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 choices by providing you with interactive financial calculators and tools as well as publishing authentic and objective content. This allows you to conduct your own research and compare data for free - so that you can make informed financial decisions. Bankrate has partnerships with issuers, including but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this website come from companies that compensate us. This compensation could affect how and when products appear on this website, for example, for example, the order in which they be listed within the categories of listing in the event that they are not permitted by law. Our mortgage or home equity products, as well as other home lending products. This compensation, however, does not influence the content we publish or the reviews you read on this site. We do not cover the vast array of companies or financial deals that could be accessible to you. MoMo Productions/Getty Images
5 min read Released November 16, 2022
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Written by Bankrate This article was generated by using automated technology. It was then 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 editing and writing for Bankrate since the end of 2021. They are dedicated to helping readers gain the confidence to control their finances through providing clear, well-researched facts that break down complex subjects into bite-sized pieces. Written by Mark Kantrowtiz and reviewed by Nationally acknowledged student financial aid expert Mark Kantrowitz is an expert on student financial aid as well as the FAFSA, 529 plans, scholarships, education tax benefits and student loans. The Bankrate promise
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We are compensated in exchange for the promotion of sponsored goods or services, or when you click on specific links on our site. This compensation could influence the manner, place and in what order items are listed and categories, unless it is prohibited by law. We also offer mortgage home equity, mortgage and other home lending products. Other factors, like our own rules for our website and whether or not a product is available in your area or at your own personal credit score can also impact how and where products appear on this website. We strive to provide an array of offers, Bankrate does not include information about every credit or financial product or service. If you're considering refinancing your vehicle loan often depends on the amount of savings you'll get in the long run, whether month to month or overall. Before you sign off on a new loan, you must confirm that your vehicle and you fit the requirements. While requirements vary between lenders, you should keep in mind the ones listed below. What are the requirements to take out a loan to refinance your vehicle Consider these aspects when considering an auto loan. Time left on loan The amount of time remaining to your loan is a standard qualification requirement. Typically, lenders will want that you are current on your loan payments, have paid at least six months into the loan and have at least six months remaining. This allows the lender to see that you've established a history of payments -- or have enough funds to earn a profit on interest when you're finished paying off. If you've taken out an auto loan and are three months into the process of paying it off it is likely that you won't be able to refinance it for a few more months. Similarly, if you've made 54 payments already and are in the process of paying them off, you'll likely need to make it through the process of paying the balance off instead of refinancing it. Amount left Minimum loan amounts vary by lender however, you should anticipate that you will need between around $3,000 to $5,000 remaining from your loan. Since refinancing is essentially borrowing a new loan lender, they don't want to provide small amounts as they will not be able to earn as much from these. If you've purchased a particularly expensive car and you're unable to refinance it immediately. Finding auto refinance loans with a maximum amount of $50,000 can be a challenge. Model year and miles If you bought a heavily used vehicle and are looking for refinancing the loan -- or already accumulated a number of miles -- you may not be able to. Lenders tend to have a limit of 100,000 to 150,000 miles. While lenders don't set the minimum age but you might not qualify even if you own an older car. Most lenders have an age limit of 10-years-old. Some lenders will require a vehicle that is less than eight years of age to be able to be able to refinance the loan. Credit score Like any loan you will be an important aspect. Refinancing is usually a good option if you've got a poor interest rate on your car loan and have since raised the credit rating. Anything below 600 will not result in a higher rate and could , especially in the event that you lengthen the loan period to decrease monthly payments. There's no cost online. If you're not happy with where it is or would like it to be, take a look at reworking it before making an application to refinance. Debt-to-income ratio requirements Your debt-to income ratio measures the amount of debt you have against your income and is typically expressed as a percentage. The acceptable range is different depending on lender to lender but generally is lower than 50 percent. Paying down your current outstanding debts is the best way to reduce your DTI if you find that a lender deems it excessive. The reduction of other installment loans or credit card charges could help show that you're financially responsible to a potential lender. You might want to use a tool to determine your DTI. So, you'll be aware of the amount of debt you'll need to pay down before applying. How do you refinance the car loan Refinancing your car loan is fairly simple. It is the same process as getting a new car loan. These steps will help you streamline the process: Shop around for the best loan. You must apply with at minimum three lenders, the same way you would when taking out a new auto loan. You must apply for the loan. Complete all of the required informationabout your identity, employment and current loan and car -- and provide documents. Receive your loan funds. The lender will either send you the money or pay your current lender directly. This can take some days to several weeks, so keep on making your payments. Begin to pay off your new loan. After your loan has been approved, it is time to pay it off. Be punctual with your payments and then send them to the right lender. Find out the best way to use your savings. Once you have repaid your new loan then you are able to use the savings to enhance your financial position. You might consider putting the money towards a loan, debt repayment or . The pros and cons of refinancing your car loan Before refinancing take a look at the . Pros You may secure a lower interest rate. It is possible that the lender refinancing your loan could offer you a lower interest rate, which will save you money over the course of the course of the loan's. A lower rate is more likely in the event that your credit score has improved or you borrowed through a dealership. Your monthly installment can be decreased. The extension of your term or the reduction of your interest rate may reduce your monthly payments. Be careful, though. Extending your auto loan term will also cost additional interest. Cons Your interest rate may rise. If you don't qualify for a lower rate take into consideration improving your credit score prior applying. You may extend the life of your loan -- and the interest you pay. Even if your interest rate may be less, you may still increase the amount of the interest you have to pay if you opt to extend your loan duration. The longer it takes you to repay your car and the higher interest rate you'll accumulate. You may end up upside-down in your loan. In the event that you decide to extend your loan time frame when refinancing the amount you owe may exceed the vehicle's value because of depreciation. This is referred to as being upside down in your loan and may make it difficult for you to sell or refinance your car without taking the loss. What to consider when refinancing your auto loan There are some important things to think about before you decide to refinance your car loan. Are your current rates reasonable? If you're already paying a fair interest rate, then you'll need to check rates to make sure you're getting a loan is worth it. The Federal Reserve increased the multiple sessions in a row, which could mean auto loan rates will increase over the next year. Bankrate tip
You should compare rates from several lenders to see which one offers the best price. Utilize a calculator to compare your potential monthly payments and total interest with the current loan.
What is the value of your vehicle worth? Prior to refinancing your car loan, you should know your loan-to-value ratio. This ratio will tell you the amount you have to pay. If you're near owing more on your vehicle than it's worth, you may want to refinance for an earlier term. What are the terms for the loan? It is important to know the fundamental specifics of your current loan when you are considering refinancing. It includes your loan' APR, the length of loan, the time left and the monthly installment. You can also look at the loan documents to find out more about late charges and . Next steps Refinancing your car loan is a smart decision, but you must do a few things to plan for the process. Take into consideration your credit score, your car's mileage and age as well as the amount that you owe to your vehicle, and your ability to pay for this new loan. Based on your financial circumstances you might want to consider asking to make your auto loan payments less expensive. Learn more
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Written by This article was created using automated technology that was then thoroughly edited and checked by an editor from our editorial team. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to control their finances by providing precise, well-researched and well-researched details that cut otherwise complicated subjects into bite-sized pieces.
Auto loans editor
Reviewed by Mark Kantrowtiz Reviewed by Nationally recognized student financial aid expert Mark Kantrowitz is an expert on student financial aid and the FAFSA as well as 529 plans, scholarships, education tax benefits as well as student loans.
Nationally recognized student financial aid expert
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