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There are several types of loans specifically catered to your unique needs. Whether you need a loan for a mortgage, student’s fees, equipment purchase, and whatnot, you can apply for loans from banking institutions or accredited lenders in your city.
One of such loans is refinancing for your car loan. If you just purchased a car on loan, this post should interest you. We explore everything you need to know about refinancing your car loan.
What Is Car Loan Refinancing?
Refinancing your car loan simply means taking out a loan from a lender to pay off what you owe on your car purchase. This means that when you buy a car on loan, you can take another loan to pay off what you owe.
These loans are typically secured by the car being paid for, and the repayment is made in monthly installments by the borrower. A refinanced car loan is a long-term loan that can last for several months and years depending on the repayment agreements between the lender and borrower.
Thus, if the repayment arrangements aren’t suitable for you, you can choose another lender with a more flexible repayment plan.
How Does Car Loan Refinancing Work?
If you purchase a car on loan, the repayment will spread across several months to enable you to pay slowly while taking care of your other needs. However, if you plan on paying off the loan as soon as possible, the best option is to reach out to a lender to refinance your car loan.
The lender reviews your application, including other relevant paperwork, and grants the request. In exchange, the lender requests your car’s title and puts a lien on it. After receiving funding for your car’s loan, you can pay off the balance you owe.
Your focus will have to change to paying back the refinanced car loan. To get approved for a refinanced loan, lenders want to see what you’ve progressed in paying back your original loan.
It shows that you’re serious about repaying what you owe, and they can trust you in repaying their loan if granted to you.
When Should You Refinance Your Car Loan?
Several factors should determine when you should refinance your car loan. These factors include:
1. When the interest rates have dropped.
Interest rates experience changes regularly. If the interest rates fall, you can take a refinancing loan to quickly pay off the balance.
2. Your income has improved considerably.
You should opt for a refinanced loan if your monthly income has improved since you started paying off your original car loan. Lenders want to know that you can pay off your loan comfortably before approving your request. If your debt-to-income ratio is impressive, you should totally opt for a refinanced loan.
3. If you experience difficulties in keeping up with your monthly bills
If you struggle to manage your other expenses after making monthly repayments, you should opt for a car refinancing loan. The loan will help you settle what you owe, and you’d have enough breathing space to take care of other aspects.
When’s Not the Right Time to Apply for a Refinancing Car Loan?
There are times when seeking out a refinanced car loan may not be a wise decision. They include:
1. When your car is old
Cars generally depreciate in value every year, as new models are released yearly. Some lenders will not approve your loan request if your car is several years old or has attained several mileages.
2. When you’ve almost finished paying the original loan
Applying for a refinanced loan isn't advisable if you’re close to completely paying off the original loan. This is because you’d have to deal with paying a new loan with new interest again.
3. If you plan on applying for another loan in the future
If you’re planning to take out a personal or business loan in the nearest future, you should not apply for a refinanced loan. Typically, all refinanced loans come with hard checks, which reduces your credit score. In the eyes of your new lender, you are not creditworthy.
Pros of Refinancing Your Car Loan
There are several benefits attached to applying for a refinanced car loan. They include:
- Lower monthly payments. One of the noticeable benefits of refinanced car loans is that you’d make lower monthly repayments when compared to your original car loan. With lower monthly payments, you’d be able to take care of other personal and business needs.
- Lower interest rates. Another benefit to refinanced car loans is that you also get to pay lower interest rates than the original loan.
- You clear off your debts quicker. With refinanced car loans, you can pay off your balance on time and get a lien-free title from your original lender.
Cons of Refinancing Your Car Loan
The demerits of applying for a refinanced car loan include:
- Refinancing fees. While refinancing car loans can help you settle the pending balance from your original lender, you get to pay new fees. Some of these fees include origination, title transfer, and application fees. Thus, it is essential to review what every lender offers before applying for the loan.
- Typically lasts longer. Refinanced car loans usually last for extended periods.
Steps Taken to Apply for a Refinanced Car Loan
These are the steps involved in applying for a refinanced car loan.
- Check your credit scores. Before applying for a refinanced car loan, you need to review your credit score. These loans require a hard check on your credit, reducing your credit score.
- Prepare relevant documents. There are several documents your lender may ask for before approving your loan request. They include proof of income, insurance, valid driver’s license, VIN, and contact address.
- Search for lenders. With Refinancing Your Car Loan with Bunny Lender, you can search for accredited lenders in your city and apply for a refinanced car loan. You can compare their rates and review the agreement terms before making a formal application.
- Get approval. After submitting your application, the lender will review it and crosscheck your paperwork before approving it. When you receive the funds, you can then pay off the balance of the original loan.
Final Thoughts
Applying for a refinanced car loan may be the best decision to pay off the balance of your original car loan and claim your car. Here at Bunny Lender, we link you up with certified lenders in your city. You can look up their rates and apply when satisfied with their requirements.
