June 23

How to Refinance a Car – A Step-By-Step Guide

Are you looking to refinance your car?

In other words, are you looking to replace your auto loan with a new one?

If so, then you’ve come to the right place. 

Here, we’re going to give you a step-by-step guide on how to refinance a car. 

And sure, this isn’t a one-size-fits-all scenario, but we will give you all the important details you need to know about. 

So are you ready to begin?

Let’s begin!

The 4 Steps to Refinance Your Car

How to Refinance a Car
Source: canva.com

If your financial situation has changed or you just want better car loan terms, you may want to refinance your car. 

But you might be thinking, “What a hassle!”

However, you can refinance your car in 4 simple steps. These are: 

  1. Collect all the necessary documents 
  2. Pick a refinance lender
  3. Apply for an auto refinance loan
  4. Pay off your old loan

Let’s go through these steps in detail. 

Step 1: Collect All the Necessary Documents

To refinance your car, you need documents showing the following:

  • Personal information
  • Proof of income or employment
  • Proof of auto insurance
  • Current loan information
  • Current car information

Personal information

Refinance lenders will ask for a form of identification, such as a driver’s license, your Social Security number, previous addresses, and monthly mortgage or rent payments. 

Proof of income or employment

You must let the lenders know that you can repay your loan. In that case, presenting a pay stub or tax return is needed. In some cases, lenders might also ask about your employment history.

Proof of auto insurance

Lenders don’t want to get in trouble for you. This is why they will need your auto insurance card or at least other proof of insurance. 

Current loan information

If you want better offers, then showing your current loan information is a wise idea. 

Here is what you can show to your lender: 

  • Current monthly payment
  • Remaining balance
  • Loan term or the remaining period left in repaying the loan
  • The interest rate

Side note: it’s important to check if your original loan contract has no prepayment penalties. The prepayment penalty is a fee you’ll get if you pay off your loan early.

If you cannot find your contract, your current lender’s customer service can help you with the information needed. They can even email you a copy of the contract.

Current car information

Lenders are also looking for information about your vehicle. 

So make sure you provide information about the car’s make, model, mileage, and vehicle identification number (VIN). 

Click here if you want to know where to find the VIN on a car. 

Step 2: Pick a Refinance Lender

When looking for a refinance lender, it’s best to look into several ones. This way, you can check and compare the costs, interest rates, loan terms, and other policies. 

Some loans qualify for an autopay discount. This can help lower your interest rate while allowing you to be consistent with your payment. 

On the other hand, you may want to opt for a longer loan term with a lower monthly payment. But you’ll also end up having to pay more interest.

Ultimately, knowing what you want and doing some research will guide you into getting the best lender that fits your specific needs. 

Step 3: Apply for an Auto Refinance Loan

Once you have found your lender, it’s now time to apply for an auto refinance loan. 

For that, submit all the necessary documents (see above) and any other document your new lender asks for. You will also need to submit your credit score for review. 

If your loan is approved, the lender will provide information on the new loan’s terms and conditions. Make sure you read it carefully before you sign. 

It’s also a good idea to keep a copy of the new record, which tracks the minimum monthly payments and when the payment is due.

Step 4: Pay Off Your Old Loan 

Usually, your new lender will take care of paying your old loan in full. 

If that’s the case, always check with your previous lender if the old loan is already paid in full. You don’t want to stop paying them only to find out it isn’t fully paid yet. 

Sometimes, you are given the money to pay your old loan yourself. So make sure you pay it off right away so you can focus on paying your new loan. 


Before we go, let’s answer some of the most frequently asked questions about refinancing a car loan. 

Can I refinance my car loan?

You have to make sure you can refinance your car loan. 


First, check if your current loan has a prepayment penalty. If so, then refinancing may not be an option. 

When you refinance a car loan, you may need to pay an additional fee when you register your vehicle. Check how much the fee is and if you can afford it. 

Also if your car is old, there may be some restrictions. Some lenders won’t allow you to refinance your car that is more than 8 years old or has exceeded 100,000 miles.

When is the right time to refinance a car loan?

This depends on different factors. You can check if interest rates have dropped since taking out your original auto loan. Even a small percentage drop can help you save more on your current loan.

What if the loan balance is higher than my vehicle’s market value?

In this case, you will have a hard time getting your new loan approved. But some lenders may allow you to transfer your current loan’s outstanding balance into your new loan. However, this will add to your overall debt.

Should I check my credit first before taking a new loan?

Yes, you have to check your credit first to see where it’s at. 

Good credit will give you a lower interest rate. Opposite to that, bad credit means getting lower interest rates may be difficult. 

Even worse, a lender can decline your request for a loan altogether. 


So that is how to refinance a car. 

As you can see, it isn’t difficult at all. 

You just need to make sure that your original loan doesn’t have prepayment penalties, you have a decent credit score, you have a good contract with your new lender, and you can provide all the necessary documents. 

Good luck!

Get more tips here drivingtips.com

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}