When to refinance:
Refinancing will help you in only certain cases. These are:
- If you have improved your credit rating since you took the loan and had been forced to accept a high interest rate. With the better credit rating, you can reduce the interest charges and your monthly payments.
- Market interest rates for cars have fallen to a level significantly lower than what they were when you borrowed. By refinancing you can take advantage of this reduction.
- If you are unable to keep up with the payments and want a more comfortable payment plan.
Current situation of the loan:
Contact you current lender and ask for the position of your loan. The details you need are:
- Total amount left
- Length of loan left
- Interest charges
- Any pre-payment penalty
If you are behind payment, you need to clear it now so that you go with a clean sheet to the new lender and your chances of refinancing increase.
Some conditions that apply:
Most lending and financing institutions lay down these conditions in refinancing cases
- The loan amount left should not be less than $75000.
- Commercially used vehicles are not accepted
- Car should not be more than 7 years old or run over 100,000 miles.
At times your current bank can also refinance your loan. However, if it does not agree you will have to look for other options.
Research on banks and lending institutions around you which accept the conditions like your own. Inquire about the processing fee and the time it is going to take. Websites like bankrate.com allow you to compare different refinancing companies.
Choose a new lender who offers you lower interest rates and a new payment schedule. Complete the paperwork. The new lender will pay off the previous one and set you up a new schedule.
Cost benefit analysis:
Compare the fee of refinancing and any penalty fee with the amount you are going to save. At times the penalty fee which is created to prevent you for refinancing the loan is quite high and makes refinancing totally unattractive. Only go for the refinancing option if the difference is significantly greater because you are also going to put in a lot of physical effort and time into the process.