Rateworks auto loan refinance
March 28, 2023

A Deep Dive Into the Car Refinance Process

The process of refinancing a car loan can seem complicated and overwhelming. In this article, we'll take a deep dive into the car refinance process to help you understand how it works and what you need to know before you begin.

Toy car on top of papers for car refinancing
Written by

Sarah T.

A deep dive into the car refinance process

Asses your refinancing options and calculate your savings

Before you do anything, you’ll want to assess your options. Ask yourself a few questions: 

  • Why do I want to refinance? 

Refinancing can help you lower your monthly payments or pay off your debt quicker. Maybe you think you’ll get better terms than you did when you initially applied for your auto loan. Maybe you have new significant financial needs every month that you need to make room for. Maybe you want to get a cosigner off of a loan. If you know why you want to refinance, you can aim for a loan that will get you there. 

  • Is this a good time to refinance? 

If interest rates are lower now than when you got your loan, you stand a good chance of lowering your APR. Many lenders have qualifications you’ll need to meet before you refinance. For RateWorks, we look for people who have paid at least three months’ worth of their current auto loan. 

  • What can I do to improve my finances before I refinance?

Improving your credit score is always a great idea. There are sometimes quick fixes you can take–like removing a bad debt or outstanding loan from your report– that can buoy your score within a month or so. 

You might also think about bringing on a cosigner to help improve your financial outlook in the eyes of a lender. Can you find someone to help you in this way? 

  • What are my current loan terms, and do I think I can improve them? 

Ultimately, think about what you want out of a refinanced loan. If your current loan term is short and your monthly bill is high, you may have room to negotiate for a longer loan term and get lower monthly payments. If you were stuck with a high interest rate, you might be able to shop around and get a much more reasonable rate, thus lowering the total amount you’ll pay over the life of the loan. 

Depending on how you answered these questions, you might decide to wait a few months before looking into refinancing again. Or you might decide that it’s a good time to start the process. 

How to calculate your savings

Use a calculator like this one from RateWorks, to help you understand how much you can save when refinancing. 

Check your credit score

Papers showing a credit score report

You can check your credit score at any time by asking for your report from any of the three big credit bureaus: Experian, Equifax, and Transunion. Some banks will help you keep track of your credit score, too. 

Improving your credit score means diligent work. Make your monthly payments on time, paying off loans and credit card debt. Keep your assets balanced. 

Assemble your documents

When meeting with your lender, you’ll need: 

Vehicle Registration Card

Lenders will want to know what kind of risk the car presents. Newer cars present less of a risk. You’ll be asked for information like license plate number, vehicle identification number (VIN), make, type, and year. Having your vehicle registration card will make providing that information easy and quick.

Vehicle Insurance Card

If you can’t find your registration card, your vehicle insurance card could work because it contains the same type of information. If you’ve lost this card, you can go to your insurance company’s website and request new identification cards to be emailed or mailed to you. 

Vehicle Mileage

If the vehicle has 210,000 miles on it and you’re trying to refinance a 40k loan on the vehicle, lenders will wonder if you can pay that off before the vehicle breaks down completely. There’s usually a mileage requirement for auto loans to prevent this kind of situation. Take a picture of your odometer and keep it up to date. 

Recent pay stubs to show your income

In order to pay back a loan, you’ll need to show that you can afford the cost as part of your monthly responsibilities. Showing your income via pay stubs helps the lender understand what monthly payment you can take on. 

Current loan documents

You can email your loan holder for a copy of your current contract, which will spell out things like your current balance, the number of months remaining on your contract, your monthly payment, your interest rate, and so on. 

Co-borrower information

If you are utilizing a co-borrower or cosigner to get more favorable rates, you’ll need their pay stubs and their information as well. 

Your license or other personal identification cards

Make sure your license or other federally recognized ID cards are up to date. These IDs contain your name and address, which the lender will need. You may need your social security card, as well.

Shop for lenders

Person shopping around for car lenders

Shopping for lenders for your refinanced auto loan includes looking at the different interest rates they’ll offer, but that’s not the only consideration. Credit unions are nonprofit entities run by their members, and may offer lower interest rates, shorter terms, and lower minimum loan amounts. However, you need to be a member of that institution to take advantage of these deals. 

If you apply for a larger bank, you don’t need to be a member, so they may be more accessible. However, they’re for-profit entities, meaning their interest rates will probably be higher, and they probably have a minimum loan amount in the area of $5,000. 

Online financial institutions are becoming more and more popular. They can offer competitive rates and simple sign-up processes. 

Of course, you want to see what interest rates each lender will offer you. But remember to take into consideration other things that can drastically change the life of the loan: the loan term, the monthly payment, and extra fees the lender will charge. These fees especially, can add up and raise your repayment amount significantly. With RateWorks, we don’t charge any fees for a refinance. That can save you thousands of dollars on your repayment. Check out our comparison chart for a comprehensive view of how we might compare to other lenders with fees.

Apply for a refinance

The car refinance process starts with an application online. 

In the case of RateWorks, you’ll submit some basic information about yourself, your current loan, your current payments, and your car, then you’ll see a list of offers to go through. This is where you can choose a long-term or short-term. You can see what interest rates you qualify for. 

Once you select your terms, you’ll submit your application. From there, our lending agents will connect with you and help you finish the process. 

What to do with your new loan

When you have a new loan, you’ll pay off your old loan immediately, thus freeing you from the unwieldy loan. Then, you’ll pay off the new loan every month, just like you were paying your original loan. 

If you’re thinking about refinancing, RateWorks can help make the process easy. If your car is less than 10 years old, has less than 140,000 miles on it, and if you have paid at least three payments on your current auto loan, you qualify. See what your options are and how we can save you money