It’s the Same Car, But Cheaper!

Many people are taking advantage of ultra-low interest rates to refinance their mortgages. But did you know you can also refinance your car loan?

Longtime readers know it’s the big things that determine your financial wellbeing—the house you live in, the student loans you take out, the car you buy.

The ideal way to buy a car is with cash. That way, you never pay a penny of interest. The next best thing is to pay the least amount of interest as humanly possible.

If the rate on your car loan is high and your credit score has recently improved, it’s worth the bit of time needed to refinance.

Step #1. Check Your Credit Score

First, you need to know if your credit score has improved. Most credit cards and even some bank accounts offer free access to your FICO score. So, that’s a great place to start.

You can also get a free copy of your full credit report every 12 months. Just visit and follow the instructions. This is the only site that offers a truly free report pulled from all three credit bureaus (Equifax, Experian, and TransUnion).

Checking your own credit should not lower your credit score. If it’s gone up, move along to Step #2. If it hasn’t, you can do something about that—start here.

Step #2: Find Your Loan Document

You’ll need to find out where you stand on your current loan. If you don’t have a copy of your loan document, check your online account. There’s usually a copy you can download in the documents section of your profile. If not, call your lender and ask them to email you a copy.

You are looking for the following information:

  • current interest rate on the loan,

  • current monthly payment,

  • the number of months left on your loan, and/or

  • your remaining balance.

Read your entire car loan agreement and make sure there are no prepayment penalties. That’s where they penalize you for paying off your car early.

If there is a penalty, refinancing probably isn’t your best move, but run the numbers anyway to make sure.

Step #3: Gather the Essentials

Before you research lenders, collect some basic info to make the process as quick and painless as possible. That means:

  • your driver’s license number,

  • your vehicle identification number (VIN),

  • proof of auto insurance,

  • proof of employment (pay stub or screenshot of a pay stub), and

  • your Social Security number.

Step #4: Open Applications with Several Lenders

You want to submit all of your applications within the same 14-day window. This way, the credit bureaus won’t penalize you for multiple credit pulls. Your score might still drop around five points, but that’s it. (And it should bounce back pretty quickly.)

Once you submit the applications, use an auto-loan refinance calculator to compare your options. Just fill in your current loan information vs. your new offer and see how much you can save.

The loan offer that saves you the most wins! Well, that’s a little simplistic. You also want to make sure there is no prepayment penalty in the small print.

  • A word of caution: Do not lengthen the term of the new loan under any circumstances.

Sure, if you extend your loan term, your monthly payments will be lower, but you will end up paying more interest. I get why it’s tempting, but it defeats the purpose of refinancing. Your goal is to pay less interest, not more.

Step #5: Wrap It Up

Now it’s time to complete the application process with the lender offering you the best interest rate and fairest terms.

You’ll sign new loan documents that disclose your new interest and other loan terms. These days, most paperwork is e-sign only, meaning you’ll agree to the terms online and type your name.

Then your new lender will pay off your old loan, and you’ll begin making payments to your new lender at the lower rate.

  • This is also a good time to set up automatic payments.

The whole process should only take a couple of hours.

I’ve known a bunch of people with messy finances who radically changed their habits. They raised their credit score, refinanced their car loan, and got a lower interest rate.

This is doable—and worth doing.

Jared Dillian
Jared Dillian

P.S. Remember, this whole process only works if your credit score has substantially improved. There’s no way better way to make that happen than tackling your debt. If you’re ready to eliminate debt from your life for good, I can help. Get started now by clicking here.