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Refinancing car loans can help you cut costs by lowering your interest. The process involves replacing the current car loan with a brand new one. The new loan will use your car as collateral, as it did for the original loan. Here are the details of how to refinance an auto loan and what you need to know before you apply.

If you're thinking about getting a car loan, you may want to check out the interest rates available. There are a few different ways to get a lower interest rate on your car loan. You can also take out a car loan with a longer-term and pay off the loan quicker. Whatever method you choose, make sure to use an iLending car refinance calculator to get an accurate estimate of your savings.

Refinancing a car loan

There are several reasons why you might want to refinance your auto loan with another lender. These are just a few of the many benefits that you need to remember:

Lower interest rates: You may be eligible for a lower rate if your credit has improved or the market interest rates are decreasing.

Lower monthly repayment: If your repayment term remains the same, a low-interest rate will usually result in lower monthly payments. To lower your monthly payment, you can apply for a loan that has longer repayment terms. Although this will result in higher interest fees over the loan's lifetime, it can still be worthwhile if your monthly budget has been tight.

Pay off debt earlier: You can choose a shorter repayment time. You will pay more monthly, but you'll save money.

Get cash using your equity: Some lenders offer cash-out refinance loans which allow you to refinance an existing loan and receive additional cash? This option is generally only for people with substantial equity in the vehicle.

When you have considered these benefits, decide whether refinancing makes sense for you.

1. Look at if refinancing makes sense for you

Before you start the application process it is important that you determine if refinancing is the right decision for you. Here are some points to remember:

Credit requirements: in order to be eligible for the best terms and conditions on the new loan you need to have excellent credit. You can wait and improve your credit score instead.

Prepayment penalty there may be a fee charged by some lenders if you make your payment earlier than the agreed-upon upon date. Look over your loan terms and compare the cost of the prepayment penalty to the savings you will get from the new loan.

Origination cost – you may need to pay an upfront fee if you refinance. These fees can vary from lender-to- lender. But it's important you weigh the cost against the potential savings to decide if it's worth it.

Duration of repayment period if your new term is longer than your existing one and you don’t need lower payments, it may be a waste of money. In the end, you may pay more in interest over its life.

2. Gather all necessary documents to submit a loan request

You will normally be asked to supply documents to your new lender after you have submitted the application. This will make the loan process run more smoothly.

Documents that you might be required to share include:

  • Copy of your driver’s permit
  • Vehicle registration
  • Documentation proving insurance
  • You must provide proof of income



By Parker