Advice for Those Looking to Refinance Their Car Loan

The economic downturn has many car owners looking for ways to lower their car payments. Since the third quarter of 2008, dramatic disruptions in the nation's banking sector have prompted most banks to scale back their lending programs, or stop making loans altogether. Despite serious problems in America's financial markets, car loan refinancing is still available, and it can help consumers lower their monthly auto loan payment to a more manageable level.

The following is a useful and timely auto loan refinance checklist:

Call your current lienholder, and ask how much it would cost to pay the entire loan off. Get your "payoff quote" in writing and make sure there's a specific expiration date for the quote.

Look over your current car loan carefully. Some lenders charge an early payment penalty, so read your agreement and make sure that you actually have the option to refinance.

If you're almost done paying your current loan, you might want to reconsider refinancing. In the United States, the typical car loan lasts 3 to 5 years. Trying to refinance within the last one or two years of the loan would make the payment period longer, and most likely add a few thousand dollars in interest and other charges to the cost of the vehicle.

Make sure your vehicle's information is accurate, so the lender can price the vehicle properly. If it is worth less than $8,000, you probably won't be able to refinance.

Check your credit, and make sure there are no errors on your report. Lenders will base your new interest rate on your credit history, score, and record of payments made.

Make sure your insurance is up to date. You won't be able to get the refinanced loan if your insurance coverage is called into question.

Make sure the original lien was paid. Your state's Department of Motor Vehicles should have a record of any and all liens on your vehicle. When the new loan is given, the first lienholder is supposed to give notice that their lien has been paid off.

When in doubt, consult a professional. Auto loan refinancing can have quite a few hidden costs, so make sure that it will really benefit you financially. Some lenders will offer a low, "teaser" interest rate, but then slap you with outrageous application fees. A professional can sit down with you and show you how to tell if you're getting a good deal.

Auto Refinancing Scams to Watch For:

Never pay for a vehicle appraisal. All cars decline in value over time, with very few exceptions. You don't want to have your loan application rejected because the loan amount is more than the vehicle is worth. Stay away from any lender who tells you that you have to pay for an appraisal, or any other kind of up-front fee. While there are fees involved in changing a car's title to show the new lienholder, the loan application and ensuing credit check should always be free. Be especially wary of any lender who claims they can give you more than the balance on your loan. Look over the loan paperwork very carefully, and never sign a blank contract.

If you have unfavorable terms with your current car loan, refinancing is most likely a good idea. If you're able to refinance, cool! But don't squander the opportunity to get ahead. Pay a little more than the minimum each month, but less than what you were paying before you refinanced. Doing so will get the loan paid off sooner, and it will build car equity faster.

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