Determining Factors for Car Refinancing Rates

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Content Manager

David Topham is the Automotive Content Manager for Internet Brands. He works as the lead editor for CarsDirect and Auto Credit Express, and contributes to those sites alongside other Internet Brands' properties like The Car Connection. He was born and raised in Michigan and is a graduate of Michigan State University.

, Content Manager - February 5, 2020

The factors that determine your car refinancing rate are very similar to the determining factors that influence your APR when taking out a loan. If your auto loan has a high interest rate, you could consider refinancing it to get a lower rate. This can help you reduce the monthly payment and lower the total cost of your loan.

Factors That Influence Car Refinancing Rates

There are several factors that affect the interest rate you receive when you refinance your car loan. These include:

  • Your credit score – The No. 1 factor that influences your refinancing rate is your credit score. People with better credit scores qualify for lower interest rates. The good news is that if you’ve been on time with all of your payments since taking out a loan, you should have a higher credit score when you refinance, allowing you to land a better interest rate.
  • Loan term – The loan term you choose typically affects the interest rate you qualify for. In most cases, the shorter the term, the lower the rate.
  • Your car – The age, mileage, and equity of your vehicle play a role. Generally speaking, interest rates for older cars are higher than they are for less old models, and the same goes for vehicles that have more miles on them. You should also figure out the book value of your vehicle compared to how much you owe on its loan. You may be disqualified from refinancing if you have negative equity, which means you owe more than your vehicle’s book value.
  • The overall market – Interest rates are influenced at the federal government level, as the Federal Reserve’s benchmark rate affects what banks charge consumers. At the same time, each lender has their own refinancing programs, which means that they often offer different rates. For this reason, you should apply with multiple lenders and choose the best rate available to you.

All of these moving pieces make it hard to estimate what interest rate you can get. The only way to know for certain is to apply with a lender to see your options.

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Refinancing Questions and Answers

Why are new car loan interest rates lower than used car rates?

New cars are usually available with lower interest rates than used vehicles for a couple of reasons. New cars have resale values that are easier to predict, so the lender has extra assurance in that regard. Used vehicles that are older, have more miles on them, and are more likely to experience mechanical issues represent more of an unknown to lenders, so they compensate by offering higher rates. Also, lenders, especially captive arms of automakers, want you to buy new. So much so, in some cases, that they offer low or 0% interest incentives to move certain new models.

What is the current interest rate for refinancing an auto loan?

The average current interest rate for a used car loan is 9.57%, according to Experian data from the third quarter of 2019. However, the average rate varies widely depending on your credit score. For example, buyers with a 661 to 780 credit score saw rates of 6.36% on average, while those with 501 to 600 credit scores received an average rate of 16.89%.

How can I qualify to refinance my auto loan?

In order to qualify to refinance a car loan, you have to meet all of the lender’s refinancing requirements. These vary, but you can expert lenders to have these general rules:

  • Credit – You need a good credit score, or at least an improved credit score since you took out the original loan.
  • Equity – You need to have equity in the vehicle, which means your car’s value is greater than what you owe on the loan.
  • Loan amount – Your loan amount has to fall within the lender’s acceptable limit.
  • Age and mileage – Your vehicle has to meet the lender’s age and mileage restrictions.
  • Current on payment – You have to be current on your loan payment.

Can I refinance an auto loan with bad credit?

You can’t refinance a car loan if you have bad credit. As we mentioned above, having a good credit score is usually a requirement to refinance. The only exception to this rule is if you originally took out a bad credit auto loan. In this case, it may be possible to refinance if your credit score has improved since you took it out.

Even if it’s not technically considered “good” yet, some lenders may consider you if you’ve made strides with your credit. How much improvement they’re looking for varies, but this generally means you need to make at least a year of on-time payments, possibly longer.

How many times can I refinance my car loan?

There is no legal limit on how many times you can refinance your auto loan. You can do it as often as you like – as long as you can qualify with a lender. Remember, your vehicle has to meet the lender’s age and mileage requirements, while the loan amount has to fit in to their acceptable range. Obviously, there may come a point in time where your car no longer meets their standards.

Are there any fees for refinancing an auto loan?

You have to pay a transfer of title fee if you’re going through a different lender. You may need to pay a state re-registration fee as well, depending on where you live. While uncommon, you should also ask your current lender about any pre-payment fees that you might be facing.

Where do I go to refinance?

You can refinance your car loan with any lender that offers it, from banks to credit unions to any number of other online lenders. The good news is that you have the freedom to research and apply with different lenders to look for the best refinancing deal.

A good idea is to start by applying with your personal bank or credit union. If you have a relationship, especially a long-standing one with a history of well-managed accounts, it stands to reason that they can offer a reasonable rate.

If you don’t like what you see or can’t get approved, you can rate shop with multiple lenders. Rate shopping is the process of applying with several different lenders for the same type of loan in a short amount of time.

This way, you can view and compare multiple offers and pick the best one. If you keep all applications to a 14-day window, all hard inquiries made on your credit only affect your credit score as one single hard inquiry.

The Bottom Line

People refinance their auto loan in order to get a lower monthly payment. The best way to accomplish this is to refinance for a lower interest rate. In order to qualify for one, you should get familiar with the determining factors for car refinancing rates that we laid out above.

If you don’t want to or can’t refinance, and are looking to trade in your vehicle and take out another loan instead, CarsDirect is here to help. We work with a network of special finance dealerships, and we can match you with one near you. Our partner dealers are experts at helping people in unique credit situations.

Get the process started right now by filling out our free and secure auto loan request form. It’s free, easy, and never puts you under any obligation.


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, Content Manager

David Topham is the Automotive Content Manager for Internet Brands. He works as the lead editor for CarsDirect and Auto Credit Express, and contributes to those sites alongside other Internet Brands' properties like The Car Connection. He was born and raised in Michigan and is a graduate of Michigan State University.

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