This resource is part of the Innovative Funding Services (IFS) auto finance Library.
How Do I Refinance My Car?
At a basic level, refinancing is the process of replacing your current car loan with a new one. While people refinance their cars for many reasons, you ideally want to reduce both your monthly payments and the cumulative interest charge you pay over the course of your loan. To accomplish these goals, you need to find the right lender to refinance your car, making the process of finding the right lender the first and most important step when you are looking to refinance.
Find the Right Lender
While you can sometimes work with your current car loan lender to refinance your car, you usually need to find a new lender if you want to refinance. However, it can take some leg work to find a lender that is a good fit for you.
Many lenders work with specific segments of the credit spectrum or with cars of certain specifications, so some lenders will not work with you simply because you do not fit into their target market(s). And some of the lenders that will work with you might not necessarily offer you the best loan terms you can get. So, refinancing a car can require some shopping.
For this reason, many refinance customers use car loan refinancing services that can do the shopping for them. A good refinancing service will work with a large number of reputable lenders, will know which ones will likely offer you competitive deals, and will take care of you from start to finish.
Whether you use a car loan refinancing service or decide to go it alone, it will be helpful to you to check your credit and write down your car information before applying.
Checking Your Credit
No matter what you do, someone is going to have to pull your credit if you apply for a refinance car loan. You have probably heard that your credit can take a hit if it is checked too many times by too many lenders, which is generally true. But as long as your credit is pulled only a responsible number of times within a short period – meaning you are selective about which lenders you apply with – then your credit should not take much of a hit.
Still, when you apply for a loan, it is better if you are not surprised by what lenders will find on your credit report(s) so that if you are asked about something on your credit report(s), you can give an honest explanation for why it is there. For this reason, you should check your credit before applying. The last thing you want is to think that you improved your credit since getting your auto loan and then learn after applying for refinancing that something else on your report is weighing your credit down.
Under the Fair Credit Reporting Act, you have a legal right to view your credit reports from each of the three nationwide credit bureaus once per year for free. Visit this page from the Federal Trade Commission to learn how to access your free reports.
Writing Down Your Car’s Info
While it should not be a stressful part of the refinancing process, you will save yourself some time if you pull together the information you will need for car loan applications before applying. For most people, the only information they will not know off of the top of their heads will be their vehicle’s VIN number and its mileage.
Finding Your Lenders and Applying
After you have checked your credit and have written down your car’s VIN number and mileage, you are ready to find the right lender and apply.
If you work with a good car loan refinancing service, you only need to submit one application, and they will work with you to make sure everything looks right.
And if you apply with different lenders on your own, you will have to find lenders that work with people in your credit range and with cars like yours, apply with each individually, and work with each lender’s representatives. Finding lenders that fit your needs is not always easy, but you can check with credit unions, commercial banks, and various auto loan lenders.
Once you have submitted your application(s), your next step is to consider any offers that you receive.
Consider Your Options
Naturally, once you receive refinancing offers, you need to decide which loan is right for you. But you should also consider if you want to add any products to your loan by bundling them into your financing. Usually, these products are service protection products, like Vehicle Service Protection, GAP Insurance, or Tire and Wheel Protection.
Complete Your Paperwork
Once you have decided on a loan, your last major step in the refinancing process is to complete all your paperwork and to return it. Once your loan funds and your old lender is paid off, you should be all set with your new car loan.
Please note, even if you are in the middle of the refinancing process, you need to continue making your scheduled payments to your current car loan lender. Your refinancing is not final until it is final, so you still owe your original lender payments until your original loan is paid off, and you are set up with your new car loan.
Auto Loan Refinance Calculator
Try our auto refinance calculator to see how much you may be able to save.
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This resource is for educational purposes only. Its content is designed to explain concepts, not to present exact definitions or to reflect how all financial institutions or auto companies conduct business.