How to Lower the Rate on Your Car Loan

Just as homes can be refinanced, car loans can also be refinanced. The financing is different, however, as home loans extend for many years and houses usually appreciate in value. Auto loans are for shorter terms and all cars depreciate in value except for rare classics. Thus, lenders treat these loans differently, basing financing on a number of factors including future value.

If your car loan rate was high, then now can be a good time to refinance. You’ll need to keep a few things in mind as you seek refinancing, by taking the following steps:

1. Know your credit rating — You won’t receive car refinancing if you are out of work or your income is not sufficient to repay the loan. You also need good credit with consumer credit bureau Experian noting that a score of at least 700 “reflects good credit management.” Experian also notes that a score below 598 means that you have bad credit. Thus, a score from 598 on up means your credit is at least okay. Visit MyFico.com to learn what your credit score is. If your score is high, then seek refinancing. If it is low, then keep your current loan.

2. Talk with your current lender — You may be able to get your current lender to refinance your loan, saving you the necessity of having to apply for a loan with a new lender. Your present lender will need several things from you including one or more recent pay stubs, a W-2 form and possibly your most recent tax filling. You may be granted a lower rate if your credit, your job situation or both improved dramatically since you got your loan. If your credit was bad and you received financing, then you may be dealing with a lender that specializes in sub-prime loans. This means that you’d do better to seek refinancing elsewhere.

3. Shop around — Most lenders prefer to work with people seeking new loans, but there are some that specialize in working with borrowers who have existing loans. You can check with your bank or credit union for loan deals, asking whether loan refinancing is available. You can also find lenders by googling “car loan refinance” and viewing the results. A number of large banks and finance companies are involved in auto loan refinancing, therefore view the offers and select the best one that meets your needs. Limit your application to just one company, however, as your credit score could take a hit if you apply for too many.

4. Resist extending your loan — If you took out a 48-month loan and have 37 months remaining, a lender may be all too willing to give you a new 48-month loan. This is not a good choice for you as you’ll be financing your car longer and you’ll pay a higher rate than a 36-month loan. Besides, lenders know that your car is depreciating and they’ll be certain to protect their own interests as you seek refinancing. Chances are if you shave one or more months off of your future loan, then you’ll come away with payments that are lower and pay less interest going forward.

5. Choose your loan and switch — Once you receive approval for a car refinancing, then quickly get together your paperwork to close on this loan. You may be able to close within 48 hours if your paperwork is in order and the lender is ready to process your loan. Your lender will pay off your current loan and assume title of your car. Only when your new loan has been paid off will you be able to obtain your title.

Final Thoughts

To receive approval for a new loan, a lender may require you to come up with a down payment. That’s because your car is declining in value and the lender may want you to assume more risk in exchange for a better rate on your auto loan.

Author Information

Matt Keegan writes as The Article Writer. He operates The Auto Writer car blog, covering industry news, car models and product information.