Auto refinancing steps: See the significant parts of the process

By now, you have probably already spent hours at the dealership purchasing your new vehicle and talking to the finance manager, have gone over all of the car loan details, and have signed all the necessary lending paperwork. You’ve begun making payments to your lender and may be questioning "but did I get the best deal for me when I bought my car?"

If you believe you did, awesome! Keep paying down the loan and enjoying your new car! If you are having doubts, no need to worry! There are ways to explore other financing options surrounding your loan to potentially get a better deal. Enter refinancing.

What refinancing does

Before we deep dive into anything else, you should understand what exactly refinancing is and what it does. The basic concept of refinancing is that it allows you to replace your current auto loan with a new auto loan. Your new auto loan may have lower monthly payments, a lower interest rate, or even a different term length. Either way, if you have a goal to save money, refinancing your auto loan can help in some way.

You may have heard of refinancing your home mortgage. Refinancing your car loan is similar. Refinancing allows you to choose different loan terms, including interest rate, by applying for a new loan. To apply, you submit your personal and vehicle information along with your current loan information to lenders. Lenders review your application and provide offers for new loan terms and rates based on a number of factors like your credit score, location, and vehicle details.

When you accept a new auto loan offer, your new lender contacts your old lender and requests a pay-off amount for the old loan (meaning anything you still owe on that loan). From there, you will begin making payments on the new loan to the new lender.

Learn about auto refinancing basics

Is refinancing your car right for you? Deciding whether or not refinancing is right for your situation often depends on your overall financial goals. If your goals include saving on your monthly car payments or lowering your interest rate, then, yes, refinancing could be a good move.

You can refinance your vehicle with several goals in mind, and one of the most common is to simply save money each month. This can often be achieved by extending your loan term or lowering your interest rate, which often decreases your monthly payment amounts. If you can lower your payments, that is more money available in your monthly budget.

Since we agree that saving money each month is a great goal to work towards, we created an auto refinance calculator to help you easily estimate just how much money you can save monthly. To get started with the calculator, you need to know the remaining balance, term, and interest rate of your current loan. Simply enter these numbers into the calculator and within seconds you will be able to compare your current loan against new loan options to see estimated savings.

During the refinance process you will be asked to submit information from several types of documents to lenders. Required information can vary by lender but typically include vehicle details and mileage, as well as personal information like your street address and income. Having documents with the info readily available will allow you to speed up the application process, so we created the below list to help get you started. Important to note, for refinancing prequalification your SSN is usually not needed+.

Vehicle information documents

To complete the refinance process, lenders need to know every last detail about your vehicle including the vehicle type, make, model, year, mileage, and other information like features, customizations, or modifications. In order to provide this information to loan officers and lenders, you will need to have the below refinance-related documents ready.

• Vehicle registration card Your vehicle’s registration card contains the license plate number, vehicle identification number (VIN), make, type, and year your vehicle was made. Having this card readily available will allow you to quickly reference car details.

• Vehicle insurance card Your insurance card is similar to your registration in that it includes your vehicle’s make, model, type, year, VIN, and policy number. Therefore, it is a great alternative if you cannot easily access your registration. Pro tip: You can usually find this insurance information through your insurance company’s smartphone app or online portal.

• Vehicle mileage To verify your vehicle’s mileage, or how many miles you have driven your car for, you can often provide an odometer statement, which is an official statement of mileage. Another option is to simply use your smartphone to take a picture of the odometer. This verification process can vary by lender but there is typically a mileage requirement.

Lenders require this to ensure the car is worth refinancing and will continue to be roadworthy. Most lenders have a mileage requirement of under 120,000 to 150,000 miles. This is because vehicles with higher mileage have increased risk for serious mechanical issues.

Personal information documents

Once lenders have obtained information about your vehicle, it’s time for them to become more familiar with you. To start, they will ask for basics like your name, birth date, where you live, and annual income.

