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 providing you with interactive financial calculators and tools, publishing original and objective content. We also allow you to conduct research and compare data for free – so that you can make financial decisions with confidence. Bankrate has agreements with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this site are from companies that compensate us. This compensation can affect the way and where products appear on this website, for example for instance, the sequence in which they be listed within the categories of listing and other categories, unless prohibited by law. Our mortgage or home equity products, as well as other home lending products. This compensation, however, does have no impact on the content we publish or the reviews you see on this site. We do not contain the vast array of companies or financial offerings that might be accessible to you. MoMo Productions/Getty Images
5 min read Published November 16, 2022
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Written by Bankrate Written by Bankrate. This article was written with the help of automation technology, and then checked and edited by an editor from our editorial team. The article was edited 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. They provide concise, well-researched and easily understood information that breaks down complicated topics into digestible pieces. Review by Mark Kantrowtiz by Nationally well-known expert on student financial aid Mark Kantrowitz is an expert on student financial aid including the FAFSA and 529 plans, scholarships, benefits for education and tax credits as well as student loans. The Bankrate promises
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We are compensated in exchange for the placement of sponsored products or services, or through you clicking certain links posted on our site. So, this compensation can impact how, where and in what order items are displayed within the categories of listing, except where prohibited by law for our mortgage home equity, mortgage and other home lending products. Other elements, such as our own rules for our website and whether or not a product is available within your area or at your own personal credit score can also impact how and where products appear on this website. We strive to provide an array of offers, Bankrate does not include details about every credit or financial products or services. Refinancing your existing vehicle loan often depends on the savings you’ll make in the long run, whether monthly or over the course of. Before you sign off on a new loan you should ensure that your vehicle and you fit the requirements. Although the requirements differ between lenders, keep in mind the ones below. The requirements for taking out the loan in order to finance your car Be aware of these factors when you’re considering an auto loan. Time left on loan The amount of time left for the loan is a typical qualification requirement. In general, lenders want that you are current on your loan payment, have completed at minimum six month of the loan as well as have at minimum six months remaining. This allows the lender to determine if you’ve established a history of payments — or have enough funds to profit off interest when you’re done repaying. If you took out a 60-month auto loan and are only three months from making payments it is likely that you won’t be able to refinance it for another few months. Similarly, if you’ve paid 54 times already, you will likely have to finish paying it off rather than refinance it. Rest of the amount loan amounts differ by lender and lender, but you can anticipate having at minimum $3,000 to $5,000 left from your loan. Since refinancing is essentially borrowing a new loan , lenders don’t want to provide small amounts as they’ll be unable to make as much money from these. If you’ve purchased an expensive car, you may be unable to refinance it immediately. Finding auto refinance loans with a maximum amount of $50,000 can be a challenge. Mileage and model year If you bought a heavily used vehicle and wish for refinancing the loan or recently accumulated a significant amount of miles — you might not be able to. Lenders tend to have a limit of 100,000 to 150,000 miles. While lenders don’t have a minimum age but you might not qualify even if you own an older car. Typically, lenders set a hard limit at the age of 10. Some lenders will require a vehicle that is less than eight years of age to be able to consolidate the loan. Credit score Like any loan it is a major element. Refinancing can be a great option if you’ve had an unsatisfactory interest rate on your car loan and you’ve since increased the credit rating. Anything below 600 will not net you a better rate, and it might , especially when you extend your loan duration to lower the monthly payment. It’s free to apply online. If it’s not where you would like it to be, consider working to before applying to refinance. Debt-to-income ratio requirements Your debt-to income ratio measures the amount of debt you have against your income, and is usually expressed in terms of a percentage. The acceptable range differs depending on lender to lender but typically is lower than 50 percent. The process of paying down outstanding debts is the best way to lower your DTI if the lender finds it to be too high. Lowering your other installment loans or credit card debts can help show your financial responsibility to a prospective lender. You might want to use a tool to determine your DTI. This way, you’ll know the amount of debt you’ll have to pay down before applying. How to refinance your car loan Refinancing a vehicle loan is a simple process. It’s the same process as applying for a fresh car loan. These steps will help you streamline the process: Look around for a loan. Make an application with at least three lenders, as you would do for a new auto loan. You must apply for the loan. Carefully fill out all of the required informationabout your identity, employment as well as your current loan and vehicle — and provide the necessary documentation. Receive your loan funds. The lender will either send you the funds to pay the current lender directly. It could take anywhere from some days to a few weeks, so keep making your payments. You can begin paying off your loan. Once your loan is funded and you have it, it’s time to start paying it off. Be punctual with your payments and then send them to the right lender. Find out how you can make the most of your savings. Once you’ve repaid your new loan and have repaid it, you can utilize the savings to enhance your financial position. You might consider putting the money towards a debt repayment, or . The pros and cons of refinancing your vehicle loan Before you refinance consider the . Pros You may secure a lower interest rate. It is possible that the lender refinancing your loan might offer a lower interest rate , saving money over the life of your loan. A lower interest rate is more likely if your credit score has improved or you borrowed through a dealership. Your monthly installment can be decreased. The extension of your term or the reduction of the interest rate could reduce your monthly payments. Be cautious, however. The extension of the auto loan period will also incur additional interest. Cons The interest rate you pay could increase. If you’re not qualified for a lower rate take into consideration upgrading your credit rating before applying. You can extend the term of your loan and also the interest you pay. Even if your interest rate will be lower than the one you currently have, you could still increase the amount of interest you pay when you decide to extend your loan time. The longer you take to repay your car in full, the more interest you’ll accumulate. You could get upside-down with your loan. In the event that you decide to extend your loan term when refinancing, the amount you owe could exceed the value of the vehicle due to depreciation. This is known as being upside down on your loan and can cause problems to refinance or sell your vehicle without a loss. Consider these things before refinancing your auto loan There are some crucial questions to be asked before deciding to refinance your car loan. Are your current rates competitive? If you’re paying a competitive interest rate, then you’ll be able to compare rates to make sure you’re getting a loan is worth it. The Federal Reserve increased the multiple meetings in a row, which could mean auto loan rates are likely to increase in the next year. Bankrate tip
It is important to compare rates from different lenders to determine which offers you the best price. Utilize a calculator to compare the monthly payment you could make and the total amount of interest you pay on the current loan.
What is your current vehicle worth? Before refinancing your car loan, you should know the ratio of your loan to value. The ratio is a measure of the amount you have to pay. If you are close to paying more for your car than what it’s worth it, you might want to refinance to an earlier term. What are the terms of the loan? It is important to know the fundamental information about your current loan in the event of refinancing. This includes the loan APR, the length of loan, duration, time left and monthly payment. Also, you can look through your loan documents to find out more about late fees and . The next steps refinancing your car loan is a smart decision, but you should follow a few steps to plan ahead for this process. Examine your credit score, your vehicle’s mileage and age as well as the amount that you owe on your car and your ability to afford this new loan. Depending on your financial situation you might want to consider asking to make your auto loan payments more affordable. Learn more
Written by The article was produced using automated technology, and was thoroughly checked for accuracy and quality by an editor from our editorial team. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complicated subjects into bite-sized pieces.
Auto loans editor
Review by Mark Kantrowtiz by Nationally acknowledged student financial aid expert Mark Kantrowitz is an expert on student financial aid including the FAFSA and scholarships, 529 plans educational tax benefits, as well as student loans.
Nationally recognized student financial aid expert
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