Unless you have a large stockpile of cash, you will need to take out a loan when buying a new car. Your credit score, down payment, current interest rates, and several other factors will determine the terms of this loan. Refinancing with better loan terms is a great way to save money and reduce your monthly payment.

Access the Situation

Refinancing an auto loan does not make sense for all drivers. You need to access the situation and crunch the numbers to make sure you will come out ahead after the entire refinancing process is completed. It is generally recommended to refinance if your credit has significantly improved and you can find a new loan without a lot of extra fees. Since older cars do not hold a lot of value, you may have a hard time getting a new loan if your vehicle has more than 100,000 miles. You also need to find out if there is a prepayment penalty for paying off your current car loan early.

Collect the Documents

If a refinance makes sense for your situation, then it is time to start collecting a few important documents. You will need a copy of your driver’s license, vehicle registration information, and documents from the previous loan. You will also need to provide proof of insurance and income. All of this information will be used by the loan company to determine the exact terms of your refinanced loan. It is best to wait until you have gathered all of these important documents in one place before continuing with the refinancing process.

Apply for Prequalification

Getting preapproved for the new loan can save you a lot of time. While it is not a guarantee, this process will make it a lot easier to get approved for a refinanced loan. According to Lantern by SoFi, you can get prequalified in minutes when attempting to refinance your car loan with lower rate. The great thing about this process is that it will not affect your credit score. This is a great way to attempt to get a new loan without worrying about a huge credit hit if you get denied.

Also Read: Why It is Important to Check a Used Car’s Verification Identification Number (VIN) Before Purchase

Review Terms and Sign Contract

You should read the full terms of every contract before it is signed. Make sure the terms are exactly what you were expecting when you applied for the loan. It is also important to read all of the fine print to ensure you know exactly what is happening. If everything looks good, then it is time to sign the contract. The new lender will pay off your previous loan, and you will start paying them every month. Your new monthly payment and the due date should be listed in the contract.

Refinancing your car loan at the right time can potentially save you thousands of dollars over the next few years. It is always good to have a little extra money in the bank, so take the time to see if refinancing is right for you right now.