How to Refinance Your Car Loan and Get Lower Interest Rates?
Time does not stay the same forever. It may get harder or can get you fortune out of nothing. When you go through some “not-so-good moments” in your life, you might decide to get a car loan. However, they can get a bit expensive and you may end up flowing more money than you should. Therefore, we are here for you with a guide on how you can save money on your car loan and how car refinance can be the next best decision of your life.
The concept is nothing but replacing your old car loan with a new one that is offered with some better terms and conditions plus at lower interest rates. To know more about the idea and its functioning, follow the article till the end and learn how you can get a better second chance.
Assess Your Financial Situation
Assessing your financial situation means evaluating your capabilities in monetary terms. This evaluation needs proper counting of your income source whether they are direct or indirect. Moreover, there are many factors that count as liabilities that you are going to consider in making a report.
Given are the steps that you should follow while evaluating your situation:
How Much Do You Make?
The first step in the process is to identify the amount of money you make via all the direct or indirect sources. All the sources that end up inflow of greens must be counted.
You can also try calculating your net worth. Yes, net worth is not the thing that only celebrities and businessmen have. Every single person on this planet has some amount of net worth that he has made in his lifetime. To calculate it, consider all the assets like cars, bikes, houses, etc., and do the same with all your debts. Count them and find the difference between your total assets and your total debt.
This way you can easily calculate your net worth by yourself. You can also take the help of some tools that serve the purpose of tracking your net worth over a period of time.
Debt-to-Income ratio is as simple a concept as it sounds. The sole purpose behind this is to identify the situation of your loans like car loans, gold loans, mortgages, or basically any other debt, in comparison to your monthly income.
Given are some major debt categories that you might have on yourself:
- Rent Payment
- Car Loans
- Personal Loans
- House Loans
- Education Loans
- Healthcare or Medical Bills
- Credit Card Payments
Or basically, any other payment that you have to make on a recurring basis. It would be easier for you to calculate if you are already on a monthly budget.
Divide all these recurring payments by your gross monthly income to find out the ratio. This ratio will also play a significant role in calculating your credit score.
Set Your Goals and Make a Budget
Setting goals for your future is a crucial and admirable decision at the same time. It gives a clear picture that what actions should be taken in the future for better control over the greens. It is true that you might have to cut some of your wants in order to pay your debts, but the necessities should be prioritized over the wants.
While setting up your goals, you can also update your budget according to the fresh needs or financial condition you are in. Another plus point is that you will gain the skill of creating a budget that you can use anytime in the future in any financial condition.
Shop Around for the Best Deals
Finding the best deal for yourself is a skill that you gain with the experience you get over time. And if you are hoping for getting a fair one in the first place you step your foot in, we are so sorry to tell you that the reality is not like this at all.
Mostly, the best deals are found in the most unexpected places. Therefore, you should not keep yourself limited to just one stop. Explore the market as much as you can. Try to bargain the best offer for you and finish the deal.
In this stage also, the credit score will play a significant role as some lenders conduct a prequalification that estimates the potential interest rates that will be directly related to your credit score. This will assist you in crafting a final decision with competitive rates that will suit you the best.
Understand the Terms and Conditions
Terms are conditions are crucial for any contract or agreement that you are signing with an institution. One misunderstanding or any mistake in the contract can result in heavy consequences. Terms and conditions are the summary of all the rules and regulations bound by the deal. Any kind of breach of those rules and regulations can cause you some legal consequences.
All the information regarding the interest rates, time period, final payment, and other necessary conditions are mentioned in them. Even in the courts or in front of any magistrate or judge, the text mentioned in the contract would be prioritized over the verbal statements.
Calculate Your Potential Savings
To know whether refinancing your car is worth it or not, you should calculate the potential amount of money you can save by this decision. This can be done by comparing your current loan’s total cost with the total cost of the loan you are re-applying for.
According to Lantern by SoFi, “By refinancing your car loan, you could lower your interest rate, which could save you money on interest and reduce your monthly payment”. Although, this can be a great resource that can serve you with this purpose. This platform is super effective and efficient.
Prepare and Submit Your Application
Once you have found the best deal for you and have made a fully rational decision about what can be the best option for you, you can go for it without any hesitation. The submission of the application would need some documents like your residential proofs, personal identity proofs, your current loan details, etc.
Refinancing might lead you to some extra time to pay off your dues at considerably lower interest rates. Therefore do not hesitate to explore as much as you can and make moves.