Have you already tried to refinance your car, only to be rejected? If so, you may feel like you are missing out on the benefits of refinancing (like saving a whole lot of money). But all is not lost. If you were previously unable to refinance your car loan, you may be eligible now to do so.
A low credit score is one of the top reasons people are ineligible to refinance their car loans. Credit scores are important because they indicate to lenders how likely a person is to repay the money they borrow. Let’s look at the factors that make up your credit score:
Payment history (35%) This category tells lenders if you pay your accounts on time, and if your payments are on time, full, and consistent.
Amounts owed (30%) This category tells lenders how much debt you are in. The accounts owed category calculates how much debt you are in compared to how much credit is available to you. This is called your credit utilization ratio, which measures the amount of money you owe to the amount of credit you have available to you. Lenders look for this ratio to be 30% or less.
Length of credit history (15%) This indicates how long you have had your accounts open.
Credit mix (10%) This section shows how diverse your portfolio is; a good mix of loans, credit cards, retail credit cards, mortgages, etc will help show lenders that you are able to balance having varying accounts open.
New credit (10%) If you are opening new accounts, this indicates to lenders that there is variability in your debt. In other words, you may currently owe more money than your current report is reflecting.
A change to any of these categories can significantly affect your credit score, and therefore significantly affect your loan refinance eligibility. This is particularly true if your score increase pushes you into a different credit score bracket:
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
If your credit score increases from 650 to 700, that can have a huge effect on your eligibility AND on the car loan APR you are offered.
Your credit score has likely increased if you have done any of the following:
Made consistent, full, and on time payments
Paid off debt (reduced your credit utilization ratio)
Had a negative event expire (such as a bankruptcy)
Had an increase in your line of credit
If your credit score has increased, it is definitely worth considering an auto loan refinance.
When you apply for a car loan, lenders look at your DTI, your debt to income ratio. Do you make enough money to support the debt you are in? A high ratio may indicate to lenders that you are in over your head financially and are less likely to keep up on payments.
An increase in income will reduce this ratio. So if you got another job (or a raise) since your initial refinancing application, you may now be eligible for a loan.
Paying off debt will not only help your credit score, but it will help lower your debt to income ratio as well. Just as an increase in income will lower your DTI, so will paying off debt. So if you have paid off some student loans, eliminated some credit card debt, or have just consistently been paying off your debt without taking on more, you may have lowered your DTI significantly. And this can make you eligible for auto refinance.
Even if everything about your personal financial picture is around the same, you may be eligible to refinance right now if the value of your vehicle has gone up, lowering your LTV, or loan-to-value. Right now, the price of new and used cars has gone through the roof, so your vehicle may be worth more than you know. Get a free quote from Auto Approve or look up your car in the Kelley Blue Book to find out more about your vehicle's value and how it may have affected your eligibility for refinance.
While there are some things that may make you eligible to refinance your car loan now, there is still a chance that you are not eligible.
If your credit score has decreased, you will most likely not be eligible for car loan refinance. And if you are eligible, you might not qualify for a good car loan APR. It is a good idea to work on improving your credit score before applying.
If your income has decreased due to a change in jobs or another reason, you may not be eligible for car loan refinance. This means your DTI has increased which makes you a less desirable loan applicant.
Similarly, increasing your debt will increase your DTI ratio and make you a less desirable car loan applicant.
Lenders have requirements when it comes to the vehicle you will be refinancing. Typically the older the car is, the less inclined a lender will be to refinance. If a person is unable to pay their loan, the lender is entitled to take the car as collateral. In this case, they will need to be able to sell the car to recoup their losses. So if the car is older and/or has a lot of miles on it, they will not be able to get as much money for the car.
Each lender will have varying vehicle requirements, but they usually require that the vehicle have less than 125,000 miles on it and be less than 12 years old. They are ultimately concerned with your vehicle’s loan-to-value ratio, which is the balance of the loan compared to the value of the car. If your loan is $15,000 and your car is valued at $15,000, your LTV is 100%. Your car will depreciate in value as time goes on, and you want your loan balance to keep pace with that. A RateGenius survey from 2015 to 2019 found that 90% of approved applicants had an LTV of less than 123%. However, as we mentioned above, used car values have been on the rise in the last year or two.
If there isn’t a lot of time remaining in your loan, or if the balance isn’t large enough, you may not qualify for a car loan. Lenders will not find value in taking on a small loan, as they will not make much in interest. Each lender will vary in their guidelines.
If you think you may be eligible for a car loan refinance, consider refinancing with Auto Approve. Auto Approve specializes in car loan refinance and has relationships with lenders across the country. This means that they can get you the most competitive rates (which means they can save you the most amount of money).
Why else should you consider Auto Approve for your car loan refinance?
We know how overwhelming the thought of refinancing can be, and you may feel like you don’t even know where to start. And we get it. That’s why we give you a real person to guide you through the process. Just read our reviews to see how much our customers love working with our refinance specialists.
One of our top compliments from customers is about our fast turn around. We know that your time is important, so when you contact us we make sure to get to work right away. We have great relationships with lenders around the country, so you can get great offers–fast. We can help you decide on a loan and get all of the paperwork done quickly. We can even handle the DMV paperwork. Using Auto Approve will streamline the refinance process and save you a lot of time (and money!)
There are a lot of lenders out there, from credit unions to traditional banks to online lenders. It can be overwhelming to know where to start. At Auto Approve, we can handle this for you. We already know which lenders will be the best match for you and can provide the best deals. So don’t waste your time on endless comparisons–let Auto Approve handle this and simplify the process for you.
At Auto Approve, we never add markups or hidden fees. We believe in passing the savings right on to you, which is why we never inflate our prices or charge extra.
If you haven’t been able to refinance in the past, you may be eligible now to do so. An increase to your credit score, income, or a decrease in debt could make you eligible for a low car loan APR and save you a lot of money in the long run. Get your free quote to get started today!