How to Refinance My Car to Lower Payments

Refinancing your car to achieve lower monthly payments could provide your budget with some flexibility. Lowering your car payment by $50---or even more than $100---could free up enough money to help with gasoline costs or a utility bill. However, refinancing for lower payments can often cost you more in the long run, as the bank or credit union will add additional months to the loan to lower your payments. That could result in total finance charges that would be higher than you would have paid on the original loan.

Instructions

1

Check your credit report and score. Order your credit report from AnnualCreditReport.com---a website established to offer free credit reports under the terms of the Fair Credit Reporting Act. Visit the website to view and print your report (see Resources). Order your credit score separately for a fee.

2

Compare your credit score with national standards for "good" credit. Privacy Rights Clearinghouse, a national nonprofit consumer information company, reports that a score of 620 is the minimum for good credit, with scores of 720 or higher resulting in loans with the lowest interest rates. However, lenders make their own lending decisions and it is possible to gain loan approval with a score below 620.

3

Determine how much your car is worth. Getting approved for a refinancing could be very difficult if you owe more on the car than it is worth. Example: You owe $12,000 on the car but because of depreciation, it is worth only $9,000. The new or existing lender might look at that and decide that a new loan is too much of a risk for the bank. The car is the collateral for the loan, and if you defaulted on the loan, the bank could lose $3,000 or more under this scenario.

4

Apply for a loan through your bank or credit union. Your existing relationship with the bank could make approval easier or qualify you for a lower rate than other banks are offering. Tell the loan officer that you are applying for an auto loan to replace your existing loan. Provide full details on your current loan, including the lender's name and the account number. Also allow an inspection of your car, if necessary, as the loan officer calculates its current value. Once you are approved, you call other banks and credit unions to ask if they can offer a better deal.