• Name and residence Your driver’s license or other forms of government-issued IDs are great sources to verify your personal information like name, age, and address. Make sure your license is not expired and updated with your current information, especially your home address. If you have moved recently or changed your address, you can usually list the new address on the back of the license in the appropriate address change area.

• Annual income To measure your ability to pay off your auto loan lenders need to verify how much money you make each year. In order to easily do so, have your most recent paystubs ready for reference. If you are self-employed you may also need to provide bank statements, tax return information, or other documents showing proof of assets.

• Co-borrower information Using a co-borrower places an additional person on the loan, meaning that person will have shared financial responsibility repaying the loan. If you are using a co-borrower during the refinance process, the lender will also request all of the personal information we already talked about including name, address, income, and contact information.

Learn how to send documents to Caribou

Now that you have prepared all necessary paperwork, it’s time to understand who you will be working with to get money for your loan, aka lenders. There are several types of lending institutions that provide refinancing, including banks and credit unions. Other online resources like lending marketplaces can help qualified individuals find competitive refinancing offers. When refinancing your loan, understanding these various types of lenders will allow you to ensure you are receiving an optimal deal from the right lender.

Lending institutions

When refinancing your car loan, you are borrowing money from a lending institution. The lending institution provides the funds for your new loan thus becoming your new creditor. The two main types of lending institutions are credit unions and banks. Both provide similar auto lending services, but there are slight nuances that are important to understand.

Auto loans from credit unions

A credit union is a cooperative institution where people, or members, can open savings or checking accounts, deposit funds, or access other banking services like auto loans and mortgages. Credit unions are controlled by its members and work as non-profit financial institutions, meaning the profits are distributed to members as interest earned on deposited funds.

Applying for auto loan refinancing through a credit union could be ideal if you are looking for easily accessible refinance opportunities with potentially lower interest rates. Since these institutions are not-for-profit, interest rates are typically lower than for-profit institutions, like banks. Keep in mind it is good to shop around for refinancing rates — getting multiple quotes from different institutions can help you find a competitive refinancing deal.

Auto loans from banks

Banks are for-profit financial institutions, meaning any profits earned are distributed to the shareholders. At a bank, anyone can cash checks, exchange or “break” larger bills, use coin counting services, and open financial accounts, unlike credit unions where you must be a member.

Applying for an auto loan at a bank is typically a straightforward process, and you do not need to have a previous account with the bank to apply. However, banks can have higher interest rates than credit unions as well as a minimum loan refinance amount. For example, some banks only provide refinancing for car loans with values of $5,000 or more while some credit unions may have minimum loan amounts of $1,000 for new car loans with shorter terms.

Comparing lenders

Once you have applied for your new auto loan and collected lending offers, the next step is to compare the terms, interest rates, and estimated car payments of each option. Consider the following questions:

• How will different term rates like 48, 60, or 72 months affect my auto loan?

• How do the interest rates look?

• Which offer will best serve my financial goals?

• How much money can I put towards my monthly car payment?

• How much interest can I save over the life of my loan?

• What did I not like about my previous auto loan?

• How can I change those details with my new refinanced loan?

Answering these can give you a good sense of what it will mean to refinance your car loan and how it will affect your finances. You can also utilize additional tools like lending marketplaces to help you quickly and confidently compare multiple loans at once.

Lending marketplaces

Lending marketplaces are online platforms that shop and compare lenders, finding the right lender for your needs. These platforms provide a list of financial institutions, like credit unions and banks, along with their terms and available lending interest rates. Marketplaces can be a great starting point for referencing and tracking offers.

Some lending marketplaces even help you pre-qualify for refinancing directly on the platform in addition to showcasing competitive lender rates and looking up your vehicle information. They can help you navigate the refinance process with the lender of your choice, which makes the process quick and easy.

Now that you have calculated your estimated monthly and yearly savings dollar amounts, collected all necessary documents, understand refinancing, and researched top lenders, it’s time to apply for auto refinancing.

