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How does Auto Refinancing work?

Car Loan Refinancing refers to replacing your existing auto loan with a new auto loan from a new lender of your choice. The new auto loan thus availed helps to pay-off your outstanding car loan taken over by the new lender. This kind of arrangement helps you get access to favourable terms and conditions on your loan in progress, better than what was offered by your old lender offered you.

There are two reasons why people consider auto refinancing. One that they get the opportunity to lower car payments and free cash flows; and the other for extending the term of the loan or the loan tenure to suit their finances. The auto refinance option suits those seeking to reduce the cost of their loans by way of reduction in interest payments through refinancing, which in turn reduces the outgoings to ease cash flows and increase savings.

How to Refinance a Car

Car loan refinance options are offered by many lending institutions, but making the best of those offers depends on how you process these offers.

  • Find Out Whether Refinancing Makes any Sense

    You must have a reason to refinance your car loan, which otherwise would be a futile exercise. Here are a few situations where refinancing could be used as tool to benefit your finances.

    • Declining Interest Rates

      Car refinance works well when interest rates have declined. In such a situation when you replace your existing loan after the lock in period, to another lender who offers you a lower interest rate, you benefit from the new lock in at a lower rate, thereby helping save some money. This helps you save on monthly payments giving you the power to pay-off your loan sooner.

    • Improved Credit Score

      Recollect the circumstance in which you opted for a car loan to purchase your present car. What rate of interest did your lender offer you at your credit score then? Has your credit score improved since then? Will you be offered a better interest rate owing to your improved credit score? If you're offered a better rate of interest now, the car refinance option will be a suitable alternative, since this will help you save money.

    • Car Dealership Loan

      Did you get your present car finance from a dealership? You could probably get a better rate of interest elsewhere in such a case. Automobile dealers mark up interest rates, and finding a suitable car refinance option may help you find a favourable rate of interest to help ease your finances.

    • Struggling with Current Payments

      A job loss or an unexpected expense creates a situation where a person struggles to make payments, and this affects their loan repayment as well. Are you going through a hard time making your car loan repayments due to unforeseen circumstances? Car refinance could help you in such a situation, since such an alternative can lower your interest rates, and extend your loan tenure to ease your financial situation and help relieve stress.

    • Major Financial Event

      A new house, your child's wedding, an expensive college education, and other major financial events are causes for stressed finances. In such a situation, you might want to lower your monthly payments, and ease cash flows. Refinancing your current car loan with a longer tenure could lower your monthly outgoings in terms of car loan repayment instalments to lower your anxiety levels.

  • Shop About

    Different lending institutions have competitive offers that cater to needs of changing market scenarios, which makes one better than another. Check your rate of interest and compare with several other car loan refinancing companies to find the best offer that suits your needs.

    • Get Documentation-Ready

      Get all your documents required for a car loan refinance in one place. Include your car loan documents, income documents, and other documents that may be required to avail car refinance.

    • Read the Eligibility Fine Print

      Basic eligibility required by lenders are very much the same. However, getting a clear perspective on eligibility criteria will help you remain in control of the situation. Read the fine print carefully, and understand all that you cannot, to avoid sticky situations.

    • Know what makes a Hard Inquiry

      A hard inquiry in your credit report injures your credibility leaving you stranded when you're strangled for cash. Know what impacts your credit score, and act in accordance with the rules.

  • Evaluate Offers

    Use a car loan calculator online to help determine each individual car refinancing offer that could possible help you profit. Examine monthly payment savings, and how you can save some more over the tenure of your car loan. Take into account prepayment penalties on your current loan. Check for hidden charges and fees, so that you can avoid a potentially damaging situation.

A car refinance can only be best suitable when you save money over the life span of your loan, lower your monthly payments, and optimize how quickly you can pay off the entire loan. Make the best choices, and live to enjoy the benefits of car refinance.

When should you consider Refinancing your Car

Car refinance save you money on interest and lowers monthly payments. With the many offers in the market, you tend to ask yourself about when should refinancing option be considered. To remove the guesswork, here are some signs that could indicate a good time to refinance your car.

  • You've Purchased and Financed your Car at a Dealership

    Most cars are bought and sold at car dealerships. Likewise, car dealerships also offer vehicle finance to increase sales. If you've bought yourself a car, there are chances you may have financed the purchase there. Dealer financed auto loan are not the best deals, since dealers generally mark-up interest rates. Check the interest rate you're paying, and you're already eligible for car refinance from another lender.

  • You've Completed your Lock-In Period

    Your current car loan agreement has the dates that define your lock-in period, or the period for which you cannot avail refinance from another lender. If you've gone past your lock-in period, and you have better options offered; you must consider refinancing your current car loan.

  • You've Availed a Short Tenure Car Loan

    Most lending institutions require that you have a minimum number of months remaining on your loan tenure for car refinance. This means, if you don't have long to go before paying of your current car loan, you may not be eligible for car refinance. Check your loan tenure terms and conditions for a clearer picture, and consider a refinance option.

