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Are you looking to get a lower interest rate and shrink the monthly payment on your car loan in 2022?
With the right game plan, refinancing your auto loan can help you accomplish both at the same time.
The term “refinance” can conjure thoughts of an overwhelming process, but refinancing your car is much less complicated than refinancing your home. There generally are no fees, and the loan itself can be processed much faster.
And the best part: You’re likely to see financial benefits from refinancing your auto almost immediately.
In this article, I provide a step-by-step guide to help you through the process of refinancing your vehicle from beginning to end.
So you’re ready for a new car loan. But are you sure that’s actually the right financial decision for you at this time?
Before you follow Team Clark’s steps to acquiring a new loan, you should assess whether you’re actually a good candidate for a refinance.
Refinancing an auto loan is so easy and straightforward that Clark says most people should at least explore the idea — especially if interest rates are low.
Here is Clark’s basic rule of thumb for determining if you’re a good candidate:
If you can qualify for an interest rate that is lower than the rate on your existing auto loan, you should move forward with refinancing — as long as you do not extend the term of your loan.
And since you don’t have to pay any fees for a new auto loan, you’ll likely see monthly savings immediately. You can read more about Clark’s car refinancing philosophy here.
If you’re considering a refinance but are unsure if you’re a good candidate, do this quick, four-question assessment.
Once you have decided that you would like to move forward with a car loan refinance, gather all your pertinent documents for the vehicle, your personal finances and the existing loan.
We’re starting here because we know that the application process for any new loan is going to require most, if not all, of this information.
Make sure you have copies of (or quick access to) the following:
Your potential new lender won’t necessarily require that you provide these items, but researching them yourself will keep you from being surprised during the refinancing process.
Once you have all your documentation in order, it’s time to start shopping for the best terms on a new loan.
Clark recommends shopping at credit unions instead of banks for this type of loan. That’s because the rates are typically lower, and their appetites for taking on this type of loan are usually greater.
“Credit unions almost always are going to be the cheapest place,” Clark says. “Credit unions tend to use a sliding scale to find a loan for you. You have to really, really have horrendous credit for them to just flat turn you down.”
Clark also says that USAA is a good lending option for those who qualify for membership.
As mentioned previously, expect an in-person or virtual meeting with your prospective lender to pinpoint your exact interest rate and complete the necessary paperwork.
You’ll want to be prepared for this application with the paperwork accumulated in Step 1 and the market knowledge you may have acquired during Step 2.
You’ll also want to have two forms of identification available (driver’s license, Social Security card, passport, etc.) and full information about your current and former addresses. You may also be required to show the vehicle to the lender, so ask whether you need to drive the car to the meeting.
Each lender’s evaluation process is a little different, but you can expect to see a rate chart similar to this one from Navy Federal Credit Union:
The interest rate offer that you’ll receive will be based on where you fall on the lender’s scale for things like creditworthiness, the total amount of money borrowed, age of the vehicle and the term of the new loan.
Once your potential new lender has evaluated the information you provide on the application, you will be either approved or rejected for a loan. If approved, you’re likely to be presented with your options for interest rate and loan term.
Instead of making a snap decision, step back from the table and do a quick assessment of the offer to make sure this loan is the right one for you.
Some things to consider at this point in time:
If you have a clear path to saving money without extending the length of the loan, and you’re not upside down on your existing loan, you should be ready to move forward with refinancing.
Once you have decided to greenlight a new auto loan, things can happen pretty quickly.
Usually, your new lender will walk you through this process, but here are some things to expect.
Congratulations! You have a new loan at a better interest rate and you’re well on your way to seeing savings right away.
There are just a few more things to consider about your new loan as you make the transition from one lender to the other:
Refinancing your car loan is a fairly straightforward process that can save you money almost instantly.
As long as you’re following Clark’s rule, which is to make sure you’re both lowering your interest rate and shortening or maintaining your term on the loan, a refinance should prove to be a sound financial decision.
If you’re prepared with your paperwork and do your homework on rates, the whole car loan refinance process can be completed in a day or two.
This post was last modified on February 3, 2022 6:58 pm
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