How to Transfer a Car Loan to Another Bank
Effectively transfer your car loan to a new bank. This guide simplifies the refinancing process to help you secure better terms.
Refinancing a car loan involves obtaining a new loan to pay off an existing one. This process allows individuals to secure more favorable loan terms, such as a lower interest rate, a different monthly payment, or an adjusted loan duration. This can lead to reduced overall costs or more manageable monthly obligations.
Gathering Your Information and Documents
Before initiating the refinancing process, gather all necessary personal and financial documentation. This includes details regarding your income (e.g., recent pay stubs or W-2 forms) and employment history (e.g., employer names, addresses, and dates of employment). Provide residential information, including current and previous addresses, along with your Social Security Number.
Information about your current car loan is equally important. This includes the name of your current lender, your loan account number, the outstanding balance, the original loan amount, and the current interest rate. You will also need the remaining term of the loan and a history of consistent, on-time payments. Obtain a 10-day payoff quote from your current lender.
Comprehensive vehicle information is also necessary. This includes the Vehicle Identification Number (VIN), found on your car’s dashboard, door jamb, or registration documents. The make, model, year, and current mileage are also required. Have an estimated current value, which can be obtained using online valuation tools like Kelley Blue Book or NADA Guides.
Lenders will assess your creditworthiness, so review your credit score and credit report. You can obtain a free copy of your credit report annually from each of the three major credit bureaus—Equifax, Experian, and TransUnion—through annualcreditreport.com. A “good” FICO credit score generally falls within the 670 to 739 range.
Lenders examine your payment history, credit utilization, length of credit history, types of credit accounts, and recent credit inquiries. A higher credit score can significantly influence the interest rate and terms offered, leading to substantial savings.
Finding a New Lender and Applying for Refinancing
Research new lenders and submit your refinancing application. Various financial institutions offer car loan refinancing, including traditional banks, credit unions, and online lenders. Credit unions often provide competitive rates and may require membership. Online lenders offer streamlined application processes and faster approval times.
When comparing lenders, consider the Annual Percentage Rate (APR), which reflects the total cost of borrowing. Loan terms, such as 36, 48, or 60 months, directly impact your monthly payment and total interest paid. Inquire about any associated fees, such as origination or application fees.
Many lenders offer a pre-qualification process. This involves a “soft” credit inquiry, which does not negatively impact your credit score, and provides an estimate of the rates and terms you might qualify for. This allows you to compare offers from multiple lenders without committing to a full application. After selecting a preferred lender, submit the application online.
The application form requires the financial and personal information gathered previously. You will authorize a “hard” credit inquiry, which allows the new lender to access your full credit report and score. This inquiry will temporarily affect your credit score but is a necessary part of the formal application.
After application submission, expect a decision from the lender. Some applications may receive conditional approval, requiring additional documentation before final approval. If denied, lenders must provide a reason, such as a low credit score or high debt-to-income ratio.
Finalizing the Loan Transfer
Once your new car loan is approved, review the new loan documents and complete the transfer process. Verify the interest rate, monthly payment, total loan term, and any fees. Understanding all terms and conditions before signing is important to ensure the new loan aligns with your financial goals.
The new lender typically manages the payoff of your existing car loan. They will send the payoff amount to your old lender. Confirm with both lenders that the payoff has been processed and your original loan account is closed to ensure a clean transition.
Finalizing the transfer involves the lien release and title update. When your old loan is paid off, the previous lender will release their lien on your vehicle. This process can take a few business days to several weeks. The new lender will then secure their lien on the vehicle.
Updating the vehicle title with the new lienholder information is handled by the state’s Department of Motor Vehicles (DMV) or an equivalent agency. This process often involves submitting forms and paying a title transfer fee. Some states utilize electronic titles, while others mail a new paper title. The timeframe for receiving the updated title can vary.
After the new loan is established and the title updated, set up your payments with the new lender. Many lenders offer automatic payments directly from your bank account. Setting up auto-pay can help ensure timely payments and may qualify you for a small interest rate discount.