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How to Refinance a Car

Refinancing a car loan provide several advantages, including a lower interest rate, a lower monthly payment, and more.

However, there are some things to consider before diving in; for instance, some financial institutions will charge closing costs and other fees, which can add up considerably. Additionally, if your new loan has a longer term, you may end up paying more for your car than if you just stuck with the original lender!

In this article, we’ll help you decide if refinancing your auto loan is right for you, and walk you through the entire car refinancing process.

At Credit Union of Southern California (CU SoCal), we believe that people come before profits, which means your goal is our goal.

That’s why we offer our members a multitude of auto loans for new and used vehicles, in addition to refinancing options that won’t get in the way of your financial goals.

For more information, please don’t hesitate to call us today at 866.287.6225 for an expert, no-obligation consultation.

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Is Car Refinancing Right for Me?

Should I refinance my car?

There are some situations where it might be a good idea.

One big example is if you think you can get lower interest rates or more favorable terms. If you get lower interest rates, you might also have lower monthly payments.

Recently, interest rates have been at record lows, so more people are considering refinancing.  

That said, your new loan might have a longer term, which means you will pay more interest over time.

You could also get a shorter loan term, which may mean your monthly payment is higher but you pay less interest for the duration of the loan.

Along with looking at auto refinance rates, you should also think about your credit score now versus what it was when you originally got your car loan. If it’s better now, then you’re likely to qualify for more favorable terms.

Refinancing could also be a good idea if your financial situation has changed. You may have less money to put toward your car payment and refinancing could help you lower your payment or better manage your budget.
If you aren’t sure how the math might work out, check out our vehicle loan calculator here.  

When Should I Wait?

If you’re asking, “should I refinance my car,” know there are situations when it’s best to wait.
  • If your credit score is lower than when you got your car loan initially, it’s a good idea to wait. You’re not likely to get better terms or a lower interest rate.
  • If you recently got your car loan, you probably already have a competitive interest rate, so there may not be much of a reason to think about refinancing right now if you can manage your payments.
  • There are instances where you might refinance and find that you have worse terms than you did before.
  • Some loan terms may include a prepayment penalty so that that penalty could offset any financial advantages of refinancing. You can contact your current lender to determine if a prepayment penalty will apply to you.
  • Some lenders won’t let you refinance if your car is more than eight years old or has more than 100,000 miles.
  • If your loan balance is higher than the value of your vehicle, you may not be able to refinance.

Does Refinancing Hurt Your Credit Score?

Refinancing your car can potentially hurt your credit score. This is a reality to be aware of if you decide to do it.

There are a couple of different ways refinancing may hurt your credit score. First, when you apply to refinance, lenders check your credit history and score. When there’s a hard inquiry, it can ding your score, but the effect is usually minimal.

If you apply through multiple lenders one after another to compare terms, your credit score might take a hit.To avoid this impact, try to submit your inquiries all at once. Then, most models used for credit scoring will treat those inquiries as one.

If you refinance and close your existing account, this can affect your credit score too; however, this may be balanced out because your payment history might be taken into account when the original loan is closed.

In short, the benefits of refinancing usually outweight any negative impact on your credit score.

Car Refinancing Guide: How To Refinance A Car Loan

How does car refinancing work? If you think refinancing is right for you, preparing ahead of time can help you streamline the process. Gather your paperwork and get ready to apply with the steps below.

1.Collect the Proper Documents

It can be frustrating to apply for a loan if you go into the situation without knowing how it works or what you need. If you have the right documents at the time you need them, you can reduce that frustration. Some of the documents you should prepare if you want to refinance an auto loan include:
  • Proof of identity
  • Driver’s license
  • Proof of income
  • Proof of residence
  • Vehicle registration and information (including VIN)
  • Credit and banking history
  • Proof of insurance
  • Information for your current loan

2. Check Your Credit Score

Before you apply for any type of loan, you should know what your credit score is. First, you should check your score to make sure there are no errors or discrepancies that you need to clear up.
You should also know what your score is to know whether or not it’s even a good idea for you to refinance. You may find that it’s best to focus on improving your credit score for the time being.
You don’t want to go into the lending process surprised by what’s on your credit report.  

3. Shop Different Lenders

Every lender is going to have its own set of terms and offer their own interest rates. Just as you would any other major purchase, you should shop different lenders and compare these terms and rates before deciding.

4. Run the Numbers

This was briefly touched on above, but if you’re thinking about refinancing an existing loan, it needs to make financial sense.

There needs to be a benefit, whether that’s a more favorable loan term or a lower interest rate. Maybe it’s lower monthly payments that work better with your current financial situation.

Regardless of what you hope the benefit will be, use an auto loan refinance calculator to make sure there is an actual benefit. Refinancing doesn’t inherently mean that you will get a financial benefit if you don’t run the numbers first.

5. Take a Look at the Loan Terms

Verify the terms of a new loan before accepting it. Again, this is critical. Make sure that you’re really going to lower your monthly payment or be able to pay off your loan in a shorter period. Read the fine print, and don’t let yourself be surprised by new loan terms when it’s too late.

6. Close on Your New Loan

Once you’ve verified all the terms and read through everything carefully, you sign the paperwork your lender sends over. The lender handles most of the steps that need to be taken to transition your old loan to the new one. What usually happens is that the new lender for your car loan will pay off your old loan.

You need to verify this with your new lender, however. The old loan has to be paid in full before you stop your payments.

CU SoCal Auto Loan Refinancing

If you do think you’re ready to refinance, CU SoCal offers a convenient auto loan program.

As a member-owned credit union, we provide the unique advantage of being able to provide excellent service. This means we can work with you each step of the way to make sure you have a good experience and get a new car loan that makes financial sense for you.

Indeed, CU SoCal is the fastest growing credit union in Southern California, and we’re proud to serve those who live, work, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino county.

Apply for Car Refinancing Online Today!

Now that you understand the steps that go into refinancing a car loan, consider applying for a car loan with CU SoCal.

Please give us a call today at 866.287.6225 for an expert, no-obligation consultation.
Get Started on Your Auto Loan!

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Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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