Many people don't realize that when interest rates drop, they can refinance their car loan just as they could their mortgage. It's an easy process that could save them substantial money every month.

If you're like most people, you love your car...except for the loan payments. Perhaps each month, as a certain date gets closer and the money in your bank account shrinks, your upcoming car payment seems harder and harder to make. There is a way to make them easier to handle, though-just refinance your auto loan.

Is refinancing for you?

By refinancing the loan, you can save money every month. It can also enable you to pay off your car loan sooner. This could happen if you refinance to one with better repayment terms. Although it may sound a little scary, it's actually much easier than refinancing your home. Plus, the money saved each month can be substantial.

The best time to refinance is when interest rates are dropping, although it can also be a lifesaver anytime if you need to lower your monthly payments.

It's not a good idea to refinance if you already have a good interest rate on your car loan, or are close to paying it off. However, it's worth a few phone calls to see what the difference in payments might be. Even if you're able to keep the same payment amount, but shorten the term of the loan by a year, it's worth investigating.

Six steps to an auto loan refinance

If you've decided that refinancing your auto loan is the right choice for you, rest assured that the process is not difficult. However, most lenders won't refinance the car loans that they originated, so you'll have to shop around for a new lender. Here are six steps to take:

  1. Check your current financing contract to determine your current APR. Also, check to see if there are any pre-payment penalties.
  2. Call your lender to find out the payoff amount.
  3. Examine your credit report and make sure it's as clean as possible. Higher credit scores equal lower interest rates.
  4. Speak with several different lenders to see if they're offering an APR at least 1 percent lower than your current loan.
  5. Ask your new potential lender if there are any additional fees. If there are, they should be minimal. If not, keep shopping. Note: Refinancing does not require a new appraisal of the car.
  6. Make sure that you know the correct name on the current loan account, the loan account number, and your VIN number.

With all these things in hand, you're ready to apply. The good news is that you should have an answer back within a day or two. It's that easy.

Most people don't know that, just as you can refinance a home, you can refinance your car. It's a simple process and could cease making those monthly bills such a scary sight.

Published on April 21, 2014