If you are looking to refinance your car loan, you may be wondering what the qualifications are. What do lenders look at–your car, your credit, your existing loan? Yes, yes, and yes. But let’s look at what specifically is important and what you can do to give yourself the best chance for a vehicle refinance.
Here’s what lenders look at when you refinance your auto loan.
What do they look at when you refinance a car?
When you look to refinance a car loan, lenders look at three main factors: the vehicle you are refinancing, your credit score, and your existing loan. There are certain qualifications they look for in each category.
Typically there are a few vehicle requirements when you want to refinance your car loan. They will vary from lender to lender, but generally your car should be:
- Less than ten years old
- Have less than 100,000 miles on it
- Be worth more than the loan is for (your loan should not be “underwater”)
If you are unsure if your vehicle qualifies for refinancing, our agents at Auto Approve can help you! You can also use our online quote form to get an answer quickly.
Your credit score and financial history will have a huge effect on your ability to refinance your car loan. Lenders want to know that you are financially responsible and that you will be able to pay back your loan in full.
Your Existing Loan
Lenders will also look at your existing loan when they are determining your eligibility for car loan refinance. Mainly they want to see if you are making full and consistent payments on your existing loan. They will also look to see how much time you have left on your loan. They will not want to refinance typically if you have less than a year on your loan.
You should also take a close look yourself at your existing loan when determining if car loan refinance is right for you. Your existing loan may have prepayment penalties that can add up (and ultimately make refinancing less lucrative for you). Make sure that there is also enough time left on your loan to make refinancing worthwhile. The more time that is left on your loan, the more you can save with a car loan refinance.
Do they check your credit when refinancing a car?
As we mentioned before, your credit score is one of the most important things they check when deciding if you qualify for a car loan refinance. They want to make sure that you are able to repay the loan, and your credit score is the best indicator of that. Your credit score looks at five major factors in your financial history:
- Your payment history
- Your amounts owed
- Your length of credit history
- Your credit mix
- Your new credit
All of these factors indicate how likely you are to repay your loan. The higher your credit score is, the more likely you are to get a good car loan APR and get favorable terms. The best car loan APRs are reserved for those with good and excellent credit (with a score over 740). If your score is below 740, you can still qualify for car loan refinance, but your rate might not be as good.
If you are interested in car loan refinance we recommend taking the following steps to get your credit score in top top shape before applying.
- Request a copy of your credit report and review it for any errors
- Commit to making full and on time payments to all of your accounts
- Pay down debts that have a high credit utilization ratio
- Request higher limits on your accounts
- Ask to become an authorized user on a loved one’s account
- Hold off on opening any new accounts until after you refinance
How do you refinance a car loan?
Car loan refinance can help you in a lot of ways. It can save you money by lowering your car loan APR, it can give you breathing room by allowing you to stretch out your repayment plan over a longer period of time (thus making your payments smaller every month), and it can allow you to add or remove a cosigner.
The biggest advantage of car loan refinancing is you can save a lot of money. Refinancing to a lower car loan APR can save you a lot of money over the life of the loan. Shortening your car loan repayment to a shorter timeframe can also save you a lot of money by reducing the overall amount of time you are paying interest.
If car loan refinancing sounds like a good idea for you, it’s super easy to get started!
Step 1: Gather all of your information.
Get all the information you may need in one spot. This will include the following:
- Your information (your ID, social security number, and proof of residence)
- Your car’s information (the make, model, year, VIN, and mileage)
- Proof of income (such as recent pay stubs)
- Proof of insurance
- Loan information (all of your existing loan information including the balance and the lender’s contact information)
Step 2: Look for lenders and apply
You should aim to apply to 3-5 lenders for your car loan refinance. Look into traditional banks, credit unions, and online lenders. Do some research to find out how happy other customers are (using a company that specializes in car loan refinance can make this process very easy). Once you have narrowed your list down you should apply to all leaders at once so that it will only count as one hit on your credit score. Credit bureaus know that people need to shop around so they give people a two week window where all applications will count as one hard inquiry on your account.
Step 3: Choose the best lender
When the offers roll in you will have to decide which loan is the best for you. Be sure to compare the following:
- The interest rate.
- The prepayment penalties. (There is no limit to the amount of times that you can refinance, so keep in mind that you might want to refinance again in the future)
- Your cash flow and the repayment terms.
- Customer satisfaction.
- Hidden fees.
When you have compared all of the offers, you can simply sign and start saving. It’s just that easy!
That’s what companies look for when deciding if they will refinance your car loan.
Car loan refinancing can save you a lot of money. So don’t wait! The sooner you refinance, the more money you stand to save. Get in touch with Auto Approve today to find out just how much refinancing can save you!