probably asked the question, "Is it possible to refinance my car loan?" Luckily, the answer in most cases is yes.

There are actually a number of reasons why someone would want to refinance a car loan. They include a need to save money; the desire to get a better rate than you were able to achieve when you first bought the car; you bought the car on a short term loan and would now like to extend the time of the loan; you want to refinance your loan as a way to borrow against it if you had originally paid cash for the vehicle; or you are leasing and realize that you want to keep the car beyond the term of the lease.

Refinance your loan early on in the term of your present loan. With most loans, as you pay the loan off, you are paying the interest before the principal. So refinancing doesn't make any sense if you are too far along in the terms of your present loan. In addition, experts say that lenders are willing to refinance a car loan during the first 4 or 5 years of service because they want to acquire as much auto financing "paper" as they can. Start your project by searching for interest rates that are lower than what you are paying now. A lower rate can save you hundreds of dollars over the length of the loan.

As you are waiting for lower rates, clean up your own credit. It is said that a credit rating of 680 or higher will go a long way towards getting a lender to approve your application. You can check your own credit rating by visiting credit report websites like Experian, TransUnion or Equifax. If you find that there are mistakes on your report, take immediate steps to correct them. It would also be advantageous for you to pay off high balanced credit loans or late items at least one month before you plan to refinance.

Take the time to review your present car loan documents to determine if you have to pay a prepayment penalty. You also want to find out if the present loan is based on something called "The Rule of 78s." Loans using this rule collect three-quarters of the interest in the first half of the loan term. Although most auto loans today don't feature this, you should be cautious and check for it. You can go to such websites as Bankrate.com to find out how the interest on your loan is calculated.