Refinance a Car Loan

You can refinance a car loan to get lower monthly payments and sometimes decrease the length of your payment plan. In order to take advantage of these benefits, you will need to refinance a car loan early on.

5 Step to Refinance a Car Loan

Step 1
Prepare to refinance your car loan as soon as possible. Most car loans have you paying off the interest before the principal, so it doesn't work to your benefit to refinance a loan that has been mostly paid off. Also, many companies won't consider refinancing loans that are less than about $8,000.

Step 2
Look up different financial lenders in your area. You cannot refinance your loan with the same group that originally gave you the loan. You need to shop around at different places to find the best refinance rates, just like looking for a regular car loan.

Step 3
Find the exact names that were on your original loan. If you hold a joint loan with your spouse, then the refinanced one must also be in both names. Have your Vehicle Identification Number from your registration.

Step 4
Get an appraisal for the value of your car. Most lenders will not let you refinance for more than the current value of your car. If you car has dropped significantly in value, then it may have jeopardized the benefits of refinancing.

Step 5
Meet with different lenders to get a refinancing quote. You'll want to compare the new interest rates in order to find the best refinancing deal. Remember to ask for an Annual Percentage Rate (APR) to make it easier to compare different quotes.

Mortgage Refinancing Tips, Tricks and Advice

I want to pull together a range of tips and advice for home owners that want to take advantage of the low rates and refinance their mortgage. Seems like a great time to refinance with low rates, but with tighter lending standards it also seems more complex than ever. What are some tips and tricks you would give those considering this? Anyone out there that recently refinanced and can share experiences on how they locked in a great rate?

Since my expertise is valuation-related, I'll focus on that. One of the biggest mistakes homeowners make is being realistic about the value of their home. The old way was too look at a similar house in your neighborhood and assume you house was worth more. It has been widely reported in many housing markets that home prices are declining. Get realistic and understand what is happening right now. Trulia is a great place to start.

Once the lender sends the appraiser to inspect your property - this sounds pretty basic - but make sure the house "shows" well, is clean and fully accessible. Don't follow them around the house but make sure you are available for questions. Summarize the features and upgrades and the key amenities in the house for the appraiser. You want to make sure the appraiser doesn't overlook anything. It's helpful to provide a floor plan if available. Your are not trying to cause an overvaluation - rather, you want the property to be valued at full market. I am amazed at how poorly homes are readied for an appraisal.

Any relevant market activity such recent contracts or activity on nearby listings you are aware of in the neighborhood is also helpful - make sure you can provide contacts for the appraiser to confirm this information. Contracts show price levels now, closed sales show prices 45 days prior or in many cases longer and listings, combined with an understanding of how long they have been on the market, show the upper limit to value.

Types of Refinancing

No-Closing Cost

Borrowers with this type of refinancing typically pay few upfront fees to get the new mortgage loan. In fact, as long as the prevailing market rate is lower than your existing rate by 1.5 percentage point or more, it is financially beneficial to refinance because there is little or no cost in doing so.
However, what most lenders fail to disclose is that the money you save upfront is being collected on the back through what's called yield spread premium (YSP). Yield spread premiums are the cash that a mortgage company receives for steering a borrower into a home loan with a higher interest rate. The latter will even eventually lead to borrower's overpaying.

Cash-Out

This type of refinance may not help lower the monthly payment or shorten mortgage periods. It can be used for home improvement, credit card and other debt consolidation if the borrower qualifies with their current home equity; they can refinance with a loan amount larger than their current mortgage and keep the cash difference.

Point (Mortgage)

Refinancing lenders often require an upfront payment of a certain percentage of the total loan amount as part of the process of refinancing debt. Typically, this amount is expressed in "points" (also sometimes called "premiums"), with each "point" being equivalent to 1% of the total loan amount. Therefore, if the refinance option selected involves paying three points, then the borrower will need to pay 3% of the total loan amount upfront. Most refinancing lenders offer a variety of combinations of points and interest rates. Paying more points typically allows one to get a lower interest rate than one would be capable of getting if one paid fewer or no points. Alternately, some lenders will offer to finance parts of the loan themselves, thus generating so-called "negative points" (also called discounts).

The decision of whether or not to pay points, and how many points to pay, should be taken in consideration of the fact that with points, one tends to trade a higher upfront cost in exchange for a lower monthly premium later on. Points can be paid out of the cash saved by refinancing the loan in the first place.

Refinancing Risks

Most fixed-term debt contains penalty clauses (known as "call provisions") that are triggered by an early payment of the loan, either in its entirety or a specified portion. In addition, there are also closing and transaction fees typically associated with refinancing debt. In some cases, these fees may outweigh any savings generated through refinancing the loan itself. Typically, one only rationally considers refinancing if the potential for a substantial cost savings exists, or if there is a need to extend the loan due to weak cash flow or other non-recurring commitments.

In addition, some refinanced loans, while having lower initial payments, may result in larger total interest costs over the life of the loan, or expose the borrower to greater risks than the existing loan, depending on the type of loan used to refinance the existing debt. Calculating the up-front, ongoing, and potentially variable costs of refinancing is an important part of the decision on whether or not to refinance.

Refinancing Advantages

Refinancing may be undertaken to reduce interest rate/interest costs (by refinancing at a lower rate), to extend the repayment time, to pay off other debt(s), to reduce one's periodic payment obligations (sometimes by taking a longer-term loan), to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to raise cash for investment, consumption, or the payment of a dividend.

In essence, refinancing can alter the monthly payments owed on the loan either by changing the loan's interest rate, or by altering the term to maturity of the loan. More favourable lending conditions may reduce overall borrowing costs. Refinancing is used in most cases to improve overall cash flow.

Another use of refinancing is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various indices used to calculate them. By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time. This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans.

In the context of personal (as opposed to corporate) finance, refinancing a loan or a series of debts can assist in paying off high-interest debt such as credit card debt, with lower-interest debt such as that of a fixed-rate home mortgage. This can allow a lender to reduce borrowing costs by more closely aligning the cost of borrowing with the general creditworthiness and collateral security available from the borrower. For home mortgages, in the United States, there may be certain tax advantages available with refinancing, particularly if one does not pay Alternative Minimum Tax.

Definition of Refinancing

Refinancing is renew an debt obligation.
Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage.
A way of obtaining a better interest rate, lower monthly payments or to borrow cash on the equity in a property that has built up on a loan. A second loan is taken out to pay off the first, higher-rate loan.