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How To Refinance A Car Loan?

IndianMoney.com Research Team | Posted On Friday, August 24,2018, 03:57 PM

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How To Refinance A Car Loan?

 

 

 

Refinancing a car loan means availing a new loan, to pay off an existing loan. The vehicle is pledged as collateral. Refinancing a car loan makes sense if:

1. Your credit score was bad and has now improved. A good credit score helps in availing car loans at lower interest rates.

2. You are dissatisfied with the current car loan terms.

3. If you are experiencing financial problems and wish to extend the loan tenure.

4. Your salary is hiked and you want to settle the loan quickly.

5. If you have surplus funds at your disposal and wish to utilize them to close the car loan early.

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How To Refinance A Car Loan?

 

Things to keep in mind before refinancing a car loan:

1. Check the outstanding loan balance.

2. Check the remaining loan tenure.

3. Know the current interest rates.

4. Verify if there are prepayment penalties.

 

Steps to refinance a car loan:

Before opting for refinancing a car loan, collect loan and vehicle documents, check credit history, compare loan offers and evaluate whether refinancing makes sense for you.

 

Following are the steps to refinance a car loan:

1. Collect documents

2. Evaluate your credit history

3. Apply for car loan refinance

4. Run the numbers

5. Decide if refinancing makes sense

6. Evaluate the terms of your loan

7. Complete the process

 

1. Collect documents:

Collect car documents like registration documents, and car loan documents like the original loan contract. Check if a prepayment penalty is applicable. If loan documents are misplaced, contact the lender’s customer service department. They’ll provide you with information and even mail a copy of the contract.

For the new car loan, you’ll need the following documents:

  • Driver’s license
  • Vehicle registration documents
  • Employment proof

 

2. Evaluate credit history:

Paying EMIs on time for a year or more, improves credit score. A good credit history means lower interest rates. So, before approaching banks for car loan refinance, know your credit score.

 

3. Apply for car loan refinancing:

Compare interest rates offered by various lenders or bankers and shortlist the best ones. Be careful not to apply for refinancing with many lenders. Hard enquiries imply that you are credit hungry. It will lower the credit score.

 

4. Evaluate if car loan refinancing makes sense:

Refinancing a car loan makes sense if you can make significant savings. If interest rates are going up, it may be wise to opt for refinancing. When doing calculations if you find out, there’s no scope of making huge savings, refinancing might not be a good idea.

 

5. Evaluate the terms of loan:

Go through the terms of the loan. To pay off the loan quickly, opt for higher EMIs. This will shorten loan tenure and save money in the form of low interest payouts.

If you can’t afford high EMIs, opt for longer loan tenure. With this option, you’ll have to pay more interest in the long run.

 

6. Complete the process:

Once you decide on a particular lender, complete the application process. Read the new loan contract carefully before signing on the dotted lines.

 

SEE ALSO: Can You Get A Health Insurance Plan For Cancer Patients?

 

What happens on refinancing a car loan?

The new lender will pay off the old car loan and you’ll begin making payments to the new lender.

 

How to apply for a car loan?

 

1. Shortlist the car:

Shortlist a car that suits your needs. Decide on the brand and model. Search and compare cars. Once you identify the car, initiate the car loan process.

2. Check eligibility:

Check your car loan eligibility. You will find car loan eligibility discussed below.

3. Loan amount, tenure and EMI:

Make sure you choose the tenure and EMIs that you are comfortable repaying. Defaulting on loans adversely affects the credit score. Use online Car Loan EMI Calculators to calculate eligible loan amounts.

4. Collect documents:

Collect all the required documents to apply for a car loan. Documents required for car loan are discussed later in the article.

5. Apply for a car loan:

Finally, apply for a car loan either online or visit the lenders to complete the formalities.

 

SEE ALSO: How To Pay Off Home Loan Faster?

 

Car loan documents:

Following are the documents to avail a car loan:

 

1. Salaried:

  • Address proof: Ration card, driving license, voter’s id, passport, utility bills.
  • Identity proof: Ration card, Passport, PAN Card, Voters Identity card, driving license.

Income proof: Latest salary slips, Form 16.

 

2. Self-employed:

  • Address proof of the business.
  • Identity proof: Passport, PAN Card, Voters Id, Driving license, latest sales tax assessment order.
  • Income proof: Latest Income Tax Return.

 

Car loan eligibility:

 

1. Salaried:

  • You must be at least 25 years of age.
  • The maximum age is 60 years at the maturity of the loan.
  • Gross annual income should be at least Rs 3 Lakhs.
  • You must have at least 2 years of work experience and be in the current job for at least a year.

 

2. Self-employed:

  • You must be at least 25 years of age.
  • The maximum age is 65 years at maturity of the loan.
  • Gross annual income should be at least Rs 2.5 Lakhs.
  • The business should have been in existence for more than 3 years and be making profits.

 

Car loan interest rates:

Car loan interest rates vary from bank to bank.

 

Benefits of refinancing a car loan:

If done right, refinancing a car loan gives many benefits to the borrower:

  • Saves interest
  • Shortens the loan tenure if you have surplus cash at your disposal.
  • Choose new terms and conditions if you’re dissatisfied with the current loan terms.
  • Refinancing process is fairly straightforward.

 

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