What's it really like to refinance an auto loan?

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What's it really like to refinance an auto loan?


Refinancing your auto loan could save you money on interest or lower your monthly bill. If interest rates have dropped or your credit has improved since you first took out the loan, or you didn't get a great rate the first time, refinancing could be a good idea.

The application process can take just a few minutes, and if you're approved, the entire process could take just a few days.

However, to make things even speedier, there are some steps you can take to prepare.

Preparing to apply for refinancing

Before you start looking for refinancing, ask your current lender for your current interest rate, repayment terms and the amount you'll need to pay to pay off your auto loan. You'll want to know how much to borrow. You can also calculate your potential savings on the new rates and terms.

Additionally, check the current value of your car using websites like Kelley Blue Book or Edmunds. When you owe more than the car is worth, you may not be able to refinance your loan or may have to pay the difference to qualify.

You may also want to check your credit, as it can influence your eligibility and interest rate. Even if you have poor credit, you could still qualify for refinancing -- though you may not get the lowest interest rate.

Application requirements can vary by lender, but you can use this checklist as a general guide to what information you may need to provide as part of the application process:

Personal information

Name, date of birth, citizenship status and Social Security number.
Address and previous address if you moved in the last two years.
Contact information.
Government-issued ID number.
Information for your co-applicant, if you have one.

Financial information

Current employer and former employer if you changed jobs in the last two years.
Total monthly and annual income.
Whether you rent or own a home, and your monthly rent or mortgage payments.
Total value of assets.

Your current loan

The lender's contact information.
Loan balance and term.
Loan account number.
Total number of current auto loans.

Vehicle's information

Make, model, year and trim of the vehicle.
Any special features or options.
The vehicle identification number (VIN), often found on the driver's side dashboard.
Odometer reading.
State of registration.

How to find an auto loan refinance lender

With the information in hand, start comparing lenders. You may be able to find refinancing offers at auto finance companies, banks, credit unions and online lenders.

Call or look online to get potential interest rates and repayment terms before you fill out an application. You may not qualify for the lowest interest rate unless you have stellar credit, but it's still a good baseline for comparison.

Compare the fees at each lender, including servicing fees, transaction fees or prepayment penalties. Also, check to see if your original lender has a prepayment penalty. If it does, the penalty could offset or supersede the potential savings.

You may also want to ask if the new lender has a minimum credit score requirement. Even if your score is close, it may be worth applying. Your score may change between the time you check it and the lender pulls your credit.

The lender could also be using a different scoring methodology than the company that gave you your score.

When you submit an application, the lender generally makes a hard inquiry into your credit, which can temporarily hurt your credit scores.

But you may be able to minimize the impact of shopping around on your score: Multiple auto loan inquiries made within 14 days could count as one inquiry for scoring purposes.

You may want to start with the financial institution you have a checking or savings account with because some may give current customers discounted loan rates, but there's no guarantee it will be the best offer out there.

To speed up the process, you could use a comparison site that lets you enter your information once and get quotes from several lenders. You can also use Credit Karma's auto refinancing tool to check your estimated savings and compare options based on your credit score.

Complete the refinancing process

Once you submit an application, you may hear back within just a few minutes. If you're approved, a loan office could call you directly to discuss your application and the possible terms of the new loan, or you might receive an automated response with your offer(s).

After you pick your terms (if options are available), you'll need to complete the loan process. Review the loan documents, and if you agree to the terms sign them and return them along with any other required documentation.

Depending on who finances the new loan, you may need to verify your income or address. You may also have to send additional documents, such as a copy of your driver's license, registration, insurance, odometer reading and a picture of the car.

Laws vary by state, but you may also be asked to send in the title, or a signed and notarized limited power of attorney form that lets the new lender take over the lien through the DMV. Finally, you may need to pay a title transfer and reregistration fee.

You might be able to complete the process electronically, or the lender could require that documents be mailed back and forth. When working with a financial institution that has a nearby branch, you may also be able to complete the process in person.

Once the company receives the necessary paperwork, it will either send you the money or make a payment directly to your current lender. It may take a few days to a few weeks for everything to finalize, at which point you may receive a welcome packet or notice from your new lender.

In the meantime, don't forget to continue to make any payments due on your current loan.

Bottom line

There's a long list of things you'll need to apply for auto loan refinancing, but most of it is information about you and your vehicle that's relatively easy to obtain.

Searching and applying for refinancing can be a quick process, and when everything's done online, the entire application and verification process can take just a few hours. Refinancing may be a worthwhile use of time, as you may be able to save money over the life of the loan and/or lower your monthly payment.

About the Author: Louis DeNicola is a personal finance writer and educator. In addition to being a contributing writer at Credit Karma, you can find his work on MSN Money, Cheapism, Business Insider and Daily Finance. When he's not revising his budget spreadsheet or looking for the latest and greatest rewards credit card, you might spot Louis at the rock climbing gym in Oakland, California.

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