By Mary When should consumers refinance a car loan? No time is best to refinance a vehicle loan. Once you complete the requirements for a new vehicle loan and acquire better terms, you can refinance.
Refinancing shortens the term of auto loans. When the loan duration increases, you can repay it over more time. Increasing EMIs over a short period will shorten the loan duration. Why are you refinancing?
Is Refinancing Feasible Inside The Same Bank?
Refinancing with the original lender is rare. Same-bank refinancing is easy.
Most banks sell car loans to investors for a charge. The original lender may refinance the car loan. If the borrower qualifies, the existing lender can advertise a top-up loan. Within the same bank/NBFC, auto loans can’t be refinanced.
A typical car refinance consists of shifting the car loan to different lenders. This is termed balance transfer. The switch is to a lender with a reduced rate of interest. The next step of refinancing is transferring the existing loan amount and a top-up amount.
Benefits Of Refinancing Your Vehicle Loan
Auto refinancing depends on many factors. Before refinancing, consider these factors. In some cases, refinancing an automobile loan is beneficial:
Due to economic volatility, you may get a cheaper auto loan. Refinancing lowers the loan’s interest rate.
Each loan application depends on a person’s credit score, which affects terms and conditions. Since getting the auto loan, your credit score certainly improved. Refinancing the car loan would improve the terms.
Changing circumstances may require adjusting the loan’s amortization. Refinancing a car loan lets you change the term.
When adding or removing a co-borrower, refinancing is a possibility.
When Should You Avoid Refinancing?
Refinancing is a loan application. Refinancing requires application and processing fees. Refinancing may not be a good idea if you can’t waive these fees with the new lender.
Paying foreclosure fees would close the debt. The lender’s penalty is 1% to 3%. You must compare the enhanced loan terms against prepayment fees.
Eligibility For Refinancing
Auto refinancing has no minimum requirements. A new lender will evaluate the following factors when opting to refinance your loan:
- You haven’t defaulted yet. No one lends to defaulters. If you’re behind on EMI payments, you may not be able to refinance.
- Lenders will analyze the car’s value before refinancing. Age and mileage are factors.
- A credit score represents financial health. An auto loan refinancing application’s success depends on your credit score. Lenders want a higher credit score than before.
Documents Necessary For A Car Refinance Loan
A refinanced loan will require standard documentation from the bank. Here are the bank documents. This is a rough list; bank requirements may vary.
- PAN card, Aadhar card, or passport for ID and address. You’ll require address verification.
- Lenders will want to know your ability to repay a loan, so produce a recent bank statement.
- Car insurance proof is also required.
- Old loan details: the new lender needs the balance and terms.
- Car model, year, mileage, accidents, etc.
Steps To Refinancing Your Auto Loan
First, compare the new lenders’ interest rates and terms. This will help you choose a bank for the refinance.
Discuss refinancing with your lender to learn about foreclosure fees and procedures. This is a wonderful opportunity to waive fees. You can also request your loan balance.
Next, gather and file the required documents and check with the bank for any additional paperwork. This saves last-minute stress. Make sure your insurance is paid up.