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Refinance Your Auto Loan & Save Big!


Refinance Your Auto Loan & Save Big!

How to Refinance your Auto Loan to Save Money

Save money with auto loan refinancing

You have an ongoing auto loan and the factors that were true when you took out the auto loan have changed. You can avail yourself of auto loan refinancing, to take out a new auto loan to pay off the balance of your existing auto loan.

There are a few ways auto loan refinancing can help you save money:

  • Lower interest rate. A new lender can give you lower interest rates which can help you save money over the life of your new loan.
  • Lower monthly payments. Lower interest rates mean reduced monthly loan payments.

Read on and find out if auto loan refinancing is the right path to take and how to refinance your auto loan to save money.

  1. Assess your Current Auto Loan

    Lower your payments auto loan refinancing

    It can be tricky figuring out when you should avail yourself of car loan refinancing. Your goal is to save money on the overall cost of your auto loan.

    1. How do you know if car loan refinancing is right for you?

      • Drop-in interest rates.

        It can be that interest rates dropped since you took off your original auto loan. In this case, car loan refinancing can help you save money over the life of your loan.

      • You are having trouble coping with your monthly bills.

        Refinancing can help you find an auto loan with a lower interest rate or a longer repayment period which can reduce your monthly auto loan payments.

      • You did not get the best offer for your current auto loan.

        It is always worth a try to shop around for better loan terms. This is especially true if you avail yourself of a car dealership auto loan.

      • Your car has positive equity.

        You may be able to get a better auto loan refinancing deal if your car is worth more than what you owe on it.

      • You have issues with your current lender.

        Many people shift to auto loan refinancing because their current lender has poor customer service or in certain instances has developed sour relationships with their current lender.

    2. Analyze your Current Auto Loan Terms

      Auto loan companies have rules on which you can be eligible for car loan refinancing. Conversely, there are also circumstances when you should not refinance an auto loan:

      • You have an older car with significant mileage.

        Lenders will not refinance a car that is older than ten years.

        You are almost done paying your original loan amount.

        You pay most of the interest on your auto loan in the beginning. This means you cannot save on interest if you get a car loan refinancing when you have already almost paid off your original auto loan.

      • You have defaulted on your monthly repayments.

        It is difficult to find a refinancing company if you default on your monthly repayments. If you can find a lender, it may not be the best move because the interest rate may be higher than average.

      • You bought your car less than a year ago.

        While you can refinance your car anytime, it is wise to wait about six months to one year before doing so. During this time, you may have built a payment history and your credit score may already have recovered after your first auto loan.

    3. Determine your credit score

      Your credit score determines the interest rate of your auto loan. If you have made on-time monthly repayments, your credit score may have increased since purchasing your car.

      Better credit scores translate to better and lower interest rates on your auto loan refinancing. Better credit scores tell lenders you are more likely to pay off your auto loan.

  2. Research Potential Lenders

    A thorough research on potential lenders can help you get the right auto loan refinancing deal.

    1. How to Find the Right Lender for Your Auto Loan Refinancing

      The best way to find the right lender for your auto loan refinancing is to shop around for refinancing companies that:

      • Offers transparent and competitive rates.
      • Offers reliable customer service.

      When finding the right lender, consider a variety of lenders including credit unions, banks, and non-depository financial lenders.

    2. Benefits of Shopping around for the Best Rates

      Shopping around for the best rates translates to bigger savings. It is wise to get quotes from several lenders.

      Before applying for car loan refinancing, make sure to compare interest rates and the auto loan term.

    3. Factors to consider when choosing a lender

      Here are some factors to consider when comparing auto loan refinancing lenders:

      • Fees. Even with lower interest rates, a lender can add fees and penalties that can increase borrowing costs.
      • Credit score requirement. Every lender has a credit score requirement. Some lenders are willing to work with borrowers even with low credit scores.
      • Type of lender. Credit unions have a large share of the refinance market. They charge lower interest rates than banks.
  3. Preparing Your Application

    So, have chosen the financial institution you feel is right for you. Now, it is time to start your application process.

    1. Necessary documents for refinancing an auto loan

      • Statement of loan payoff amount from your current lender
      • Proof of employment
      • Social Security number
      • Residence information
      • Car Registration
      • Vehicle Identification Number (VIN)
      • Mileage information
      • Driver’s license
      • Proof of insurance
    2. Steps to take before applying for refinancing

      Proper prep work will ensure you get the best possible deal.

      • Understand your current auto loan.
        • Interest rate on your current loan
        • Current loan payments
        • Balance of your current loan
        • Total cost of your loan
      • Check your credit score.
      • Gather important documents to submit to the new lender.
      • Determine how much you would save on your monthly payments.
      • Research potential car loan refinancing institutions

      It is also best to apply for pre-approval with a few car loan refinancing institutions.

      How to fill out an application

      You can apply for auto loan refinancing online or at the lender’s office.

      A refinancing application form would typically ask you to provide the following information:

      • Personal Information
      • Information about your current loan
      • Information about your vehicle
  4. Applying for Auto Loan Refinancing

    Refinance your auto loan and save big

    Applying for auto loan refinancing can be a breeze if you have
    prepared all the necessary information and documents mentioned above.

    1. What to expect during the refinancing process

      There are some fees you need to pay during the refinancing process:

      • Prepayment Penalty for paying your current auto loan off early.
      • Title Transfer Fee at the Department of Motor Vehicles.
      • Refinancing application fee
    2. Factors that may affect your approval

      • Credit Score

        The higher your credit score, the better your chances of getting the best possible interest rates and the most favorable auto loan term.

      • Vehicle Loan-to-Value Ratio

        This is a comparison of the current value of your vehicle (based on the year, mileage, and condition) to the amount of your loan. The LTV is calculated by dividing your total loan balance by the current value of your vehicle.

      • Debt-to-Income Ratio

        This shows you can take on a new loan. This is the percentage of your current income committed to paying existing debts. Your DTI is calculated by dividing your monthly debt payments by your gross monthly income. A low DTI will more likely get you better-refinancing terms.

    3. How to improve your chances of getting approved

      Auto loan refinancing companies look at these factors when assessing your refinance application.

      • High credit score
      • Low loan-to-Value Ratio (LTV)
      • Low debt-to-ratio (DTI)
  5. Closing Your Auto Loan Refinancing

    The ultimate goal is to get approved for auto loan refinancing so you can save money.

    1. Understanding the new terms of your loan

      Your new loan will include your auto refinance amount, interest rates, monthly payments, auto loan term, and penalties for late payments. Read and understand very well the fine print.

    2. Tips for making the most of your refinanced loan

      It is important to make the most of your approved refinanced loan to ensure your car does not get repossessed and to avoid the need to refinance in the future.

      • Make on-time payments
      • Take note of your new payment due date
      • Set up an automatic payment
    3. Paying off your old auto loan

      After a successful auto loan refinancing, your new lender will directly pay off your old auto loan. Make sure to ask for documentation from your new lender that payment and title transfer have been made.

  6. Conclusion

    Auto loan refinancing simply means a new lender will pay off your original auto loan. Refinancing offers lower interest rates and reduces your monthly payments.

    When you have decided to refinance your auto loan we can help. At Greater Alliance Credit Union, we offer both these options. To learn more about our loan features and rates, call us today at 201-599-5500 to see which option works best for you. Or if you’re ready to begin the application process, visit our application page to get started.