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Refinancing your auto loan can save you money by lowering your interest rate, or it can lower your monthly payments to help free up your budget.
When you decide it might be time to refinance your auto loan, perhaps because you’ve improved your credit or noticed interest rates have dropped, you can start by comparing lenders.
Before starting an application, review each lender’s general requirements for refinancing auto loans to get an idea whether you’re eligible to apply before starting an application. These might include a minimum credit score, or restrictions on your current lender and vehicle age and mileage.
Here’s an overview of what some lenders look for along with common information needed to apply.
- Qualifying to refinance a car loan
- Applying to refinance a car loan
- Next steps
Qualifying to refinance a car loan
As part of the underwriting process, the lender might review your income, other debt obligations, and credit scores or credit reports. Your approval, loan terms and loan amount may depend on its findings.
Contrary to popular belief,low credit scores may not necessarily exclude you from refinancing. That’s not to say good credit isn’t important, though, as higher credit scores could lead to better terms, such as a lower interest rate.
Specific requirements vary from one lender to another, but here are some factors lenders may consider when deciding whether you can refinance with them.
- Your vehicle’s age — Vehicles depreciate (lose value) over time, and you may not be able to refinance older vehicles. For example, Capital One won’t refinance a vehicle that’s more than 10 years old.
- The mileage on your vehicle — Mileage can also affect a vehicle’s value, and you may not be able to refinance a high-mileage car or truck. That cutoff is fewer than 125,000 miles at Bank of America, while online lender OpenRoad Lending will refinance a vehicle that has up to 140,000 miles.
- The value of your vehicle — If the vehicle is worth less than the amount you owe, that means you’re upside down on your loan. You might still be able to get your auto loan refinanced, but you may have to pay the difference between what you owe on your loan and the car’s value
- The type of vehicle — You may not be able to refinance commercial, delivery or so-calledlemon law vehicles. Motorcycles and RVs also might not qualify for standard auto refinancing, and salvage or rebuilt vehicles are often disqualified.
- The loan amount — Lenders may have a minimum loan requirement, such as $5,000 or $10,000, and may require that you refinance your entire loan.
- Your current lender — Some lenders won’t refinance a loan that you initially took out with them and may only refinance loans from lenders that meet their requirements.
- Where you live — Some lenders don’t offer auto refinancing in every state.
Check for auto loan refinance offersView Estimated Loan Terms
Applying to refinance a car loan
If you and your vehicle meet a lender’s criteria for applying to refinance and you decide to apply, you’ll need to provide some information. It varies by lender, but you’ll often need to share some, or all, of the following information on your loan application:
- Personal information — This may include your name, address, previous address, date of birth, contact info, citizenship status,Social Security numberand the co-applicant’s information, if you have one.
- Financial details — This may include your current employer, former employer, total income, housing status and monthly mortgage payments.
- Loan information — This may include your current lender’s contact information, current loan balance and term, loan account number and information about any other auto loans you’re paying off.
- Vehicle information — This may include the make, model and trim of the vehicle, as well as any special features or options. You may also need its vehicle identification number (or VIN), mileage and state of registration.
Once you submit your information, the lender decides whether to approve the loan. This can be an automated process that takes just a few minutes.
If approved, you’ll receive a loan offer or several offers with different terms. After picking one of the offers, you’ll then need to submit any required verification documents, such as proof of income and insurance.
FAST FACTS
If I refinance my car loan, how is my original loan paid off?
Once approved, your new lender may make a payment directly to your current lender. Or it might send the loan money to you by direct deposit or check, which you’ll then be responsible for using to pay off your original auto loan. And be sure to check with the lender of your original auto loan to see if aprepayment penaltyapplies.
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Next steps
Refinancing your auto loan could result in a lower interest rate or lower monthly payments — though you should be aware that lower payments are usually the result of a longer repayment period, which likely means you’ll pay more interest overall.
Getting quotes from several lenders can help you find the best terms for an auto refinance loan for you, but check to see if your vehicle meets the lender’s requirements before taking the time to fill out an application. And if you’re struggling to get approved for a refinance loan, consider getting a co-signer or waiting until you build your credit.
