You might be able to find the payment details by logging into your online account or looking at your most recent statement. If you have difficulty finding the information, call your lender’s customer service department.
Understanding the terms of your current auto loan can help you decide if refinancing your car loan will help improve your situation.
2. Find out how much your car is worth
When you refinance your car, the lender considers how much your car is worth. Many cars depreciate in value the moment you drive them off the lot, so your loan balance may exceed your car’s market value. This is sometimes called negative equity or being upside-down. If you’re upside-down on your car loan, it might be difficult to refinance.
Some lenders specialize in refinancing negative equity, but you might end up with a higher interest rate. If you want to refinance an upside-down auto loan, consider making extra principal payments until you’re no longer in a negative equity position.
Even if you’re not upside-down, you might not be approved for the full amount a lender offers if your car isn’t worth that much—unless you’re applying for a cash-out refinance.
A cash-out refinance is when you borrow more than your car is worth and receive the difference in cash. For example, if your car is worth $16,000 and you owe $12,000, you might qualify for a cash-out refinance. You might be able to get an auto loan refinance for $15,000. You pay off the outstanding $12,000 and pocket the remaining $3,000.
3. Check your credit
As with other loans, the terms you receive on an auto loan refinance depend largely on your credit history and score. Checking your credit report won’t hurt your credit score, and it can provide insight into what you can realistically expect.
If you have good credit, you’re more likely to get a lower interest rate on your loan. Additionally, you might qualify for a cash-out refinance or be able to refinance an upside-down loan if you have good or excellent credit.
When you have fair or poor credit, you might pay a higher interest rate. So, the loan might cost you more in the long run, especially if you refinance to a longer term.
By checking your credit, you can see if there are errors you need to correct before applying for a loan refinance, or you can determine whether you need to take steps to improve your credit before moving forward with an auto loan refinance.
4. Gather documentation
The refinance car loan process requires the kind of documentation typically needed for any loan. If you gather the necessary information early on, you can streamline the process, increase the chances of a quick approval and receive your funds faster. Items you typically need include:
- Identifying information (Social Security number, driver’s license number, birth date, address, phone number and email address)
- Pay stubs or other proof of income
- Your vehicle identification number (VIN)
- Vehicle registration information
- Proof of car insurance
- Loan payoff statement from your current lender
Keep this information readily available so you can use it while shopping around for lenders.
Related: What Are the Requirements for Refinancing Your Car?
5. Compare lenders for the best car refinance rates
Choose three to five lenders and compare their rates and other loan terms. Look for lenders that provide loan quotes using prequalification without a credit check.
Your prequalification quote isn’t your final interest rate, but you can use the information to compare lenders and choose the best auto refinance loan. Lenders also share your potential borrowing limits and the available term lengths.
Determine which loan offers you the best chance of reaching your goals. If you want to pay less in interest, refinancing to a lower interest rate and shorter loan term can potentially put hundreds of dollars back in your pocket. On the other hand, if you need a little more breathing room in your budget, you might decide to refinance to a longer term for a lower payment, even if it means an added interest cost.
Related: How to Get Preapproved for a Car Loan
6. Complete your loan application
Once you decide on a lender, fill out the loan application. Your final loan amount and interest rate might be different from your quote, but if you provided accurate information, they shouldn’t drastically vary.
You can fill out an official loan application with more than one lender, but keep in mind that each lender will use a hard credit inquiry. However, all of the inquiries made for the same type of loan within a 14-day period are considered one inquiry for credit score purposes, so if you decide to complete applications with multiple lenders, try to do so within a short period of time.
After you’re approved, decide whether you agree to the terms. If you do, sign the paperwork and confirm the process for paying off your old car loan. Verify that your original loan is paid off and make arrangements to begin sending payments to your new lender.
