Unlock Savings: How to Refinance Your Auto Loan – A Step-by-step Guide

Here’s a pic of my Honda CR-V 2020 😇

Looking to refinance your auto loan? Not sure where to begin? Check out my step-by-step to get started!

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1. Check Eligibility

Before diving into the refinancing process, here are some important tidbits to consider:

Ensure you’ve had your current auto loan for at least 60-90 days to allow for the title transfer to the lender.

Maintain a good credit score to qualify for the best interest rates.

Confirm you have a minimum of 24 months left on the loan.

Check if your loan balance meets the lender’s minimum requirements, often around $5,000 to $10,000.

Assess your car’s current value to ensure you have positive equity in the loan.

2. Shop around for Offers

Explore different offers to find the best deal for you. Personally, I prefer local credit unions as they often offer better rates compared to big banks. I went with my local credit union to refinance my auto loan. When shopping around, ask for estimated numbers including:

Ask for the following:

  • Term
  • Interest rate
  • Total interest (finance charges)
  • Total cost of the loan (total of payments)
  • Doc stamp and title fees
  • Pre-payment penalty fees
  • Any other miscellaneous fees

You can also use this free calculator to find the total interest and cost of the loan by plugging in the the interest rate and principal balance.

⚠ Warning: Don’t Get Trapped by Lower Monthly Payments! ⚠

Don’t fall for the trap of a lower monthly payment with a longer loan term and higher interest rate. While it may seem appealing initially, you’ll end up paying more interest over time. Always consider the total interest cost over the loan’s life to make an informed decision. This is how banks capitalize on those unaware of the long-term consequences. Be savvy and stay financially wise!

3. Calculate potential savings

Use my Auto Loan ReFI Tool to compare your current loan to the potential new loan. This will help you determine if refinancing is worth it. This spreadsheet will help streamline your comparison and calculate the savings for your new monthly payment and total interest.

Primary Goals of Refinancing Your Auto Loan

  1. Lower your monthly payments
  2. Lower your interest rate
  3. Lower the total amount of interest paid
  4. Pay your loan off faster

4. Gather documentation

Your lender will require various documents to complete your loan application, including:

  • Driver’s License
  • Proof of car insurance
  • W2
  • Tax return
  • Paystubs
  • VIN
  • Current loan numbers

Check with your lender for a complete list of required documentation.

5. Submit Application to underwriting

Once your application is complete, the lender will it for underwriting review. A final decision can take a couple of hours to a few weeks depending on your credit worthiness and if further review is needed. In my experience, I was approved the next day after my application went to underwriting.

6. Review and Sign Documents

Once your lender gives you the good news, you are ready to sign and review your documents. Make sure you go through the paperwork with a fine-toothed comb 🔎 and read the fine print! Check for any hidden fees or pre-payment penalties. Be sure the numbers disclosed are accurate and review the Truth in Lending Disclosure page. This page will contain the final numbers for the interest rate, finance charges, amount financed, and total of payments.

Here’s a screenshot of my actual refinance paperwork showing the Truth in Lending Disclosure page.

7. Pay off existing loan

It’s time to settle our old loan! Your new lender will either give you funds to clear the existing balance or request a payoff letter from your old lender. Ensuring the old loan is fully paid off is crucial to avoid any issues with double or missed payments.

8. Update Car Insurance Information

Update your car insurance with the new lien holder to ensure protection of the vehicle and avoid any gaps in coverage. Your insurance provider will need to send a new declarations page to the new lender for official documentation.

Congratulations 🎉 you’ve refinanced your auto loan!

See, it wasn’t so bad after all!

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