If you are interested in refinancing your car loan, you may be wondering if you qualify. Lenders vary in their specific requirements for car loan refinancing, but in general they will look at your credit history, your car, and your existing loan.
Here’s how to know if you qualify for car loan refinancing.
What determines if you can refinance your car?
To qualify for car loan refinancing, lenders will consider a number of factors surrounding your financial health, your car, and your loan.
Your Credit Score
Perhaps the most important factor that lenders consider is your credit score. Lenders in the United States practice what’s called “risk based pricing”, which means that the riskier you are considered as a candidate, the more you will pay in interest. Your credit score is one of the top indications of how risky you are as a borrower. A good credit score tells lenders that you make full and consistent payments and can manage your money across multiple accounts.
Credit scores are broken down into five categories:
- 800 to 850: Excellent
- 740 to 799: Very good
- 670 to 739: Good
- 580 to 669: Fair
- 300 to 579: Poor
If you have excellent credit, you will most likely be approved for car loan refinancing and will be offered one of the best interest rates possible. If you have a good credit, you will also most likely be approved and offered a pretty good interest rate. As your credit score falls further down the ladder, the harder it will be to get approved and the higher the interest you are offered will be. Qualifying for car loan refinance is highly dependent on your credit score.
Another major factor that will determine if you qualify for refinancing is the age and condition of your car. Lenders want to be sure that the asset they are financing has value, so they typically require that the vehicle is less than 10 years old. They will also require that there are not too many miles on your car. Less than 100,000 miles is best, but some lenders will allow you to refinance a car with 125,000-150,000 miles.
Your Current Loan
Lenders will also take a close look at your existing loan. If there is not a lot of time left on your loan they may feel that it is not worth it for them to refinance it, as they will not make much money off of the interest as the loan nears the end.
They will also look to see that you have been making consistent payments on your existing loan. Seeing on time and full payments will prove that you are a good candidate and should qualify for a loan.
While the new lender doesn’t care about the prepayment penalties, you certainly should. Certain car loans will have prepayment penalties if you decide to pay off your loan early. This is to offset any money they will lose in interest. While this doesn’t necessarily affect if you qualify for refinance, you should pay careful attention to these fees in your contract to determine whether or not refinancing your car loan is worth it. If your prepayment penalties outweigh your savings, it’s best to not pursue car loan refinance.
What does your credit need to be to refinance a car?
In order to qualify for car loan refinance, a good credit score is important. It is recommended to have a credit score of above 700 in order to qualify for refinance. If your score is below 700, it is not impossible to refinance your loan. But you may be paying a much higher interest rate and ultimately it might not be worth it to you.
It is a good idea to make sure your credit score is in great shape before you apply for refinancing. Here are some of the best ways you can improve your score:
- Request higher credit limits on your accounts. This will decrease your credit utilization ratio and boost your score.
- Make consistent, on time, and full payments (sign up for autopay if you can). Your payment history is the biggest contributor to your credit score so this will help a good deal.
- Review your credit report for errors. Correcting any mistakes on your report can help give your score a boost (and save you from further problems down the road).
- Pay down your debts. Reducing your debts can help to improve your credit utilization ratio.
- Do not open other new accounts. Opening new accounts will cause a dip in your score.
How can I refinance my car loan?
Refinancing your car loan is easy, especially when you use Auto Approve. Auto Approve specializes in car loan refinance, so our agents are qualified to help you determine not only if you qualify for refinance, but can help guide you through the process. Here’s how you can refinance your car with Auto Approve.
Step 1. Get a free quote
To start the refinancing process, you can start by getting a free quote. You don’t even need to provide your social security number. Simply fill out your name and estimated credit score and we can help determine your initial eligibility. Within minutes you will have several quotes.
Step 2. Work with an agent
By filling out some additional information, our agents can help you determine what offers will work best for you.
Step 3. Apply
Our agents will assist you in filling out the application paperwork and ensuring that you have all of the necessary paperwork. Once you receive your offer, your rate will be locked for 30 days while you make your decision.
Step 4. Sign
If you decide to move forward, you simply sign electronically and Auto Approve will take care of the rest! Your agent will ensure that your old loan is paid in full and they even handle the DMV paperwork so you don’t have to.
Step 5. Start saving
Once you sign the paperwork, you will have 45 days until your first payment is due (and you can immediately see the difference in your monthly payments!) Refinancing with Auto Approve is just that easy!
That’s how you can determine if you qualify for car loan refinancing (and how you can refinance easily with Auto Approve).
If you are wondering if you qualify for car loan refinance, take a look at your credit score, your vehicle, and your existing loan. Auto Approve can help you determine if you qualify and assist you with the application process if you do qualify. So get in touch with Auto Approve today to start saving money!