Should I refinance my car?

You may have heard of refinancing a mortgage but did you know you can also refinance a car loan? If you decide to refinance, you may save money in a number of ways.

When should you refinance your car?

Here are some situations where it might be beneficial for you to refinance your car loan, including:

• Your current interest rate is high. When you first bought your car, you may not have qualified for the best rate. Or, since you originally took the loan, your credit score may have improved, entitling you to a better, lower rate. In some cases, rates in general may be lower and can be applied to your balance.
• You want to lower your monthly payments. A lower interest rate can reduce your monthly payments without increasing the term of the loan.
• You want to pay your loan off sooner. If you qualify for a lower interest rate, you can continue to make the same monthly payments and pay off the loan faster than you originally planned because more of the monthly payment will be applied to principal.
• You financed through a dealership. Often dealership rates are higher than other financial institutions. You may consider refinancing with a bank or credit union you already have an account with. It could potentially save you thousands of dollars over the course of your loan and may improve your credit score.

Sounds great, right? For some people, it's a beneficial financial choice. One way to decide is to use a calculator tool to estimate your potential savings.

Considerations that may stand in the way

• Age of your car. In general, the newer the car, the better. To your lender, an older car has lower collateral value so you may not have an option to refinance the loan balance if it exceeds the vehicle's current value.
• Prepayment penalties. Check that your current lender doesn't require you to pay a penalty for paying off your loan early.
• Other fees. State re-registration fees can vary significantly. Check with your state for the amount to be sure refinancing is worth as much to you as you expect. Also check for any fees your new lender will charge you for the refinance as those fees will impact the value of the new loan.
• Car was recently purchased. If you're thinking of refinancing your loan, consider waiting at least 6 months after the purchase of your vehicle. This allows your loan time to establish a loan history and to address any depreciation from the time of purchase.

Can I refinance my car with the same lender?

• If you have made your payments on time and your credit is in good standing, it may be possible to refinance with your current lender. To see if you qualify, contact your lender.
• Consider your options. If you are unable to refinance with your current lender, shop around and compare quotes to make sure they line up with why you want to refinance.

How does refinancing a car work?

Many lenders offer the option to apply online, allowing you to explore from the comfort of your own home. To verify your identity, check your credit and process your application, your lender may ask you to provide the following:

• Proof of employment and income
• Proof of residence
• Proof of insurance
• Credit history
• Vehicle information
• Existing car loan details

Once you've completed the application, the length of the review process can vary. If you get approved, the lender will provide the terms of the loan including interest rate, loan amount and any applicable fees. At that point, you can compare and decide which lender you want to refinance with. And don't forget to contact your insurance company or agent if you have changed lenders so they can update your new lienholder's information on your car insurance records.