Refinancing Your Car Loan: All You Need to Know

Can you picture life without your car? If you’re like most Americans, it’s a thought that you wouldn’t even want to cross your mind. In today’s fast-paced and never stopping society, a car is a necessity. It’s what gets you to work on time, serves as an errand-mobile, and gives you the flexibility to travel. 

That’s why just like millions of other people, you took out an auto loan to buy the vehicle. But does it ever feel like your auto loan payments are hindering you financially? If yes, you’re not alone. This happens to many people and for varying reasons. 

It may be because your financial situation has changed, or you now have more responsibilities. Either way, better loan terms would do a lot to ease your financial strain. Fortunately, Harrison Federal Credit Union offers auto loan refinancing from other lenders.

Read on to learn about refinancing auto loans and the steps involved.

How Can Refinancing Benefit You? 

There are several ways refinancing an auto loan can benefit you. They include:

  • Lower interest rate– If market rates have improved or your credit score has improved since taking the auto loan, refinancing will help you reduce the interest rate for your auto loan.
  • Reduced monthly installments With a lower interest rate, your monthly installments will also decrease. To reduce it further, you can choose to increase the repayment period. 
  • Repay your auto loan quicker If your financial situation has improved, you may want to clear your auto loan faster. If so, refinancing will help you shorten the repayment period. Keep in mind that this will also translate to higher monthly installments.
  • Earn cash for your equity With each payment you make, your equity in the vehicle increases. With a cash-out refinance, you’ll receive money if you have a lot of equity in the vehicle.
 
Steps to Take When Refinancing an Auto Loan

As you prepare to refinance an auto loan, be sure to take the following steps to ensure the outcomes are desirable.

1.) Determine If Refinancing Your Auto Loan Suits Your Needs. The thought of the lower interest rates and installments makes refinancing an auto loan an appealing option. However, it does not mean it will be the right option for you. In this regard, account for the following:

  •  Whether there’s a prepayment penalty
  • The fees you’ll be responsible for
  • Whether the loan balance is higher than the vehicle’s value
  • Whether your credit has improved since getting the auto loan

Without accounting for such factors, you may find that the gains from lower interests may not be worthwhile.

2.) Gather All the Necessary Documents. If you establish that refinancing is financially sound for you, gather all the documents and information you’ll need for the application. These include:
  • Personal information– Social security number, your mortgage or rent payments, and previous addresses
  • Proof of income Paycheck stub and possibly employment history and a tax return
  • Details on current loan– Loan balance, interest rate, and duration of the loan
  • Evidence of auto insurance Insurance card or other proof of insurance
  • Information on the vehicle Vehicle identification number (VIN), model, year, and mileage
 

3.) Apply to Refinance Your Loan. At this stage, you should have all the necessary documents in hand. Complete your loan application and attach what you’ve collected; once your loan application is approved, we’ll send you the loan agreement.

Go through the loan agreement thoroughly as it contains all the terms of your new loan. Make sure you seek clarification for anything that’s not clear before signing the loan agreement. 

During the transition, make sure that you remain alert for any communication from us and your previous lender. The last thing you want is an issue to arise. From there, make sure that you make prompt payments for your new loan.

How Refinancing an Auto Loan Affects Your Credit Score

As we process your application, we’ll make a hard credit inquiry. After doing so, your credit score will dip by a few points temporarily. As you make your repayments on time, your credit score will gradually improve. 

Enjoy the Harrison Federal Credit Union Edge
A key factor in gaining a desirable outcome when refinancing an auto loan is the lender you choose. At Harrison Federal Credit Union, we’re about providing financial solutions to your unique financial challenges. Regardless of your financial circumstances, we’re here for you.  opens in a new windowContact us today to learn more about refinancing!
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