by Andrew Rohrlich
What Is a Private Party Auto Loan?
Unlike dealerships who usually offer car financing options, most private party car sellers don’t. Thus, if you want to buy a used car from a private seller but don’t have the money, you apply for a private party auto loan from a lender and use it to make the purchase. Fortunately, you can secure private-party auto loans from online lenders, credit unions, or your current bank.
Why and When You Should Consider Refinancing Your Loan
When you take out a refinance car loan, you use the loan funds to pay off the loan balance on your current car loan. You refinance your car loan to enjoy better loan terms than you got in your original loan. Mainly, this means getting lower interest rates and lower monthly payments.
You may refinance your auto loan to a shorter or longer repayment term. A shorter term would increase your monthly payments, while a longer term would reduce your monthly loan payments. How you refinance your auto loan is primarily influenced by your financial priorities and goals.
You should only refinance your private-party auto loan when you can benefit from better loan terms. These are some of the instances where refinancing yields better outcomes:
- If interest rates drop and lenders start giving out loans at lower rates than your original loan
- If your overall credit health improves and lenders are willing to loan you money at more favorable terms
- If you’re struggling to keep up with your current monthly repayments because they’re too high
- If you want to drop a cosigner on your original car loan
These instances shouldn’t push you to refinance impulsively. First, consider how soon to refinance a car loan makes financial sense for you. Ideally, you should refinance earlier — preferably within the first or second year of your loan term — before you’ve paid much of the accrued interest. If you delay refinancing, you may pay more interest in the long term.
How Refinancing Your Private Party Car Loan Works
Here’s the step-by-step process of refinancing your auto loan:
1. Review Your Current Auto Loan
As you consider how to refinance a car loan, you should review your current loan with a fine-tooth comb and quantify the net effect of refinancing. Read through the terms of your existing loan and examine if there are conditions like prepayment penalties that may make refinancing undesirable.
More importantly, check if your outstanding loan balance is more than the value of your vehicle. If your car’s market value is less than your loan balance, most lenders may deny your refinance loan application as they consider you as being upside down on your car loan.
Sometimes, a refinance car loan may yield marginal gains that you prefer to hold off and clear your ongoing loan. That’s why it’s prudent to review your original loan with your current lender before applying for a refinance loan.
2. Analyze Loan Payment Options With an Auto Loan Refinance Calculator
You don’t want a refinance loan to exert extra pressure on your financial situation, especially if your main goal is to get more tenable loan terms. Contextualize and analyze your loan payment options and see how convenient and favorable they are to your current and prospective financial health.
Leverage an auto loan refinance calculator to determine the potential cost savings you’ll make from refinancing. It gives you a more informed idea of how a refinance loan will impact your financial health compared to your current situation. While at it, evaluate how much you’ll pay for upfront costs such as origination fees.
3. Evaluate Your Credit History and Financial Situation
If you haven’t improved your credit score since you last took your current auto loan, refinancing may not yield any cost savings unless lenders have since slashed interest rates. It’s wise to comb through your credit reports to establish if any errors are undermining your credit score and settle them before approaching lenders.
Also, if you’re planning to apply for a mortgage or personal loan soon, you want to skip the refinance loan as it may lower your credit score temporarily. This would tank your chances of getting favorable loan terms if you applied for another loan immediately.
When unsure if your credit score is enough, apply for pre-qualification. This way, you’ll get a soft inquiry instead of waiting to send in the actual application and getting a hard inquiry.
4. Gather Loan Paperwork and Necessary Documentation
Like other loans, refinance car loans involves some paperwork and documentation. You’ll need to furnish lenders with the following information:
- Proof of income
- Proof of auto insurance
- Your social security number
- Breakdown of your existing loan obligations
- Your VIN ( Vehicle Identification Number)
If you had a cosigner on your original auto loan, lenders might require their financial information too. Once you have gathered all the requisite documentation, you may kickstart your refinancing application.
5. Start the Refinancing Application Process
It’s good practice to shop around and compare interest rates with several lenders before sending your loan application to one lender. When you’re satisfied you’ve selected the best rates available, complete the loan application form accurately as required by your lender.
When a lender approves your loan application, you’ll get some paperwork to sign. Read it carefully and ensure you agree with the loan repayment details, such as the loan due date and minimum monthly payments.
Expand Your Private Party Auto Loan Options With Caramel
Accessing transparent and secure refinance car loans can be challenging for private-party car buyers. Admittedly, it’s not as easy as dealer financing, but the financial gains in lower interest rates and monthly payments are worth the effort.
The good news is Caramel takes all the hassle from private-party car loan refinancing by giving you more auto loan options. Using Caramel, you can customize your desired financing options, such as loan terms and monthly payments, putting you in a better position to negotiate better loan terms with lenders.
This article was written by Andrew Rohrlich. As a brand and product marketing expert, Andrew Rohrlich has crafted products, experiences and communications for household names like Gap and for multiple automotive technology businesses. For nearly a decade Andrew has studied automotive retail in depth from a customer point of view and aggregated the industry’s best research, thought leadership and know how to provide credible and important information to auto shoppers and sellers.
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