While you may enjoy driving your new car, you might not love your currently high interest rate. Many inexperienced car buyers, and buyers with poor credit, end up with a high interest rate at the time of purchase. Lowering the interest rate on your vehicle is possible, and it can save you a considerable amount of money over the life of your loan. You will need to find a lender or bank that can refinance your current auto loan with a lower interest rate and a better monthly payment.
TL;DR (Too Long; Didn't Read)
You can either refinance your current car loan with another lender or work with your current lender to reduce your interest rate.
Check Your Credit Before Shopping
Pull your credit report from each of the three major credit bureaus before approaching a lender for an auto refinance. Equifax, TransUnion, and Experian all gather information about your financial history and transactions and assign you a credit score.
Although credit is not the only factor lenders consider, your score is one of the main indicators most lenders use to determine the interest rate they’ll offer you on a loan: the higher your credit score, the lower your interest rate. Pulling your credit before an auto lender does can allow you to gauge whether you will qualify to refinance and receive a better interest rate, or whether you should work on your credit to get a better rate.
Cleaning Up Your Score
If you haven't worked on your credit score since you took out your high interest loan, or you have made some financial missteps since then, you may need to clean up your credit. A small bill that’s more than 30 days late is enough to drop your score by a few points.
If you have past due payments or outstanding collections on your credit, pay them off prior to refinancing. Ask for a receipt or letter as proof that you have repaid the debts, for each obligation you pay. Check your credit history 45 to 60 days later to make sure the obligations are marked as paid. Once this happens, your credit score should improve.
Shop Auto Refinance Loans
Shop around to determine what the going interest rate is for your vehicle and credit score. Request car loan quotes from a minimum of three independent financial institutions and compare the rates. The quotes will give you the new interest rate, projected payment and length of the loan term.
You might also contact your existing auto lender and ask them to lower your interest rate. If they deny your request, explain to the agent that you’ve received a number of lower rate offers from other companies, and ask if they’re willing to match or beat the lowest offer. If you have a good payment history and strong credit, the lender will likely want to keep you as a customer.
Consider Interest and Repayment Terms
Choose the loan that offers you the lowest interest rate and most acceptable payment terms. If it’s your existing loan company, ask for the new loan terms in writing and sign the new loan obligation. If you’re changing companies, schedule an appointment with the new loan officer to complete your refinance.
- Don’t allow too many companies to run your credit. Each time your credit is pulled and a purchase or loan is not made, it can lower your score.
Louise Lawson has been a published author and editor for more than 10 years. Lawson specializes in pet and food-related articles, utilizing her 15 years as a sous chef and as a dog breeder, handler and trainer to produce pieces for online and print publications.