Not everyone qualifies for low interest rates on car loans. Borrowers with bad credit often have to settle for merchant loans with high interest rates. An auto refinance loan allows you to get a new loan to replace your current one, usually giving you a lower monthly payment and a lower interest rate. And while this may seem like the right move, researching how to refinance a car loan can help you make your decision.
We at the Home Media Reviews team will explain how auto refinancing works and show you the factors worth considering before taking out a new loan. We will also provide recommendations for lenders that offer the best auto refinance rates in the industry for 2022.
4 Steps to Take to Replace Your Current Auto Loan
Auto refinancing usually follows the same process as getting a new car loan. It’s important to review your finances and the terms of your original loan to decide if auto refinancing is right for you. If so, your next step is to shop around for car loan rates and compare your options.
Below, we provide in-depth information on the four steps to refinancing a car loan.
1. Decide if refinancing your vehicle is the right move
Refinancing your auto loan makes sense if you can get a lower interest rate and monthly payment than you currently have, but it may come at the expense of getting a longer term loan. Extending the term of your auto finance can cause you to pay more interest overall.
Here are some things worth considering in your decision when you refinance your car loan:
- Your credit score: If you have bad credit, work to repair it before trying to refinance your auto loan. That’s because your credit history will affect whether you qualify for an auto refinance and the rate and terms you’re given.
- How long have you had your car loan?: Wait six months to a year after the loan term begins before applying for refinancing. This should give your credit score enough time to recover from the hard credit inquiries that were made when you took out your original loan.
- The economy and interest rates: You won’t be able to maximize the return on your vehicle refinance if interest rates are skyrocketing. Wait until they start to fall to ensure you get the lowest annual percentage rate (APR) and monthly payment possible.
2. Gather all necessary documentation
Applying to refinance your auto loan is similar to applying for a new loan. During the application process, you will need to provide documentation to verify your identity and creditworthiness and the value of your car.
You must prepare these documents before applying for an auto refinance loan:
- Personal information: Have your driver’s license, address, phone number, social security number, proof of income and proof of insurance ready when you apply.
- Vehicle information: Have your vehicle identification number (VIN) and the car’s year, make, model and registration number available to the lender.
- Current credit details: Collect current lender information, your account number and existing payment amount.
3. Shop and compare lenders
Each lender weighs factors differently when calculating auto refinance rates and offers. Start with local banks and credit unions when shopping. Most financial institutions offer car loans and you may qualify for special discounts at the bank where you are a member. Once you have those rates in hand, compare them to offers from other lenders to get a better idea of which one offers the best deal.
4. Accept the Offer
Auto loan refinance offers tend to last between one and two months before they expire, which means you can take your time evaluating all of your options. Once you sign for your new loan, the lender will likely handle all the paperwork and pay off your old loan directly. Note that some lenders may pay you directly and have you transfer the funds to pay off the loan balance.
You will usually start making monthly payments to your new lender within 30 days.
What to consider before refinancing your car
Since every financial institution is different, you may face different requirements and fees that may affect your vehicle refinance. Here are some factors worth considering:
- Prepayment penalties: This is a fee that is paid if you pay off the loan early. Not every financial institution charges this, but it’s worth checking as it could cost you.
- Time remaining on your loan: If you are close to paying off your loan, it may not be worth refinancing your car.
- Your financial situation: Lenders will look at your debt-to-income ratio when you apply for one auto loan refinancing. If you owe a lot of money on credit cards or personal loans, pay off the debt in advance to get better repayment terms.
Our recommendations for automatic refinancing
Auto refinancing can help you get a lower rate and lower loan payments. But finding a new lender that’s trustworthy can be difficult if you don’t know where to start. We recommend you contact AutoAprovim and myAutoloan to discuss your existing auto loan and submit loan applications.
Auto-Approval: The best choice for refinancing
Unlike most lenders, Auto Approve specializes in auto loan refinancing. The company offers a lot of flexibility, working with a network of lenders to offer refinancing for the following types of vehicles:
- Standard cars, trucks and SUVs
With Auto Approval, qualified borrowers can get refinancing rates as low as 2.25% APR. The lender has a solid reputation as a financial institution. The company is accredited by the Better Business Bureau (BBB) and has a A+ rating from the organization.
Read more: Automatic approval review
MyAutoloan: The best low rate option
The myAutoloan online marketplace allows you to compare offers from lenders in one place. With auto loan refinancing, borrowers with good credit can find APRs as low as 1.99% for a loan term of 36 months or less. Those with less than ideal credit may also be able to refinance their auto loans through myAutoloan as the company’s minimum credit score is 575.
Within the auto loan industry, myAutoloan has favorable reviews. The market has one A+ rating by BBB and is accredited by the organization. Customers on Trustpilot give the company an average of 4.3 stars from 5.0.
Read more: myAutoloan review
Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our ranking of the best car loan companies. We collected data on dozens of credit providers to rate companies on a wide range of ranking factors. The final result was an overall rating for each provider, with the companies that scored the most points at the top of the list.
Here are the factors our ratings take into account:
- Reputation (30% of total score): Our research team considered ratings from industry experts and each lender’s years in business when producing this score.
- Availability (20% of total score): Companies that cover a variety of circumstances are more likely to meet the needs of borrowers.
- Loan details (15% of total score): We have reviewed the types of loans, durations and loan amounts that are available from each lender to determine this point.
- Rates (25% of the total score): Auto loan providers with low APRs scored highest in this category. Available discounts were also considered.
- Customer experience (10% of total score): This score is based on customer satisfaction and transparency ratings. We’ve also considered the responsiveness and helpfulness of each lender’s customer service team.
*Data correct at time of publication.