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The Truth About Auto Refinancing: 3 Key Facts

Finance | 05/24/2022 22:00

There is a ton of information out there about refinancing your car. And while there is a lot to unpack, it’s actually pretty simple. Today we are talking about the most important facts of auto refinance

Here are three key facts you need to know when it comes to auto refinancing.

#1: Timing is Everything

When you refinance your car, the timing is incredibly important. It is important in terms of how far along you are in your original loan, and in terms of timing with the market. 

The time left on your original loan

It’s really important to consider how much time you have left on your original loan if and when you decide to refinance your car loan. If you just bought your car and your loan is less than six months old, you should consider holding off on car refinancing. Experts recommend waiting about a year before you refinance–this gives your credit score a chance to recover from the hard inquiries of your initial loan request (which will result in the best car loan APR possible)

If you have less than two years left on your original loan, it is probably not a great time to finance your car. Most lenders will not consider your application. But if you do find a lender that is willing to refinance your loan, it will most likely not be very worthwhile for you. Car loans are front-loaded amortized loans, which means that you pay most of the interest at the beginning of the loan and most of the principal towards the end of the loan. So the closer you get to the end of your loan, the less interest you are on the hook for. 

Market timing

The car loan APR that you are offered will depend heavily on the prevailing market rate for car loans. You want to refinance your car when market rates are low (like right now) and before they inevitably rise again (which they will).

The time is right to refinance your car when:

  • You’ve had your existing loan for at least six months

  • You have at least 2 years left on your existing loan

  • Your credit score has increased

  • You want to add or remove a co borrower

  • The prevailing car loan rates are low

The time is not right to refinance your car when:

  • You need a high credit score for another application

  • The penalties on your existing loan outweigh the savings of refinance

  • You have an old car or a car with high mileage

#2: Your Credit Score Matters

Your credit score is the most important factor that is within your control when it comes to refinancing your car. Your credit score is determined based on five major factors.

  1. Payment History (35%) This shows lenders if you pay your credit accounts on time or not. It will also show missed payments and bankruptcy details.

  2. Accounts Owed (30%) This refers to the amount of money you owe. This number is considered in relation to how much credit you have available to you (your credit utilization ratio). The lower your debt to credit ratio is, the higher your score will be.

  3. Length of Credit History (15%) The longer you have had credit, the higher your score will be.

  4. Credit Mix (10%) You will need a good mix of retail accounts such as credit cards, loans, and mortgages for a good score.

  5. New Credit (10%) If you open a bunch of new accounts, you will be flagged for a lower score.

All of these factors are used to calculate your credit score. This score indicates to lenders a person’s capacity to repay a loan. The number is between 300–850 and indicates a consumer's creditworthiness. The higher the score, the more likely a person is deemed to pay back their loan. Your credit scores are defined along the following categories:

  • Exceptional (Super Prime): 800-850

  • Very good (Prime): 740-799

  • Good (Near Prime): 670-739

  • Fair (Subprime): 580-669

  • Very poor (Deep Subprime): 300-579

Higher credit scores will make you more likely to get a better car refinancing rate and better refinancing terms. The best rates and terms are reserved for people with Prime and Super Prime scores. Which is why it’s really important to focus on increasing your credit score before you apply to refinance your car. Here are the top ways to increase your credit score:

  1. Check your credit report. Compare your payment histories, make sure there aren’t any strange accounts that you are unaware of, and make sure all of your personal data is up to date. Report any errors immediately: small inconsistencies here and there can mean big trouble for your credit score.

  2. Make on time payments. Payment history makes up 35% of your credit score. Prioritize making on time payments to increase this part of your score.

  3. Pay down any debts. Reducing your credit utilization ratio will help your credit score a lot, so prioritize paying down any debts you may have.

  4. Request higher limits. Higher limits on your accounts will help improve your credit utilization ratio and help your score greatly.

  5. Don’t open new accounts. Opening new accounts will cause hard inquiries on your credit report, which can temporarily hurt your credit score.

Commit to increasing your credit score before applying to refinance your car. It can save you a lot of money!

#3: Auto Refinance Companies are Your Best Bet

There are a lot of places where you can refinance your car. Traditional banks, car dealerships, credit unions, online lenders–it can be truly overwhelming. That’s why your best bet when it comes to refinance is to use a company that specializes in car refinancing, like Auto Approve. Auto Approve has relationships with lenders all across the country, so they get you the best deals possible and eliminate a lot of the legwork for you. When all you do is car refinance, it means that you know all of the ins and outs of the industry and can find the best rates and deals for your customers.

With a 4.7 out of 5 star review on TrustPilot, an A + rating from the Better Business Bureau, and a 96% would-recommend rating on Lending Tree, we’re pretty sure our customers are glad they trusted Auto Approve.

And those are three key facts you should know about auto refinancing.

Using a company that specializes in auto refinance can eliminate a lot of the noise for you. They can answer your questions (and even help you with the paperwork!). So get in touch with Auto Approve today to get the ball rolling and start saving money today!


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*APR and Fees Disclosure: Auto Approve works to find you the best Annual Percentage Rate (APR), which is based on factors like your credit history, vehicle and desired payment terms. Fees to complete your loan refinance vary by state and lender; they generally include admin fees, doc fees, DMV and title. Advertised 6.24% APR based on: 2019 model year or newer vehicle, 730 minimum FICO credit score, and loan term up to 72 months. All loans subject to credit and lender approval.
Auto Approve has an A+ rating with the BBB and is located at 2860 Vicksburg Lane North Plymouth, MN 55447. Auto Approve works to find its customers the best terms and APR, which are based on factors like credit history, vehicle, and desired payment terms. Loan amounts, costs, and fees vary by state and lender; they generally include admin fees, doc fees, DMV, and title fees, depending on the lender and period of repayment. There is no fee to obtain a quote and all refinancing-related costs are included in the amount financed so there are no out-of-pocket costs! For more information, please go to AutoApprove.com.