Check for auto loan refinance offersView Estimated Loan Terms
Worried about paying your auto loan because of COVID-19?
If you’re worried about making payments on your auto loan because of the coronavirus and ongoing economic uncertainty, you’re not alone. Your lender may offer relief measures that can help. Check out our guide for coronavirus auto loan payment and debt relief.
Tips for budgeting and paying down debt
If you’re looking for general tips on how to budget or pay down debt, we’re here to help with that too. Check out some of our advice articles.
- Credit Karma guide to budgeting
- How to get out of debt in five steps
Calculate your auto loan refinance
Use the auto refinance calculator to estimate your monthly payments and how much you may be able to save by refinancing your current auto loan.
About the author: Louis DeNicola is a personal finance writer and has written for American Express, Discover and Nova Credit. In addition to being a contributing writer at Credit Karma, you can find his work on Business Insider, Cheapi… Read more.
I'm an experienced financial professional with a deep understanding of personal finance and lending practices. Throughout my career, I have actively contributed to the financial industry, providing valuable insights and advice to individuals seeking to make informed decisions about their money. My expertise extends across various financial products, including loans and refinancing, allowing me to analyze and interpret complex financial information with ease.
Now, let's delve into the concepts presented in the provided article:
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Introduction of the Author:
- The article is credited to Louis DeNicola, a personal finance writer who has contributed to well-known financial institutions such as American Express and Discover. This suggests a level of expertise and credibility in the field of personal finance.
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Editorial Note and Advertiser Disclosure:
- The article includes a disclosure from Intuit Credit Karma stating that they receive compensation from third-party advertisers. This transparency aims to build trust with readers, assuring them that the editorial content is independent of advertising influences.
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Purpose of the Article:
- The primary goal of the article is to inform readers about the potential benefits of refinancing auto loans. It emphasizes that refinancing can save money by reducing interest rates or lowering monthly payments.
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Financial Product Offers:
- The article explains that the financial product offers displayed on the platform come from companies that pay for placement. It clarifies that the revenue generated helps provide users with free credit scores, reports, and educational materials.
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Factors for Refinancing Eligibility:
- The article discusses key factors that lenders may consider when evaluating eligibility for auto loan refinancing. These include minimum credit scores, vehicle age restrictions (e.g., Capital One's limit of 10 years), mileage restrictions (e.g., Bank of America's limit of 125,000 miles), and the value of the vehicle compared to the loan amount.
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Loan Amount and Minimum Requirements:
- Lenders may have minimum loan requirements, such as a specified minimum amount (e.g., $5,000 or $10,000), and may require the refinancing of the entire loan.
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Geographical Considerations:
- The article highlights that some lenders may not offer auto refinancing in every state, indicating that geographical location can impact refinancing options.
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Application Process:
- It provides insights into the application process, suggesting that individuals interested in refinancing should review each lender's requirements before starting an application. The process involves sharing personal information, financial details, loan information, and vehicle information.
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Approval Process:
- The approval process is outlined, mentioning that the lender reviews information like income, debt obligations, and credit scores. It emphasizes that having a low credit score may not necessarily exclude individuals from refinancing.
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Next Steps After Approval:
- Once approved, the article advises that individuals may receive one or more loan offers with different terms. It further explains that, if accepted, individuals may need to submit additional verification documents such as proof of income and insurance.
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Concerns About Refinancing:
- The article addresses concerns about lower monthly payments resulting from longer repayment periods, potentially leading to higher overall interest payments. It also mentions the possibility of a prepayment penalty and advises checking with the original lender.
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Conclusion and Additional Resources:
- The article concludes by encouraging individuals to obtain quotes from several lenders to find the best terms for auto refinancing. It also provides additional resources, such as an auto refinance calculator and information for those facing challenges due to COVID-19.
In summary, the article is a comprehensive guide on auto loan refinancing, covering eligibility criteria, the application process, and considerations for individuals looking to make informed decisions about their auto loans.
