How to Refinance a Baloon Car Loan
- 1). Plan ahead. Don't wait until the last payment to refinance a balloon car loan. Start shopping ahead of time (6 to 12 months before the balloon payment is due). This will allow you sufficient time to secure a reasonable rate and monthly payment.
- 2). Ask the existing lender about pre-payment penalties. If the old loan has a pre-payment penalty, you may be assessed a fee when the loan is paid off. For example, when your new lender pays off the loan, the old lender may charge a $500 fee. If the balloon loan has this fee, ask the new lender to pay off the old loan after you've made your final payment.
- 3). Talk with your existing lender about refinancing into an auto loan that isn't a balloon term. If you stay with the current lender, you may be able to negotiate to waive pre-payment penalties.
- 4). Shop interest rates. Auto loan comparison tools allow borrowers to shop auto loan rates across the country. With Bank Rate's tool (see Resources), you can enter an appropriate credit rating (poor, average, good or excellent) to access the most accurate rates based on your situation.
- 5). Compare fees. With a new auto loan, there may be fees. Ask potential lenders for a fee disclosure. This document will list all fees associated with the loan. If two auto loan products offer the same interest rate, fees can assist with making the decision.
- 6). Sign loan papers. After the financial institution has processed the loan, the bank employee will set-up a signing. This is typically done at the branch. Read loan documents carefully. Check the rate, loan term and fees associated with the refinance to ensure everything is accurate.
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