|By David Pilley on September 16, 2010
You might be familiar with refinancing a mortgage loan. People do this in order to obtain a new loan with a lower interest rate, a different payment plan, or both. What you might not be familiar with is that you can also refinance your car loan. If you’re in jeopardy of repossession, refinancing the loan may be the best option to prevent this from happening.
As always, you want to make sure your credit score is good before refinancing (or attempting to do so). If you are at or below 620, you are in the subprime category, and you will be turned down for most loan offers. What loans you are approved for (title loans) will likely have a high interest rate, something you’re trying to get away from when refinancing. Therefore, know your credit score before attempting to refinance your car.
If your current loan has negative equity, it is called an “upside-down loan.” This means that the amount of money you owe is greater than the actual cost of your car. Lenders will never give you a refinanced loan if your current loan is upside-down, so make sure you owe less than the actual value of your car before you refinance.
The most important factor in refinancing, though, is the actual lender. You are not going to be able to refinance your car loan with your current lender. Don’t even try it; you’ll be barking up the wrong tree. This means you will need to do some research to determine which new lender can offer you the best rate. Researchers like me know that, the higher number of sources you have, the higher amount of information you have. There are numerous online lenders that will give you quotes, and they will factor in quite a lot of information about your car. (Some of the sites that list and compare rates include moneyaisle.com, bankrate.com, up2drive.com, and myautoloan.com.) When you fill out an online application, you will need to supply facts, such as the make and model of your car, how many miles it has run, and the balance on you current loan. And, because there is no appraisal needed for refinancing your car loan, you may be approved for your new loan in minutes. Just make sure you don’t take the first offer. Get numerous quotes from different lenders and then determine which new rate works the best for you.
When you refinance your loan, you will transfer your car title to the new lender, and there may be a new registration fee, but the benefits of refinancing your car can ultimately outweigh the costs, as long as you do your homework first.