Do I Need Cash Down to Refinance a Car?

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Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - August 16, 2021

Typically, there are no down payment requirements to refinance a vehicle. However, if you don’t have equity in your car, you may need to front some extra cash to meet refinancing requirements.

Refinancing a Vehicle

Refinancing is the process of replacing a car loan with another one, for the same vehicle. By the time a borrower is able to refinance their car, they’ve typically paid enough on it that cash down isn’t a requirement.

Lenders often require down payments for borrowers with questionable credit histories when they're applying for auto loans. Down payments are also called skin in the game, and they provide some security for the loan.

By having a down payment, you’re proving that you’re able to save up, willing to invest in the vehicle, and you’re lowering how much you need to finance – all good things in a lender’s eyes. But since you’ve already been approved for the original car loan (and if you’ve been making payments), a refinancing lender isn’t likely to ask for more.

That is unless you don’t have any equity in the car.

Equity Is a Refinancing Requirement

If you're not sure there's equity in your vehicle, look up your remaining loan balance and compare it to your car’s estimated value, which you can do on vehicle valuation sites. If you owe less on the loan than the vehicle is worth, then you’re likely in an equity position. If you owe more, you’re upside-down or underwater on the loan – that’s negative equity.

Remember that refinancing involves replacing your old loan with a new one. To do this, the refinancing lender has to pay off your existing loan, and won't pay more than the car is worth.

If you apply for refinancing and it’s determined that you’re in a negative equity position, you’re likely to need to pay down the loan enough to land in an equity position to be eligible. While this isn't technically a down payment requirement per say, it does mean shelling out more cash before you can get the car loan you're looking for.

Other Refinancing Requirements

Refinancing lenders generally require that you haven’t missed any car payments. They want to be sure that you’re going to be continuing to pay the loan, so they care about your track record. A history of late or missed payments on your current auto loan isn’t going to bode well with another lender. But if you’ve stayed current, you’re on the right track.

Other common refinancing requirements include:

  • You’ve had the loan for at least 12 months – This varies by lender, but many require that you’ve had the loan for a year and managed it well during that time. This is likely to be a requirement for borrowers with less than perfect credit.
  • Your car is less than 10 years old – Lenders prefer to finance and refinance vehicles in good condition, and an older car could be seen as risky.
  • Your vehicle has less than 100,000 miles – Same principle as age. A car with over 100,000 miles may be at a higher risk of mechanical failure, so most lenders have mileage requirements to qualify for refinancing.
  • Your credit score has improved or is good – If you originally took on a bad credit auto loan, but your credit score has improved since you started the loan, you may be a candidate for refinancing.

Your credit score and history are often key components of qualifying for new credit. If your credit history is spotty, you’re in bankruptcy, or had a repossession less than a year ago, refinancing could be a tough goal to achieve. However, if you’re able to refinance, it could mean savings.

Is Auto Refinancing for You?

Refinancing offers the chance for borrowers to save some money on their vehicle – either long-term or monthly. Most borrowers refinance their car to get a lower monthly payment, and this is achieved by either stretching out the loan term to get smaller installments and/or lowering the interest rate.

For borrowers that originally took on a bad credit auto loan, refinancing could be the way to get a lower interest rate and save money on interest charges. However, not all borrowers or vehicles are eligible. If you think refinancing isn’t the path for you, then let CarsDirect map out another one for you.

We’ve created a nationwide network of special finance dealerships that are equipped to assist borrowers with all sorts of credit challenges. If you’re in need of a bad credit auto loan, then fill out our free car loan request form. We’ll look for a dealer in your local area that’s signed up with subprime lenders that specialize in bad credit vehicle financing.


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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