Refinancing your auto loan has a number of benefits, particularly if you're hoping to lower your monthly loan payments or secure a better interest rate. If you qualify for refinancing, the process is fairly straightforward and it can be pretty quick, depending on your lender.
How Long Does Auto Loan Refinancing Take?
If you refinance your auto loan, expect it to take anywhere from several hours to a few weeks. If your new lender approves your loan on the same day you apply, it's possible to get the money, pay off the old loan, and sign the new loan agreement in a matter of hours. However, most refinancing agreements take between 10 and 15 days to complete.
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What Are the Steps for Refinancing Your Current Auto Loan?
The process of refinancing an auto loan is simple, but it requires some research and comparison to find the best deal. Here are the steps you should follow to refinance your current auto loan.
1. Get Your Paperwork in Order
You'll need a fair amount of paperwork to refinance your auto loan. Make sure to track down this information before you start applying, and have it in front of you when you start submitting applications. Here is the information that most lenders will request when you apply for refinancing:
- Your current vehicle loan documents
- Information about your vehicle, such as the VIN number, make, model, and year
- Annual income proof, such as W2s, 1099s, and any recent pay stubs
- Proof of liability and collision insurance on your current vehicle
- Your driver's license with current address
- Social Security numbers for those listed on the loan
2. Research Potential Lenders
Check out different financial institutions, such as credit unions, banks, and other lenders in your area, to see their current rates. Read customer reviews and check the Better Business Bureau (BBB) for potential complaints.
3. Get Prequalified
The next step is to get pre-qualified for a loan. Pre-qualification is not necessarily a guarantee you'll receive financing from a lender, but if all the information you provide is correct, you'll have a better chance of approval.
Pre-qualification does not require a hard credit inquiry, so it's a great way to compare terms and rates from various lenders without lowering your credit score.
4. Put in Your Application
Once you've found a lender with the ideal rate and terms for your refinance loan, it's time to apply.
You might have to pay an application fee and provide supporting documents for the information you submit. At that point, the lender will perform a hard credit pull, analyze your documents, and determine the best refinance offer they can make you.
If you plan to apply with multiple lenders, it’s a good idea to submit applications within a few days of each other. Credit agencies will count these applications as a single hard credit pull, so it doesn’t impact your credit score significantly.
Once you receive approval, you will sign a new loan and receive payment to cover the existing loan.
5. Payoff Your Original Loan First
The next step in the process is to make sure your previous loan is paid in full and within the right time frame, so you don’t incur additional costs or fees.
You must request a 10-day payoff amount from your current lender, which will include the principal remaining balance and the interest that will accrue up to those 10 days. Make sure they receive the payment in 10 days, or you might be subject to more interest charges.
If you’re worried about sending a check in the mail and it arriving on time, you might be able to have the new lender send the payoff loan amount to the original lender electronically once the paperwork is signed.
6. Change the Lien Holder on Your Vehicle Title
If you live in a state such as Michigan that allows the buyer to hold the vehicle title while the loan is being paid off, you will need to have the lien holder changed. Your previous lender might require the final paperwork and the payoff check to clear before sending you a copy of your title.
Once they send you the title, you must go to the DMV to change the lien holder on the title or perform a title transfer to the new lender. This usually requires a processing fee. You'll then receive the updated title in the mail and must send a copy to the new lender showing them as the lien holder.
Be sure to do this as soon as possible. Failure to get the lien holder changed can result in fees or an interest rate hike from the new lender. If you do not receive the title from the original lender within 30 days of the payoff, call to find out when to expect it.
Knowing how long it will take for the auto refinance to process your current auto loan and understanding the pros and cons of doing so can help you make a better decision. Whether your goal is to save money on interest or to lower your monthly payments, refinancing your current car loan might be the solution you need.
When Is the Best Time to Refinance Your Loan?
As a general rule, consider an auto refinance loan when your credit score is good, current interest rates are low, and you have a decent amount of equity in your vehicle. At this time, you will likely qualify for the best refinance loans and save the most on your payment and the overall cost of your vehicle.
How long after your first loan should you wait: two months? Two years? While the length of time you wait depends on the market and your current finances, there are a few things to consider based on the time frame:
Directly after Your Loan
It's possible to refinance your current car loan immediately after you purchase the vehicle. This is not the most common time frame for refinancing an auto loan, but if you made a large down payment to have positive equity and find a better rate elsewhere shortly after your purchase, it could save you money. The only hurdle you might face is the time it takes to finalize all the paperwork from your first loan, which can push off your application processing for the refinance of the original loan.
90 Days In
When you are in the first quarter of your existing auto loan, you've made a few payments and all the loan paperwork has been processed. If you have seen a bump in your credit score from good payment history in the first few months and find yourself in need of lower monthly payments, refinancing to a new loan can help. One consideration to make if you are looking for a lower payment so soon is you might be upside down on your loan and should consider adding gap insurance until your equity becomes positive.
6 to 9 Months after Purchase
A half year into your existing car loan, you have paid down some principal. If you made a decent down payment, you have some equity in your car. If this is the case and you qualify for interest rates lower than your current one, auto loan refinancing can save you a lot of money over the same term. If you choose to extend your term, you will enjoy a lower monthly payment.
2 to 4 Years after Purchase
Most car loans last 60 to 72 months, which puts the two- to five-year mark in the middle of your existing loan. This is the time frame during which many people consider auto refinancing. After a couple of years, you could see a drastic improvement in your credit, and interest rates could have lowered significantly. You will most likely have the equity you need in your car to qualify.
More Than 4 Years after Purchase
If you have a 60-month loan and get past the four-year mark, you are close to paying your car off and probably owe very little interest. Auto refinancing at this point might not be a good option unless you need to extend your terms to pay your monthly on time. If you have a 72-month term, you might save on interest if you can get new rates that are at least 2 percent lower.
In general, auto loan refinancing sooner will save you the most money if you are refinancing to take advantage of lower interest rates. Interest is highest at the beginning of the loan, so you will see the greatest effect on the overall cost earlier on. Remember, to qualify for the best rates, you likely need to have positive equity in your car, which is possible early in the loan term if you have a decent down payment.
Elizabeth Rivelli
Finance & Insurance Editor
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
