Not everyone qualifies for low interest rates on car loans. Borrowers with bad credit often have to settle for dealership loans with high interest rates. An auto refinance loan lets you take out a new loan to replace your current one, typically giving you a lower monthly payment and a lower interest rate. And while this may seem like the right move, researching how to refinance a car loan can help you make your decision.
We at the MarketWatch Guides Team will explain the auto refinancing process and tell you the factors worth considering before you take out a new loan. We’ll also provide recommendations for lenders that offer the best auto refinance rates in the industry for 2022.
How To Refinance Your Car in 4 Steps
Auto refinancing typically follows the same process as taking out a new car loan. It’s important to review your finances and the terms of your original loan to decide whether auto refinance is right for you. If that’s the case, your next step is to shop around for auto loan rates and compare your options.
Below, we provide in-depth information on the four-step process to refinance a car loan.
1. Decide if Refinancing Your Vehicle Is the Right Move
Refinancing your auto loan makes sense if you can get a lower interest rate and monthly payment than what you currently have, but it may come at the expense of getting a longer-term loan. Extending your auto financing term could also lead to you paying more interest overall.
Here are a few things worth factoring into your decision on when to refinance your car loan:
- Your credit score: If you have poor credit, work to repair it before you try refinancing your auto loan. This is because your credit history will impact whether you qualify for auto refinancing and the rate and terms you’re given.
- How long you’ve had your car loan: Wait between six months and one year after your loan term begins before applying for refinancing. This should give your credit score enough time to recover from hard credit inquiries that were made when you took out your original loan.
- The economy and interest rates: You won’t be able to maximize the return on refinancing your vehicle if interest rates are skyrocketing. Wait until they begin to drop to ensure you get the lowest annual percentage rate (APR) and monthly payment possible.
Generally, you need to make sure your personal finances are in order before refinancing. If you’re upside down in your current car loan, it may not be good to replace it with a new auto loan.
2. Collect All Necessary Documentation
Applying to refinance your auto loan is similar to applying for a new car loan. During the application process, you’ll need to provide documentation to verify your identity and creditworthiness and your car’s value.
You should prepare these documents before applying for an auto refinance loan:
- Personal information: Have your driver’s license, address, phone number, Social Security number, proof of income and proof of insurance ready when you apply.
- Vehicle information: Have your vehicle identification number (VIN) and your car’s year, make, model and registration number handy for the lender.
- Current loan’s details: Gather your current lender’s information, your account number and the existing payment amount.
3. Shop Around and Compare Lenders
Each lender weighs factors differently when calculating auto refinance rates and offers. Start with local banks and credit unions when shopping around. Most financial institutions offer car loans, and you may qualify for special discounts at the bank where you’re a member. Once you have those rates in hand, compare them to offers from other lenders to get a better sense of which provides the best deal.
4. Accept the Offer
Auto loan refinancing offers tend to last between one to two months before expiring, which means you can take your time assessing all of your options. Once you sign for your new loan, the lender will likely handle all of the paperwork and pay off your old loan directly.
Note that some lenders may instead pay you directly and have you transfer the funds to pay your loan balance off. You’ll typically begin making monthly payments to your new lender within 30 days.
What To Consider Before Refinancing Your Car
As every financial institution is different, you may face different requirements and fees that could affect your vehicle refinancing. Here are some factors worth considering:
- Prepayment penalties: This is a fee that’s charged if you pay your car loan off early. Not every financial institution charges this, but it’s worth checking since it could cost you.
- Lender restrictions: Some lenders may have restrictions that only allow you to refinance your car after a certain number of months. In some cases, there can be policies limiting how soon you can refinance a car loan.
- Time remaining on your loan: If you’re close to paying your loan off, it might not be worth it to refinance your car.
- Your financial situation: Lenders will look at your debt-to-income ratio when you apply for a refinance auto loan. If you owe a lot of money on credit cards or personal loans, pay your debt down beforehand to get better repayment terms.
How To Refinance a Car: Conclusion
Refinancing a car is a simple process and can get you better rates and terms on your vehicle. However, you should find your lender’s auto refinance policy and determine if it’s right for you before considering the venture. Before making a decision, compare lender offers to get the best deal.
Our Recommendations for Auto Refinancing
Auto refinancing can help you get a lower rate and lower loan payments. But finding a new lender that’s trustworthy can be difficult if you don’t know where to start. We recommend reaching out to Auto Approve and myAutoloan to discuss your existing auto loan and submit loan applications.
Auto Approve: Best Refinance Loan
Unlike most lenders, Auto Approve specializes in refinancing auto loans. The company offers a lot of flexibility, working with a network of lenders to provide refinancing for the following types of vehicles:
- Standard cars, trucks and SUVs
With Auto Approve, qualified borrowers can receive refinancing rates as low as 2.25% APR. The lender has a solid reputation as a financial institution. The company is accredited by the Better Business Bureau (BBB) and has an A+ rating from the organization.
Read more: Auto Approve review
myAutoloan: Best Low-Rate Option
The online marketplace myAutoloan lets you compare offers from lenders in one place. With auto loan refinancing, borrowers with good credit can find APRs as low as 4.01% for a loan term of 36 months or less. Those with less-than-ideal credit may also be able to refinance their vehicle loans through myAutoloan since the company’s minimum credit score is 575.
Within the auto loan industry, myAutoloan has favorable ratings. The marketplace has an A+ rating from the BBB and is accredited by the organization. Customers on Trustpilot give the company an average of 4.1 stars out of 5.0.
Read more: myAutoloan review
How To Refinance a Car Loan: FAQ
Below are some frequently asked questions related to how to refinance a car loan:
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.
Here are the factors our ratings take into account:
- Reputation: Our research team considered ratings from industry experts and each lender’s years in business when giving this score.
- Rates: Auto loan providers with low APRs and high loan amounts scored highest in this category.
- Availability: Companies that cover a variety of circumstances are more likely to meet consumer needs.
- Customer experience: This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness, friendliness and helpfulness of each warranty company’s customer service team based on our shopper analysis.
- 300+ hours researched
- 25 companies reviewed
- 2,000+ consumers surveyed
*Data accurate at time of publication.