I’m Having Trouble Paying for My Car Loan, Should I Refinance?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - November 4, 2019

If you’re having trouble paying your car loan, you could refinance it. The main goal of refinancing is to lower the monthly payment by getting a lower interest rate or extending the term of the loan. However, there are refinancing requirements you and your vehicle need to meet.

Requirements for Refinancing a Car Loan

Refinancing an auto loan essentially means you're replacing your current loan with a new one with different terms. Usually, you do this with a new lender, but you may also be able to refinance with your current one.

Each lender has their own refinancing requirements, but you can expect most of them to have these four:

  1. Your credit score needs to have improved – The first thing lenders look for is an improvement in your credit score since taking on the original loan. If it hasn’t gotten better, your chances of qualifying are lower.
  2. At least a year needs to have passed – Next, lenders look to see that you’ve had the loan for at least a year. They want to see that you’ve been making on-time payments, and that you’re current with your loan. If a year has passed but you’ve fallen behind on payments, you’re not going to get approved for a new loan.
  3. Your vehicle must have equity – Equity is when your car is worth more than what you owe on the loan. Your vehicle’s value must be equal to or more than what you owe in order to refinance.
  4. Your car must meet the age and mileage limits – Lenders also have vehicle age and mileage requirements that need to be met. Generally, bad credit lenders only refinance vehicles that are 10 years old or newer that have less than 100,000 miles on them, but it can vary from lender to lender.

Lowering Your Monthly Payment by Refinancing

As mentioned, you can lower your monthly payment by either extending the loan term or lowering the interest rate. Both are viable options, but to save the most money, you should see if you can qualify for a lower interest rate. You end up saving more on the overall cost of the loan this way since you lower your monthly payment and the total interest charges.

When you extend the loan term and the current interest rate stays the same, the only difference is that your monthly payment drops and you have more time to pay it off. At the same time, you end up paying more in interest charges because of the longer loan term.

For example, let’s say you took out a $12,000 auto loan for 48 months at an interest rate of 13% and you made a $1,000 down payment. Your monthly payment would be $295 and your total interest charges over the loan term would be $3,165.

If you were to refinance after 12 months and finance the remaining $8,956 loan balance for 48 months for a total of 60 months, your monthly payment decreases to $240 and your total interest charges increase to $3,875. In this case, the monthly payment drops by $55, but the interest charges increase by $710.

Refinance Your Auto Loan

Refinancing can be a great way to save money on the monthly payment. It’s important you make sure your car has equity, your credit score has improved, your vehicle qualifies, and at least a year has gone by before you start the refinancing process. Once you’ve double checked that you’re in good shape, you can begin the refinancing process here through our partnership.

If you’re looking to just get a bad credit auto loan, we can assist with that, too. At CarsDirect, we're teamed up with a national network of special finance dealerships that can help you get approved for financing.

Get the process of being matched to a local dealer started by filling out our fast, free, and easy car loan request form right now.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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