If you were previously unable to refinance your car loan and save money, you may be eligible now to do so if: your credit score has gone up, your overall financial picture has improved, your vehicle’s value has increased, or lower interest rates are available than the last time you checked, making a beneficial refinance available to you.
Read on to learn more.
In this guide, we’ll break down:
when you’re more likely to be eligible to refinance your car loan
how to know if you’re likely not eligible to refinance your car loan
You may have become more eligible for a beneficial refinance if:
Your credit score has improved
Your income has increased
Your debt has decreased
Your vehicle’s value has gone up
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.
The following factors 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 is likely to increase when you:
Make consistent, full, and on-time payments
Pay off debt (reduce your credit utilization ratio)
Have a negative event expire (such as a bankruptcy)
Have 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 new loan.
Paying off debt will not only help your credit score, but 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.
During the pandemic, the price of new and used cars went through the roof, and values have remained somewhat elevated, 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.
You may not be eligible for a beneficial refinance if:
your credit score has decreased
your income has decreased
your debt has increased
your car is ineligible
your loan is ineligible
If your credit score has decreased recently, especially if it has dropped below 650, 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 job change or other reason, you may not be eligible for car loan refinance.
That’s because, even if your debt is unchanged, this drop will increase your DTI, making 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 their own vehicle requirements, but it’s common to require that the vehicle have less than 125,000 miles on it and be less than 12 years old.
Lenders 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 rose dramatically from 2020–2022 and have stayed relatively high, so if your vehicle was financed before the pandemic, it’s worth checking its current value.
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.
Why should you consider Auto Approve for your car loan refinance?
we take refinancing personally
we don’t waste time
we shop around for the best deals
we never mark up prices
If you think you may be eligible for a car loan refinance, consider refinancing with Auto Approve.
Auto Approve specializes in auto loan refinance and has relationships with trusted lenders across the country. This means you can easily find the most competitive rates available to you.
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 get a quote from Auto Approve, 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. Our trusted refinance experts can help you decide on a loan and get all of the paperwork done quickly. We even handle the DMV paperwork for you.
Using Auto Approve streamlines the refinance process to save you 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 handle comparison shopping for you, getting quotes from our network of 40+ lenders.
Our experts understand which lenders might be the best match for you and can help you lock in your best deal.
At Auto Approve, we never add mark-ups or hidden fees. We believe in passing the savings right on to you, which is why we never inflate our prices or charge extra.
Now you know why you might be eligible for car loan refinancing even if you weren’t before, and why you should consider refinancing your car loan with Auto Approve.
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 or income, or a decrease in debt could make you eligible for a low car loan APR and lower monthly car payment.