What is Auto Loan Refinance and Why is it Important?
Auto loan refinance isn’t just great for personal reasons; it can be financially beneficial to both the dealer and the consumer, so it pays to know all the facts about this type of loan. The first step in understanding what auto loan refinance entails is to look at how it differs from traditional financing.
What is Auto Loan Refinance?
Auto loan refinance denotes applying for a new loan using your old car as collateral and getting a new rate of interest. You can do this at any time with just a few months left on your current car lease. In fact, it is always recommended that you get an auto refinance calculator before going in for a refinance so that you know exactly how much money you will have to pay back in total.
A car loan, also called a motor vehicle loan, is a type of personal loan used to purchase a car or other motor vehicle. These loans are available at banks, credit unions, and other financial institutions. The term of a car loan is usually between two and six years.
Types of auto loans
• New Car Loans – These are car loans with new cars as collateral.
• Used Car Loans – This type of auto loan is secured against used cars.
The vehicle value remains constant, even though it may be several years old by now. According to the experts at Lantern by SoFi, car loans may have fixed or variable interest rates.
Why You Should Consider Auto Loan Refinance
Auto loan refinancing can help you save money if you want a lower interest rate or your credit score has improved after you took out your auto loan. The process of refinancing an auto loan is relatively easy. If your lender offers online applications, fill out and submit one online, and then wait for a voice call or email from a representative. If you bank with a different institution, simply fill out an application over the phone or in person.
Documentation required for refinancing an auto loan:
• Your auto loan account number
• Your auto insurance policy number
• Proof of residence (let’s say, for instance, a recent utility bill in your name or bank statements)
• Proof of income (usually two consecutive pay stubs from your employer).
It’s important to bring documents showing your gross income and net income. Your gross income is your income before taxes; net is what you have after deductions for things like 401k contributions.
How to Refinance Your Auto Loan
Research and shop around for car loan rates through different banks or lending institutions. If you are buying a car, contact multiple dealers and compare loan offers from each. This may potentially save you a lot of dollars per month on your monthly payments over time. Before proceeding with a refinance, make sure that you can comfortably afford it by living within your means during and after the process.
The length of your loan does affect your payment amount and monthly car payments. Remember, longer loans mean higher monthly payments. If you can keep your loan under five years, it will reduce your monthly payment dramatically.
