Why is it so hard to refinance my car?
Cars depreciate quickly, so you'll likely only be able to refinance within the first few years of owning your car. Some lenders won't refinance cars that are over a certain age or mileage. For example, some banks won't refinance cars that are older than seven years or have more than 90,000 to 125,000 miles on them.
Whether you can refinance your current auto loan may depend on your credit score, as well as the lender you choose for your auto refinancing. There's no single credit score that every lender uses as a cut-off for approval or denial.
Most lenders require at least 600. You likely won't get a better rate by refinancing with a score lower than this. It could even cost you more overall, especially if you increase your loan term to reduce your monthly payments. You can check your credit score for free.
The downsides to auto loan refinancing can include paying lender fees and additional interest if you extend the loan term or cash out auto equity. You could also end up owing more than your car is worth.
Finding a lender to refinance an upside-down car loan isn't easy, and the interest rate is likely to be much higher than average, increasing your total cost of borrowing. One way around this issue is to pay the difference in cash so you're no longer upside down and can refinance at a lower rate.
Refinancing isn't an option for everyone. If the vehicle is worth less than the loan balance (upside down), a lender probably won't take the chance and at the same time lower your interest rate.
The most common reason why refinance loan applications are denied is because the borrower has too much debt. Because lenders have to make a good-faith effort to ensure you can repay your loan, they typically have limits on what's called your debt-to-income (DTI) ratio.
Key takeaways. Refinancing does not require a down payment. However, you may be on the hook for fees like prepayment penalties or transaction fees. If you want to refinance a loan, you'll need equity in the car, a stable or better credit score and a current loan that fits lender refinancing requirements.
Credit score | Average APR, new car | Average APR, used car |
---|---|---|
Prime: 661-780. | 7.01%. | 9.73%. |
Nonprime: 601-660. | 9.60%. | 14.12%. |
Subprime: 501-600. | 12.28%. | 18.89%. |
Deep subprime: 300-500. | 14.78%. | 21.55%. |
While you might find more favorable rates advertised soon after you buy your new or used car, the downswing in your credit score means you probably won't get as favorable a rate as you would if you waited for your score to recover. The general advice is to wait at least six months before refinancing your auto loan.
How do I lower my car payment?
You can reduce your monthly car payments on an existing loan by negotiating with your lender, refinancing, selling your car or trading it in for a cheaper car. You can also get lower payments on a new car if you make a larger down payment and shop for an affordable vehicle.
Company | Forbes Advisor Rating | APR Range |
---|---|---|
Consumers Credit Union (CCU) | 3.8 | Starting at 6.54% (with autopay) |
Navy Federal Credit Union (NFCU) | 3.5 | Starting at 4.54% |
U.S. Bank | 3.2 | Starting at 8.11% |
LightStream | 3.6 | Starting at 7.74% (with autopay) |
Yes, you can usually refinance your auto loan with the same lender. While some lenders do not allow their borrowers to refinance with them, many do. Just keep in mind that your lender might not agree to refinance your loan if you took it out recently or don't meet their criteria for refinancing.
Your lender may disqualify you from refinancing your mortgage if you carry too much debt. Your debt-to-income ratio must meet your lender's thresholds for you to qualify. Having a low credit score may also prevent mortgage lenders from approving your application.
Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.
A lender may reject your application if it believes that your income is too low or unstable to handle the payments on a new loan. Having some recent instability in your job can also make it difficult to get approved.
Not all homeowners are approved for refinancing, though. With home prices and interest rates still high, lenders are careful about who they approve. The rejection rate on mortgage refinance applications increased to 15.5% in 2023 from 9.9% in 2022, according to the Federal Reserve Bank of New York.
Borrowers may be denied for vehicle financing due to errors in the application, bad or limited credit or a large amount of debt. The first step following auto loan rejection is to contact the lender to request the specific reasons for the denial.
What do you need to refinance your home? Depending on your loan type and lender, you'll likely need to meet the following refinance requirements: a current mortgage loan in good standing, enough home equity, a qualifying credit score, a moderate debt-to-income ratio, and enough cash to cover the costs of refinancing.
Moving into a longer-term loan: If you're already at least halfway through the loan term, it's unlikely you'll save money refinancing. You've already reached the point where more of your payment is going to loan principal than interest; refinancing now means you'll restart the clock and pay more toward interest again.
How much do you have to make to qualify for a refinance?
To qualify for a refinance, take a look at your debt-to-income ratio. The new monthly mortgage payment shouldn't be more than 30% of your monthly income. To refinance $200K over a 30-year fixed term, you'll need an income of approx. $5,200/month.
- Best Overall: PenFed.
- Best Big Bank: PNC Bank.
- Best Refinance Loan Marketplace: AUTOPAY.
- Best Credit Union: Consumers Credit Union.
- Best Online Lender: LightStream.
- Best for Low Minimum APR: OpenRoad Lending.
The lowest rate for a car loan is offered by Autopay at a starting APR of 4.67%, but your rates may vary. Auto Approve and AutoPay have the best auto refinance loans with low rates starting at 5.24%. Auto Credit Express and iLending offer low APRs for car loans with bad credit with their network of lenders.
Lender | Starting Auto Refinance APR | Overall Rating |
---|---|---|
1. Auto Approve | 5.24% | 9.3 |
2. myAutoloan | 5.49% | 9.1 |
3. PenFed Credit Union | 5.94% | 9.4 |
4. Consumers Credit Union | 6.54% | 9.3 |
Car Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used.
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