  • Your Credit Score has Improved

    Your credit score may have improved due to several reasons, and one of the reasons could be that you've been repaying your debts on time. You should in such a case consider a refinance option for a lower rate of interest offer.

  • You Could use Extra Cash

    May be you require extra cash, since there are numerous expenses expected, and you are short of money. Consider a refinance option with low rates of interest, and long loan tenures. This will ease your financial situation.

There will be times in the life of your car, when you want to avail refinance; consider all options available, and then arrive at a conclusion.

How to Avail Car Loan

You may go about the process of availing a car loan in the following manner.

  • Plan your Budget

    Going beyond budgeted expenditure cannot be afforded. Estimate your expenses to the extent of accuracy for a clear picture of how much you need to own a car.

  • Plan Repayment

    Plan your Equated Monthly Instalments with the use of an online Car Loan EMI Calculator based on the parameters, namely Principal Loan Amount, Interest Rate, Loan Tenure.

  • Get Approved

    Get your car loan approved before you go shopping for a car of your choice. Once approved you know where you stand financially.

  • Shop for a Car

    If you've done your research on the car you want to purchase, good, otherwise, start and look for a car that fits your budget, and expectations.

  • Offers and Discounts

    Festive discounts, seasonal offers, and other such promotions take place the year around. Don't forget to take the goodies these festivities have to offer.

Car Loan Application and Approval Process

Car loans are available both online and offline, but if you choose to apply online, follow the instructions on the portal, and follow the instructions. The following are the steps involved in the application and approval process of a car loan.

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    Credit Score Check

    Credit scores are important to you credibility, as lenders decide your creditworthiness before approval of your car loan.

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    Fill Out your Application Form

    Take your application form seriously, and fill out the details as required accurately so that you don't have wait too long.

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    Verification

    The lending institutions will then check to verify your credentials, your eligibility, and ability to repay the loan.

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    Loan Approval

    A car loan approval takes general 1 to 5 days, this however varies from lender to lender depending on factors pertaining to approval.

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    Loan Disbursal

    Lenders generally make car loan disbursals in one of the two approved ways. Either your lender will transfer the amount into your bank account, or your loan amount will be directly paid to your car dealer.

How Does Car Loan Work?

When you take a car loan, you decide the model of the car first, after which, the lender gives you a figure to be funded on the price of the car model. The car then has to be insure, and hypothecated for safety. The lender then decides the interest rate, and the process of the EMI along with the loan tenure.

Important Aspects of a Car Loan

  • Eligible Brand and Model

    The car has a product of an approved Indian car manufacturer, or any foreign car manufacturer. The funding of the purchases remains at the discretion of the lender.

  • Interest Rates

    Banks and NBFCs generally offer car loan at interest rates varying from 10% p.a. to 18% p.a. Interest rates are dependent on factors that relate to loan tenures, loan values, borrower profiles, etc.

  • EMI Amount

    The lender decides the amount of car loan based on the loan tenure, loan amount, and the interest rate you've agreed upon. However, you may choose the best EMI amount after calculating the instalment on an online Car Loan EMI Calculator.

  • Repayment Tenure

    Car loan tenures generally range from 1 year to 7 years based on your ability to repay. Some lender may even extend your loan tenure depending on your case.

  • Down Payment

    A down payment indicates the payment made from your side excluding the amount of your car loan. Higher the down payment, lower the outstanding car loan balance, and vice versa.

  • Miscellaneous Charges

    Loan processing fees, pre-closure or foreclosure charges, stamp duty, late payment fees, etc., are some of the miscellaneous charges associated with a car loan.

Factors to Consider while Opting a Car Loan

Consider a few factors mentioned below before availing a car loan for the first time.

  • Repayment Tenure

    Choosing a short repayment tenure could be a good option, since you close the loan fast to reduce debt burden.

  • EMI Repayment Ability

    Evaluate your EMI repayment ability to adjust your EMIs accordingly to make sure you don't fall short of money for expenses.

  • Fees and Charges

    Additional fees and charges are associated with car loans, and these must be kept in mind before you make a decision. For example, repaying your car loan earlier than maturity may attract a foreclosure charge at the discretion of your lender.

Tips for Getting Low Interest Rate Car Loan

  • Credit History

    Low credit score are generally a no-no from lenders and this might make you feel a little uneasy about securing a car loan for the first time. You may bypass this criterion by applying for a loan jointly or with a guarantor, or by offering to make a larger down payment.

  • Research Compare Loan Products

    Research and compare loan products offered by different lenders. This will make the process and choice much easier, since you know your budgets best, and you know what you want from your money.

  • Guarantor

    A guarantor could be anybody among your family and friends with a good financial, and good credit records. This will help you get a car loan quickly.