Sometimes, external factors can make a monthly car payment too high to afford. Instead of losing the car, it is sometimes possible to refinance a car payment to reduce monthly costs and extend the life of the loan. Deciding to refinance a car payment can make a big short-term difference, but there are some factors, such as transfer fees and total amount paid through interest, that should be considered.

When a car is refinanced, the loan is usually sold from the initial company to a new loan company. In some cases, car owners can also refinance within the same company to reach more affordable terms, which may save on title transfer fees. By refinancing, a borrower may be able to lengthen the repayment period of the loan, meaning that monthly payments drop. Additionally, a decision to refinance a car payment can be helpful if interest rates have dropped significantly below the current rate on the loan. Finally, refinancing may sometimes allow borrowers to skip several months of payments without fear of repossession, if they are suffering sudden financial strain.

Before trying to refinance a car payment, it is important to locate current loan documents and examine them. Some car loans feature an early repayment penalty that may be enacted if the loan is sold to another company for refinancing. Early repayment fees can be quite high, and may actually make the current financial burden even higher. If a repayment fee exists, talk to the new loan company about absorbing the cost of the repayment fee into the balance of the loan, so that it does not need to be paid off all at once.

In order to refinance a car payment, it is important to find a lender that will offer a better loan structure than the current deal permits. Lenders may want to see documentation on income, debts, and assets before being able to quote an exact refinance rate. Once a lender provides a quote, customers may want to use online refinancing calculators that compare the old loan structure to the proposed refinanced version, in order to make sure that refinancing is the best long-term strategy.

When a customer is examining new companies that offer to refinance a car payment, it is important to get a breakdown of refinancing fees. In addition to a title transfer fee, borrowers may need to pay early payment fees and government fees to register the car. Getting a breakdown of fees can help customers understand exactly what they will be paying to refinance.