Qualifying to Refinance an Auto Loan

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - October 27, 2020

You may have heard that refinancing your car loan is a great way to keep the vehicle you love while getting a better deal on your auto loan contract. This is true, but it's not as simple as visiting a lender and demanding to refinance. There are a number of qualifications that need to be met by you, your car, and your loan itself.

Personal Qualifications to Refinance an Auto Loan

Refinancing is typically reserved for borrowers with good credit. However, if you originally took out a bad credit auto loan, you may be able to qualify as long as your credit score has improved since you started.

If you decide to refinance, you have to prove that your situation has indeed gotten better. This means having a better credit score. A car loan is a wonderful way to improve your credit, and as long as you've been making all your payments on time and haven't let any of your other bills slip, you shouldn't have a problem proving your credit score has risen.

However, it takes time to build credit, so refinancing isn't something that you can do right away if you don't like the rates or terms you agreed to on the original loan. In some cases, you're only eligible for refinancing if you've had a loan for at least a year.

Does Your Car Qualify for Refinancing?

Refinancing isn't available for every situation, or every vehicle. Most lenders who refinance require that your car falls within certain age and mileage parameters. These can vary from lender to lender, but they usually only refinance vehicles that are under 10 years old or have less than 100,000 miles on them.

Additionally, there has to be equity in your car. Equity happens when your vehicle is worth more than you owe on your loan. If you owe more than the car is worth, however, you're in a negative equity position.

Negative equity is common with newer vehicles, or in situations where a borrower only qualified for a high interest rate, took on a really long loan term, and/or made a small down payment. However, it's possible to curb negative equity and close the gap between value and loan balance.

Borrowers often do this by making large down payments when taking out their original loans. If you weren't able to do this, and have negative equity to contend with before you can consider refinancing, one thing you can do is to pay extra on your auto loan whenever possible.

Existing Auto Loan Requirements Before Refinancing

When you refinance, you're replacing your current car loan with one that has different rates and terms. You can try to refinance with your current lender, but many people choose to apply through a different one.

Your original auto loan amount must fall within the new lender’s approved loan amounts, and you have to be current on your payments. If you've fallen behind on your loan, you won't be able to refinance until you've squared your past-due loan balance.

Why Refinance a Car Loan?

The main reason borrowers choose refinancing is to lower their monthly payment. There are typically two ways to accomplish a lower car payment: by qualifying for a lower interest rate or by extending the loan term. Both of these lower your monthly payment amount, but only a lower APR makes your auto loan more affordable overall.

If you only qualify for a longer loan term without also landing a lower APR, you ultimately end up paying even more for your vehicle. This isn't generally a good situation to be in, so tread carefully if you have to take this refinancing route to keep your car and avoid defaulting.

We recommend continuing to pay the highest amount you can each month, even if it's more than what's due. This way, you can pay off your loan earlier, and save money in interest charges.

Ready to Consider Refinancing?

If you're considering refinancing your vehicle, make sure both you and it meet all the necessary qualifications. Since the requirements may vary by lender, it's a good idea to know whether you can refinance with your existing lender, or if you need to find another to work with.

Not all lenders are able to provide refi contracts, and it's not always easy to pick them out of a crowd. Here at CarsDirect, we specialize in connecting consumers to dealerships that can help, and we're proud to now offer even more opportunities for refinancing through our trusted partners.

If you're having trouble qualifying for refinancing on your car, but need to lower your monthly payment, you might consider trading in your current vehicle for something a tad more affordable. And we can help with that, too.

Finding an Auto Loan Made Easy

When you're at an impasse, let CarsDirect guide you toward a dealer that’s signed up with lenders that are prepared to work with credit-challenged consumers. We've gathered a nationwide network of special finance dealerships that have the lending avenues you're looking for.

If you've been struggling to get a deal, let us assist you. Get started right now by filling out our fast, free, and no-obligation auto loan request form. After you do, we'll get right to work matching you with a dealer in your area.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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