Requirements to refinance your car loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by offering you interactive tools and financial calculators as well as publishing authentic and objective content. We also allow you to conduct research and analyze information for no cost to help you make sound financial decisions. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this website are provided by companies that compensate us. This compensation could affect how and when products appear on this site, including such things as the order in which they appear within the listing categories and other categories, unless prohibited by law. Our mortgage or home equity products, as well as other home loan products. This compensation, however, does have no impact on the information we provide, or the reviews that you read on this site. We do not include the universe of companies or financial offerings that might be available to you. MoMo Productions/Getty Images
5 min read published on November 16, 2022.
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Written by Bankrate Bankrate. This article was written using automation technology and thoroughly edited and fact-checked by an editor from our editorial team. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to manage their finances by providing concise, well-researched and easily understood facts that break down complex topics into manageable bites. Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized expert on student financial aid Mark Kantrowitz is an expert on student financial aid as well as the FAFSA and 529 plans, scholarships, educational tax benefits, and student loans. The Bankrate guarantee
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We receive compensation for placement of sponsored products andservices or through you clicking certain links posted on our website. So, this compensation can influence the manner, place and in what order items are listed in the event that they are not permitted by law. This is the case for our mortgage or home equity products, as well as other home loan products. Other elements, such as our own proprietary website rules and whether or not a product is offered in your region or within your self-selected credit score range can also impact the manner in which products are featured on this website. Although we try to offer the most diverse selection of products, Bankrate does not include information about every financial or credit item or product. Whether you should refinance your vehicle loan often depends on the savings you’ll make in the long run, whether in a month-to-month or overall. Before you sign off on the new loan it is essential to confirm that your car and you are in compliance with the guidelines. Though requirements vary among lenders, you should keep an eye out for the ones below. Requirements for taking out a loan in order to finance your vehicle Consider these aspects when you’re considering an auto loan. Time remaining on loan The amount of time remaining to your loan is a common qualification requirement. Typically, lenders will want you to be current with your loan payment, have paid at least six months of your loan in addition to having at least 6 months left. This allows the lender to see that you have a track record of making payments, or have enough funds to earn a profit on interest when you’re done repaying. If you’ve taken out 60-month auto loan and are just three months away from the process of paying it off then you’re likely to not be able to refinance it for a few more months. In the same way, if you’ve paid 54 times already, you will likely have to pay the loan off, rather than refinancing it. Amount left Minimum loan amounts differ by lender however, you should expect to need at least the amount of $3,000-$5,000 left from your loan. Since refinancing is essentially taking out a new lender, they don’t want to give small amounts since they won’t be able to get as much profit from these. If you purchased an expensive vehicle it is possible that you won’t be able to refinance your loan immediately. Refinancing autos with loans that exceed $50,000 could be a challenge. Model year and mileage If you purchased a used vehicle and wish to refinance your loan — or you’ve recently accumulated a significant amount of miles — you might not be eligible to. The majority of lenders have a cap of 100,000-150,000 miles. While lenders don’t set a minimum age however, you might not be eligible if you have an older vehicle. Typically, lenders set the minimum age at the age of 10. However, some lenders may require a car under eight years old to consolidate the loan. Credit score As with every loan you will be a major aspect. Refinancing can be a great option if you’ve got a poor interest rate on your car loan and you have since improved your credit score. Anything below 600 will not net you a better rate, but it could happen, particularly if you increase the loan term to reduce monthly payments. It’s free to apply online. If you’re not happy with where it is or would like it to be, consider working to before making an application to refinance. The debt-to-income ratio measures your debt against your income. It is typically expressed as an amount. The acceptable range differs depending on lender to lender but is typically less than 50 percent. Repaying your outstanding debts is the best way to reduce your DTI if you find that a lender considers it to be excessive. The reduction of the amount of other installment loans or credit card debts can help show you’re financially responsible to a potential lender. Consider using a to find your DTI. This way, you’ll know the amount of debt you’ll have to pay off before submitting an application. How do you refinance an existing car loan Refinancing your car loan is a simple process. It’s the same process procedure as getting a brand vehicle loan. These steps will help you streamline the process: Look around for a loan. Apply for with at least three lenders, the same way you would when taking out a new auto loan. Make an application in the loan. Carefully fill out all of the required informationregarding your employment, identity and current loan and vehicle — and submit the required documentation. Receive your loan funds. The lender will either send you the money to pay the current lender directly. This can take a few days to several weeks, so keep paying your loan. Start paying off your new loan. After your loan is funded, it is time to pay it off. Be punctual with your payments and then send them to the right lender. Find out the best way to use your savings. After you’ve paid off your new loan, you can use the savings to improve your finances. You might consider putting the money towards a debt repayment, or . Pros and cons of refinancing your auto loan Prior to refinancing take a look at the . Pros You may secure a lower interest rate. It is possible that the lender refinancing your loan could provide you with a lower rate cost, thereby reducing the amount you pay over your loan’s life. A lower rate is more likely when your credit score is improving or you borrowed through a dealership. The monthly payments you make may be decreased. Extending your term or lowering your interest rate can lower your monthly payments. Be aware, however. Extending your auto loan term will also cost more interest. Cons The interest rate you pay could increase. If you’re not eligible for a lower rate take into consideration improving your credit score before applying. You may extend the life of your loan — and the amount of interest you have to pay. Even if your rate will be lower than the one you currently have, you may still increase the amount of interest you pay if you decide to extend the loan time. The longer it takes to pay off your car, the more interest you’ll accumulate. It’s possible to be upside down with your loan. If you extend the loan term when refinancing, the amount you have to pay could exceed the vehicle’s value as a result of depreciation. This is referred to as being upside down when you loan and could make it challenging for you to sell or refinance your vehicle without incurring losses. What to consider when refinancing your auto loan There are some crucial questions to be asked before you decide to refinance your auto loan. Are your current rates competitive? If you’re already paying a fair interest rate, you’ll be able to compare rates to make sure you’re getting a loan is worth it. In the last few months, the Federal Reserve increased the multiple meetings in a row which could result in auto loan rates increase over the next few years. Bankrate tip
You must compare rates with different lenders to determine which offers you the best deal. Compare your potential monthly payments as well as the total interest rate with your current loan.
What is the value of your vehicle worth? Prior to refinancing your car loan, you should know your loan-to-value ratio. The ratio is a measure of the amount you have to pay. If you are close to paying more for your car than it’s worth it, you might want to refinance to a shorter term. What are the conditions for the loan? It is important to know the essential information about your current loan when looking into refinancing. It includes your loan’ APR, the length of loan, the time left and the monthly installment. You can also look at the loan documents for more details on late fees and . The next steps refinancing your car loan is a smart choice, however, it is important to take a few steps to prepare ahead for this process. Consider your current credit score, your vehicle’s mileage and age as well as the amount that you owe to your vehicle, and the ability to afford the new loan. Depending on your financial situation, consider instead asking about ways to make your car loan payments more affordable. Learn more
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Written by The article was created using automated technology and thoroughly edited and fact-checked by an editor on our editorial team. Editor: Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances through providing concise, well-researched, and clear details that cut complex topics into manageable bites.
Auto loans editor
Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized expert on student financial aid Mark Kantrowitz is an expert on student financial aid and the FAFSA and 529 plans, scholarships, education tax benefits and student loans.
Nationally recognized student financial aid expert
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