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The Rules for Refinancing Your Car

Finance | 10/27/2022 22:00

It’s hard to ignore how expensive everything is right now. We are all feeling the effects of inflation and it’s never been more important to save money where we can. If you are making monthly car payments, there’s a good chance that you are overpaying. But there’s an easy fix for that: refinance. By refinancing your car loan you can save a lot of money every month, and that can really make a difference in your everyday budgeting. But how do you know where to start? What are the rules for refinancing your car?

Let’s talk about the rules for refinancing your car and how you can start saving money today.

When is a good time to refinance your car loan?

Car loan refinancing is when you pay off your existing car loan with a new car loan that has better terms. And when those terms include a lower car loan APR and/or a different repayment period, that can mean saving a lot of money. The time might be right to refinance if any of the following apply to you.

Your credit score has improved since you initially financed

When lenders are determining which APR to offer you, one of the biggest factors is your credit score. Your credit score tells lenders how likely you are to repay your debts. It is based on your past payment history, your outstanding debt, the length of your credit history, your credit mix, and how much new credit you have.

Here are just a few reasons why your score may have increased since your initial financing:

  • You made consistent, on time, full payments

  • You paid down some debt

  • You had a negative event expire (such as a bankruptcy)

  • You had hard credit inquiries expire

  • You corrected mistakes in your credit report

Simply paying your bills consistently can have a positive effect on your credit, so even if nothing drastic has happened since you financed, your score still might have increased. It's a good idea to request a copy of your credit report to see how healthy your score is and ensure that there aren’t any mistakes.

The market rates have decreased since you initially financed

Another major factor in the car loan APR you are offered is the prevailing market rates. You do not have control over this, so timing is everything. If the market rates were high when you initially financed, you may be eligible for a lower APR. Conversely, if the prevailing rates have increased since you initially financed, you might not find a lower APR.

Your debt to income ratio has improved since you initially financed

Your debt to income ratio is a huge factor in your car loan APR. This tells lenders if you are overextended in your monthly budget, which can help them decide how likely you are to repay. If your income has increased since you originally financed or you have paid down some of your debt, you may qualify for a lower APR.

You need some breathing room

Even if you do not qualify for a lower car loan APR, refinancing your loan can allow you to change your repayment schedule. And by lengthening your repayment schedule you can give yourself some much needed breathing room in your monthly budget. If you stretch your repayment from 36 months to 60 months, that allows you to pay off your loan over an additional two years. That can easily lower your car payments by hundreds of dollars every month. You will end up paying more money over the life of the loan, but it will be worth it if you find yourself falling behind on your bills (and hurting your credit in the process).

Looking for opportunities to refinance a car

What do you need to refinance a car?

If now seems like a good time to refinance, you actually don’t need a lot to get started. Here’s what you need:

Your current loan information.

You want to look at your current loan to see what the terms are. What is the APR, the repayment period, and what fees are associated with your loan. One of the biggest things you want to look for is whether or not there are prepayment fees. If there are significant fees, it might not be worthwhile to refinance.

A little time to research.

You want to do your research when you refinance. What lenders have good reputations? Where are you most likely to get a good deal? Using a company that specializes in car refinance can save you a lot of time in this area, as they have relationships with lenders across the country and are guaranteed to find you the best deal possible.

Your personal information. 

When you refinance, you will need some paperwork for your applications. This will  most likely include:

  • A Photo ID 

  • Your vehicle’s information 

  • Proof of income and financial history

  • Proof of residence 

  • Proof of insurance

Having all of this information compiled and ready to go will make applying for refinance quick and easy. 

What are the requirements to refinance my car?

You should wait at least six months before refinancing. 

While this is not a hard and fast rule, experts generally recommend waiting a minimum of six months to a year before refinancing. This gives your credit score some time to bounce back after opening a new account and gives you some time to make payments on your loan and boost your score that way. But technically speaking, you only need to wait as long as it takes to get the paperwork filed to refinance. 

You should not wait until the end of your loan term.

The earlier in your loan term that you refinance, the more beneficial it will be for you. So don’t wait until the very end of your loan to apply.

Your car needs to qualify.

Every lender will have different requirements for this, but your car cannot be too old or have too many miles on it. Typically if your car is over 10 years old or has over 100,000 miles on it you will have a harder time securing a refinance.

You need to have enough money left on your loan.

If you only have a small amount of money left on your loan, chances are you will have a hard time securing a refinance. Lenders will simply not think it is worthwhile to take on the hassle of refinance with such little payoff.

Those are the simple rules for refinancing your car loan.

Refinancing your car loan is easy, especially when you use a company that specializes in it. Get in touch with Auto Approve today to see how much money refinancing can save you!


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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.