How to Refinance a Car Loan

Is your car loan payment compromising your finances each month? Are you paying more in interest than you think is fair? You might be able to refinance.

In this article, we'll take a look at how to refinance a car loan and how to decide whether refinancing is the best course of action for your situation.

How to refinance a car loan

Check your current loan terms and credit score

Your credit score is one of the biggest factors influencing your auto loan interest rate. If your score has improved significantly since you got your car loan, you have a good chance of getting better terms.

It's also important to review your credit report for errors. Incorrect information could unfairly bring your score down. If you see anything inaccurate, dispute it with the credit bureaus before applying.

Use an auto loan calculator to compare your current loan against potential refinancing options.

Shop around with multiple lenders

Get pre-qualified with a few lenders using a soft credit check, which doesn't impact your score. Once you've chosen the best option, you can submit a formal application. The lender will then run a hard credit check.

Close on your new loan

As long as the lender approves your application, you'll sign your closing documents and use the funds to pay your current car loan in full.

When does it make sense to refinance a car loan?

Refinancing makes sense when your credit score has improved significantly, when interest rates have dropped broadly, or when you need to remove a cosigner. See the impact of credit scores on auto loans for how score changes affect your rate.

How refinancing affects your credit

The hard inquiry can cause a small, temporary drop in your score. The new loan also lowers the average credit history age, which can cause another slight score reduction. However, if you save money and use it to pay down credit card debt, you might see a major boost.

Conclusion

If you're looking to refinance a car loan, improving your credit score is the best way to unlock better terms. Kikoff can help you build the positive payment history you need. 

Sign up today and start your credit-building journey off right!