If you thought financing your first car was the tricky part, you were right.
Refinancing your car comes with much less stress. Though there are a few questions, you should ask yourself and a few simple steps you will need to follow to refinance your car.
If you opted for balloon financing, the process could be somewhat different since many vehicle financers forget about the large sum of money that needs to be put down after your 12-24 month period has ended.
The refinancing process can be relatively simple – and all it actually comes down to is reinstating your current loan with a new one. You will usually use a different lender.
Again, as with your first loan, your car will act as collateral – thus, ownership actually belongs to the lender.
Refinancing Your Car – And What You Should Take Into Consideration:
Car Refinancing Benefits:
Firstly, we will look at why you should refinance your car with a different lender and how it will benefit you long-term:
● Lower Interest Rate: Chances are that your credit score has improved since you have financed your first vehicle, or the market rate might have decreased. Whatever the factor, when you reapply for a loan and get refinanced, you should get a lower interest rate than you currently have.
● Lower Monthly Payment: Since you will most likely have a lower interest rate, your overall loan payback payment will be lower, and this will result in you having a lower monthly instalment.
You can lower your monthly instalment even more if you opt for a more extended repayment such as a 36 or 72 month period, but this will mean a higher interest rate, although it could be beneficial if you have a tight budget.
● Upside down loan: This means that your loan payment is valued higher than the value of your vehicle – if this is the case refinancing your can after 12 or 24 months is a good option since you will be getting a deal for your money.
When Does Refinancing Make Sense:
● Interest Rates Have dropped: Since rates fluctuate regularly, you may have noticed that interest rates are at an all-time low. If the rates are low, refinancing your car now will be the right decision.
● Your Financial Situation Has Improved: If in the past year or two your financial situation has improved, meaning you got a new job, a raise, or an improved credit score, your loan calculations can be redone. Because of these factors, your could qualify for more favourable terms when you refinance.
● You Want a Better Offer: If your car financing did not go as planned the first time around, waiting 12-24 months to refinance could be an excellent option to get the deal and the vehicle you want for a rate you can afford. You should remember to do more thorough research this time and talk to a few different lenders.
How To Start the Refinancing Process:
- Check Your Credit Score:
This will be the first step you need to take – as a low credit score will impact your interest rate and the loan you can qualify for.
If you notice your credit is not looking too great, you could always wait another year before refinancing. This could benefit your long-term finances.
- Submit Your Application:
Many credit providers will have a “Refinancing” option available online. If this is the case, you will be able to fill out all the necessary forms and email them through.
Whether you opt for applying online or going into a branch, there are a few things you will need to do:
● Apply for the loan application
● Have a copy of your driver license
● Your vehicle registration
● 3 recent salary slips and bank statements
● Proof of address
● Your national ID or Passport
● Decide if you want to sell or trade-in.
Make sure to also take your VIN number with you so that the branch and loan applicators can determine the value of your car.
- Compare Your Offers:
After you have submitted your application, you will receive a few offers. You will be able to submit to multiple lenders and might be asked to do a full credit check before they offer you any type of interest rate information.
It will be good to review all your different options and see which one will work best for your loan and the short term.
Think of things like:
● The lender’s interest rate
● Your repayment fees
● Period of repayment
- Apply For Your New Loan:
Just as when you financed your first car, you will need to apply for a new loan.
Now that you have looked around for lenders and have narrowed down your options, find one that provides you with the best value for your money and submit your application.
Again, this will be done online, over the phone, or at their branch.
- Review Your Contract:
If you have qualified for the loan application, the lender will now send you a contract.
Now is not the time to be lazy – ensure you read your contract carefully, go through each detail, even the fine print, and ensure you know what you are getting yourself into.
If you have signed the contract, the lender will now pay off your existing loan, and you will then start making payments on your new loan.
It would be wise to contact your previous lender to ensure everything is cleared up before making your first payment on your new loan.
Conclusion:
Refinancing your car is much simpler than the first car finance since you know a little more about the process than you did the first time around.
Although refinancing is similar to financing for the first time, you need to ensure that your new lender pays off your old loan immediately to ensure you aren’t making two different payments.
If you worked with a lender you liked and trusted the first time around, do not feel like you need to find a new lender, you can use them again.
Lastly, don’t feel pressured to refinance your car after 12-24 months if you aren’t ready or the interest rate is too high.
