What Is Car Refinancing?
Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you will begin making monthly payments towards the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly.
Why Refinance?
Your monthly car payment is a combination of payments toward the car and interest. If you’re in a situation where you have less income or additional expenses, and need a lower payment, it might be a good time to refinance. Refinancing and/or extending your loan term can lower your payments. How?
If your credit score has improved since establishing your original car loan, you may qualify for a lower interest rate, which can result in a lower monthly payment. If you don’t qualify for a lower interest rate, you may be able to extend the loan term–that is the amount of time you take to pay off the loan. However, be aware that when you extend the loan term, you will pay more interest over time.
How To Refinance Your Car Loan
Now that you know what it’s all about, you’re probably wondering “how do I refinance my car?” There are some steps you need to take and preparation to do before you can refinance your auto loan. DCU has an easy, 6-step process to help you get ready:
- Check your current loan: To compare your current loan to your refinance offer, you’ll want to gather information like the amount of the loan, interest rate and term of the loan. Also make sure to find out if there is an early repayment penalty.
- Research your car’s value: Use an online website to determine your car’s current value and compare that against the amount left in your loan. If the balance is more than the car’s value, it’s considered “upside-down” and you may not be able to refinance.
- Assemble the information you’ll need: Your auto loan refinance application requires information including: the outstanding amount and term of your current loan, your government ID information, your monthly income, monthly mortgage or rent payment, your Social Security number, the vehicle’s mileage, and the vehicle identification number. Gather these items ahead of time.
- Decide on the term length: You can select short term or long term. A shorter term lets you repay your loan more quickly and pay less interest over the life of the loan. If a longer term is available, it typically comes with a higher interest rate. Longer term divides the principal across a longer period of time, potentially resulting in smaller payments (but also in paying more interest over the life of the loan).
- Submit the application: Submit applications to all vendors within a 14-day period to avoid dings to your credit score. Expect to receive approval or denial anywhere from the same day to a few weeks later.
- Sign off: If your application is approved, you’ll transfer the car title to the new lender, who will pay off the previous loan. You’ll receive confirmation that the refinance is complete and can start making payments to the new lender.
Benefits of Refinancing
Auto refinance borrowers saved an average of $1,158 per year, or about $97 per month, according to the State of Auto Refinance: 2022 Report. Depending on how and who you refinance with, you can get lower rates and more flexible terms, resulting in lower monthly payments.
Get your refinance auto loan with DCU for flexible terms and to get one of the lowest auto refinance rates. Lower your rate, payment or both. Explore our rates, read reviews, and apply online.
Please note, membership is required to open a DCU Auto Loan. Visit our membership eligibility page for more information.
This article is for informational purposes only. It is not intended to serve as legal, financial, investment or tax advice or indicate that a specific DCU product or service is right for you. For specific advice about your unique circumstances, you may wish to consult a financial professional.
