Reasons for Refinancing

• The fact that a car is an asset that holds value and secures the loan like a home makes it fit for refinancing. In most cases, the car owner chooses to refinance the car to lower his payments and interest rate. A borrower may have experienced credit challenges that caused him to receive a very high interest rate car loan. When a borrower's credit rating improves over time, he may seek a less-expensive loan for the car through refinancing.
  
  

Gathering Information

• The borrower must gather a few key details to begin the process of applying to refinance a car loan. He needs the vehicle identification number, make, model year and description of the condition of the car (fair, good or excellent). If any major work or modifications have been made to the car, the lender may need this information as well. The borrower must also call his existing lender to determine the payoff amount for the loan.
  
  

Application

• Once the borrower has all information required to proceed with the refinanced loan, he must find a willing lender and start the application process. The application asks the same questions as the initial car loan paperwork, including the data you've collected about the vehicle, contact information, and Social Security number so that the lender can run a credit check. The credit score is a major factor in the lender's decision on whether or not to refinance the car loan; many lenders want a score of at least 620, but a score above 700 has a better chance of approval. The lender also considers the amount of debt and current payments for other debts listed on the borrower's credit report when making a decision.
  
  

Lien Change

• After the new lender pays off the old car loan and establishes the new loan, the new company takes possession of the car title. The new lender must send an update regarding the bank's status as the lien holder for the car to the state Department of Motor Vehicles, or DMV, office. The DMV then updates its records and the car title with the new information. The borrower should ensure that he receives verification from the old lender that the previous obligation was paid in full.