Here you have the choice to either submit several refinance applications to each individual lender or you can apply to multiple lenders through a refinancing marketplace using an online application portal. If you are applying to individual financial institutions one by one, you will need to apply individually to those respective credit unions or banks, meaning you will submit your personal and vehicle information several times. However, if you choose to apply through a marketplace, you enter your personal and vehicle information just once and may pre-qualify across multiple lenders.

To apply for refinancing through Caribou, head to our online application portal. Once there, you’ll start adding the below information:

• Enter your personal information by referencing the personal documents you collected. Provide your personal details including address and income along with your co-borrower’s information (if you have one).

• Enter your vehicle information, mileage, and additional options or modifications. Note: make sure your mileage is entered correctly. You will usually have to send your odometer picture featuring your mileage to the loan officer later for verification.

• Enter your old loan information including the loan’s total value, balance, term, interest rate, and monthly payment. You may be able to simply import and confirm this information if the marketplace integration can securely access your credit history.

• Select the refinance loan option presented by your new lender. The new loan should list the amount financed, new term in months, APR and interest rate, and new monthly payment. If you are selecting a flexible term loan option, you can usually see the different rates based on repayment terms, like 36, 48, or 60 months.

It’s finally time to lock in your refinancing rate! During this step you will work with your chosen lender to finalize and submit your credit application. You have been prequalified for a loan and know all of the new loan’s information including:

• Total amount financed

• Interest rate and APR of the refinanced loan

• Term of the selected loan option

• New monthly payment amount

Loan application approval

Once all of your documents are submitted, the lender will make a final decision on your loan application. Note: depending on the lender’s application queues, capacities, and wait times their decision could potentially take up to a few days. The lender can either approve or decline your application at this point. If the lender declines the application, the lender will send a notice with the reasons for the decline.

As part of the refinance process, you can also purchase additional products and coverages to your auto loan that help protect your vehicle. They are optional and may increase the cost of your car payment. These include key replacement coverage, extended vehicle protection, and cosmetic care packages.

Car key replacement coverage

Cars that have keyless entry systems use a combination of electronic keys, transmitters, and key fobs to access the vehicle. The loss of one of these high-tech fobs can cost you hundreds of dollars to replace. Key replacement coverage can help you replace a lost key fob by covering the total cost of new keys without a deductible.

Extended vehicle protection

Unexpected car repairs can cost up to thousands of dollars, leaving a big “dent” in your bank account or leaving you with a large credit card bill to pay off. Adding an extended vehicle protection plan to your refinanced loan can help cover the cost of repairs, giving you added protection by adding the cost into your monthly car payment. When selected, your extended vehicle protection usually lasts for a set term or mileage amount, like 48 months or 60,000 miles. Pro-tip: Extended vehicle protection plans can be a good option to consider if you do not have a factory warranty on your vehicle.

Cosmetic care packages

Want to keep your vehicle looking fresh and new? Consider cosmetic care packages add-on if you want to protect your car’s image and, as a bonus, maintain the exterior condition of your vehicle. These packages can help cover things like dents and dings, tire and wheel protection, windshield damage (like cracks and chips), and even include emergency roadside assistance.

Your new car loan is finalized once all of the documentation is accepted and your new loan is approved. Congratulations are in order! You have a new auto loan. You are at the end of the refinance process.

It’s time to start making payments towards your new auto loan! Your new lender will send you a “welcome packet” when they finalize the refinanced car loan. This packet is typically sent digitally by email or by standard mail (sometimes both) and includes your new loan documentation. It comes directly from the lender so the exact documents vary. The packet usually contains your new account information, instructions on payments, details for contacting the lender, and sometimes a payment book.

From there, to begin making payments on your new auto loan take a look at everything included in your new contract including your account details and payment options. Have more questions about your loan details or payments? Contact your lender directly for help!