Used Car Loan Refinance: A How to Guide

If you have improved your credit score since you first got a high-interest auto loan, you may be ready for used car loan refinance. In order to make sure that you get the best auto loan refinance terms, you must complete some research before simply agreeing to a refinance loan.

Research Lenders

You may find that your personal bank or credit union offers competitive auto loan refinance terms. In most cases, the requirements for refinancing a used car are similar to the requirements when you first financed the vehicle. Some lenders are cautious about how much money they will lend for a used car loan consolidation, so while you will get some positive responses from some lenders, you may find that you are declined by some lenders simply because you are considering a used car loan refinance. For a daily average of used car loan interest rates that can help you determine what you may or may not be eligible for, use online tools like those available at Bankrate.

Online lenders like Carloan can also help you find a good refinancing loan regardless of your credit situation. However, if your credit score has changed only marginally since you first got your auto loan, it may not be worth it to refinance your loan. Not only might you have early prepayment penalties from your current lender, you may have other fees and you may extend your repayment period if you choose to refinance. Additionally, if you credit score has improved only marginally, your interest rate will be similar or potentially even higher, yielding no improvement or only a slight improvement in the total cost of your loan.

Requirements for Refinancing

As you prepare to finalize your used car loan refinance, you may find that there are some unique requirements. As you are refinancing a used vehicle that likely has a large balance outstanding, the balance that you are refinancing may be significantly higher than the fair market value of your vehicle. If the amount you are hoping to refinance is significantly higher than the loan value of your vehicle (the guideline that your lender uses to calculate the maximum amount they prefer to finance for a vehicle like yours), you may be required to place a down payment to get your total refinancing amount as close to 100% of the loan value as possible. In order to get your payment lower you may also be required to extend the length of your loan if the lower interest rate does not lower the payment enough for your liking.

Prior to signing your used car refinance loan you will need to provide the lender with proof of full coverage insurance, and the lender will need to provide you with the address to use to list the new lender as the holder of secured interest in your motor vehicle. After you sign your refinance contract you may have the choice to sign up for an automatic payment program. Depending on your lender, this may make you eligible for an interest rate reduction. If you do not choose this option, you will begin receiving monthly statements or quarterly payment books on a regular basis. Remember to keep the payments up to date on your used car refinance loan to help boost your credit score further.