Requirements to refinance your car loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make better financial decisions by offering interactive financial calculators and tools, publishing original and objective content. We also allow users to conduct research and compare information for free – so that you can make informed financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that appear on this website are provided by companies who pay us. This compensation can affect the way and when products are featured on the site, such as such things as the sequence in which they be listed within the categories of listing in the event that they are not permitted by law for our mortgage, home equity and other products for home loans. However, this compensation will have no impact on the content we publish or the reviews appear on this website. We do not cover the entire universe of businesses or financial offers that may be available to you. MoMo Productions/Getty Images
5 min read Released November 16, 2022
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Written by Bankrate Bankrate. This article was written using automation technology and thoroughly edited and fact-checked by an editor on our editorial team. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to take control of their finances through providing precise, well-studied information that breaks down complex topics into manageable bites. Written by Mark Kantrowtiz and reviewed by Nationally acknowledged student financial aid expert Mark Kantrowitz is an expert on student financial aid, the FAFSA, scholarships, 529 plans, benefits for education and tax credits as well as student loans. The Bankrate guarantee
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We are compensated in exchange for the placement of sponsored products and, services, or through you clicking specific links on our site. This compensation could affect the way, location and when products appear within listing categories, except where prohibited by law. This is the case for our mortgage, home equity and other home loan products. Other factors, such as our own website rules and whether or not a product is available within the area you reside in or is within your personal credit score could also affect the way and place products are listed on this website. We strive to provide the most diverse selection of products, Bankrate does not include details about every credit or financial product or service. Refinancing your current vehicle loan typically depends on the amount of savings you’ll get — either in a month-to-month or overall. But before signing off on a new loan you should ensure that your vehicle and you fit the requirements. Though requirements vary among lenders, keep on the ones below. Requirements for taking out the loan to refinance your car Be aware of these elements when you’re considering an auto loan. Time remaining on loan The length of time left to the loan is a typical qualification requirement. In general, lenders want that you are current on your loan payments, have paid at least six months of the loan as well as have at minimum six months remaining. This lets the lender to determine if you’ve established a history of payments — or that you are able to earn a profit on interest when you’re finished the repayment. If you took out 60-month auto loan and are three months from making payments it is likely that you won’t be able to refinance it for another couple of months. In the same way, if you’ve completed 54 installments and are in the process of paying them off, you’ll likely need to pay the loan off, rather than refinancing it. Rest of the amount loan amounts are different for each lender and lender, but you can anticipate that you will need between $3,000 to $5,000 left on your loan. Because refinancing is basically taking out a new , lenders don’t want to offer small amounts because they won’t be able to get as much profit from them. And if you bought an expensive vehicle and you’re unable to refinance it immediately. The process of finding auto refinance loans for over $50,000 can be difficult. Model year and miles If you’ve purchased a used vehicle and are looking to refinance your loan — or just racked up a lot of miles — it’s possible that you won’t be able to. Lenders tend to have a limit of 100,000-150,000 miles. While lenders don’t set an age limit however, you might not be eligible if you have an older car. Most lenders have an age limit of the age of 10. However, some lenders may require a vehicle that is less than eight years old to consolidate the loan. Credit score As with every loan it is the primary element. Refinancing is generally a good option if you’ve had low interest rates on your auto loan and have since raised your credit score. Anything under 600 likely won’t result in a higher rate and could , especially when you extend the loan duration to lower your monthly payments. It’s free to apply online. If it’s not where you would like it to be, take a look at reworking it before applying for refinancing. Debt-to-income ratio requirements Your debt-to-income ratio measures your debt against your income. It is typically expressed as a percentage. The acceptable range differs from lender to lender but is typically not more than 50. Repaying your credit card debts is the most effective way to lower your DTI should a lender deems it excessive. The reduction of the amount of other installment loans or credit card debts can help show your financial responsibility to a prospective lender. Consider using a to find your DTI. So, you’ll be aware of the amount of debt you’ll have to settle before applying. How to refinance the car loan Refinancing a car loan is relatively simple. It involves the same as getting a new car loan. This article will assist you in streamlined the process: Shop around for an loan. Apply for with at least three lenders, the same way you would for taking out an auto loan. Make an application for the loan. Complete all of the required information- about your identity, employment, current loan and vehicle — and provide the necessary documentation. Receive your loan funds. The lender will then send you the money and pay you your existing lender directly. This can take some days to a few weeks, so keep making your payments. Start paying off your new loan. After your loan has been approved and you have it, it’s time to begin paying off the loan. Be punctual with your payments and send them to the right lender. Learn how to best use your savings. Once you’ve repaid the new loan and have repaid it, you can utilize the money to boost your financial situation. Think about putting your savings towards debt repayment, or . Pros and cons of refinancing your car loan Before refinancing take a look at the . Pros You may secure a lower interest rate. A lender is able to refinance your loan might offer a lower interest rate , saving money over the life of your loan. A lower rate is more likely in the event that your credit score is improving or you have financed your loan through a dealer. Your monthly payment could be reduced. The extension of your term or the reduction of your interest rate can reduce your monthly payments. Be aware, however. Extension of the auto loan term will also cost additional interest. Cons Your interest rate may rise. If you’re not eligible for a lower rate you should think about increasing your score on credit prior applying. You may extend the life of your loan and also the interest you pay. Even if the rate you pay will be lower than the one you currently have, you may nevertheless increase the amount of interest you pay when you decide to extend your loan term. The longer you take to repay your car in full, the more interest you’ll accumulate. You may end up upside-down in your loan. If you extend the loan time frame when refinancing the amount you owe could surpass the value of your vehicle as a result of depreciation. This is known as being upside down when you loan and can make it challenging for you to sell or refinance your car without the loss. What to consider before refinancing your auto loan There are some important questions to consider before you decide to refinance your auto loan. Are your current interest rates affordable? If you’re paying a fair interest rate, then you’ll want to compare current rates to ensure that the new loan is worthwhile. The Federal Reserve increased the multiple meetings in a row, which could result in auto loan rates are likely to increase in the next few years. Bankrate tip
You should compare rates from different lenders to determine which one offers the most value. Use a to compare your monthly payments as well as the total interest rate with you current loan.
What is the value of your vehicle worth? If you are considering refinancing your vehicle loan be aware of your ratio of loan-to-value. The ratio is a measure of the amount you owe. If you are close to having more debt on your vehicle than what it’s worth it, you might want to refinance for a shorter term. What are the conditions of the loan? You should know some of the essential information about your current loan when you are considering refinancing. These include the loan’ rate, duration, time left and monthly payment. Also, you can look through the 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 be prepared ahead for this process. Examine your credit score, your vehicle’s age and mileage, the amount you owe on your vehicle and the ability to make the payments for your new loan. Depending on your financial situation think about asking ways to make your car loan payment more affordable. Learn more
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The article was written by created using automated technology that was then thoroughly edited and checked by an editor on our editorial staff. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances with clear, well-researched facts that break down complicated topics into digestible pieces.
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Review by Mark Kantrowtiz by Nationally recognized expert on student financial aid Mark Kantrowitz is an expert on student financial aid including the FAFSA as well as scholarships, 529 plans as well as tax benefits for education along with student loans.
Nationally acknowledged expert in student financial aid
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