Refinancing can be smart, but how to do it?

Can I refinance my auto loan? Many people are surprised to learn the answer to that question is "yes." But it's not as simple as just asking for a better rate and getting it. There's a lot to know about getting a better deal on your car loan.

Get Your Documents
Generally, refinancing your car loan is much like financing a car in the first place: You'll need to prove you have a regular income, usually with a pay stub, for example. Refinancing, though, should also involve having your most recent car loan bill handy, so you know how much you'll need to borrow overall, how much interest you're paying, and how long you have left. It might also be a good idea to have a copy of your title and other data handy, depending on the lender you're contacting.

Also, make a point of looking up your car's total value online. Having the value handy will help you figure out whether a refinancing is truly worth it.

Is Your Credit Better?
The main question to ask yourself before you consider refinancing is, how good is your credit? While even minor improvements in your credit score can sometimes yield major dividends, the better your score, the more likely you are to get a better deal on your refinancing. Remember, you can check your credit for free once a year with each of the three credit bureaus, and before refinancing, you should pull your report and check it for both errors and easily resolved issues. If you're one payment away from getting a credit card off the books, for example, that's a perfect opportunity to give your score a little boost.

Refinance, or no?

Apply
Like any product you buy off the shelf, with refinancing, you'd better shop around. Make a list of lenders, or consider using online quote comparison tools, and run down exactly what you'll be getting for your refinancing. Don't forget to include any fees and costs; ask any lender about what they might charge to take on your loan. Many don't have any explicit fees, but it's good to get an idea of the full cost of any loan.

Compare
Once you've got a few quotes, sit down and do the math. As a rule of thumb, your goal is to get a lower interest rate, but you may, for example, get a quote that has a similar payment but will pay off your car on a faster schedule, saving you a few months of car payments. For each quote, work out how much you'll pay in interest, per payments, and how long it'll have your car on the books. Doing this for each deal might surprise you with how much you'll save, or how a good deal may not be as good as it sounds.

Once you find the right deal, it's just a matter of signing the paperwork. No matter how long you have on your car loan, it's always worth double-checking what's available to you, especially if your credit is better. After all, the more you save on your car, the more you'll have when you upgrade. If you're getting ready to switch cars, subscribe to get alerts on vehicles in your area.