Refinancing your auto loan is a great way to save money on your payments. Refinancing saves consumers money by lowering the interest rates paid on a loan or line of credit. Usually, most people refinance after seeing a big credit improvement or a drop in interest rates.
However, lenders have requirements as to what cars and borrowers can have their auto loan refinanced. Here, we break down some of the more common requirements for refinancing your auto loan
Auto Loan Refinancing Requirements
Not every auto loan or vehicle is eligible to be refinanced. Traditional lenders like banks and credit unions want to ensure that the car is reliable enough to keep working as you completely pay off your auto loan.
Generally speaking, most banks, credit unions, and lenders will have the following requirements for cars that are to be refinanced:
- Mileage (Odometer Reading) – Even if your vehicle is just a few years old, most lenders will not refinance a car with over 100,000 miles on the odometer. This is because the more mileage a car has, the higher the likelihood of a breakdown.
- The Car Itself – If your car was involved in an accident and now has a salvage title, refinancing may be difficult. Additionally, most lenders will not refinance business or commercial vehicles, such as large passenger trucks.
- Vehicle Age – Most lenders will not refinance a car that is more than 10 model years old. This again is because the older the vehicle, the more problems it may have.
- Refinancing Amount – Most lenders will have a minimum amount that they will finance. Typically, this can range from $5,000-$10,000.
The goal of refinancing an auto loan is to acquire a better interest rate, which can lead to significant cost savings on monthly auto loan payments. Your credit score is a large factor in the interest rates you pay.
Ensuring your credit score has increased since last getting your auto loan can help increase the chances of you refinancing at a more affordable rate.
Payment history is a large factor when it comes to your score, and you will need a solid track record of on-time payments to the lender in order to qualify for refinancing. A lender is highly unlikely to refinance a borrower who has missed or is behind on multiple payments.
Refinancing Penalties and Fees
While many consumers focus on interest rates attached to their car loans, many fail to see or understand the charges that may come with refinancing your car loan. Most lenders will charge a series of fees and penalties when you decide to refinance your vehicle.
Some, but not all, of the fees can include:
- A loan origination fee
- “Funding” fee
- Prepayment penalties
- Document processing fees
In order to avoid getting stuck with a mountain of fees, be sure to read the lender’s fine print and all the disclosures listed on the contract.
If you are looking for an auto loan but are unsure of where to get started, CrediReady can help. Our network of dealerships and lenders will work to get you into a brand new car today! To learn more, visit our 100% free no-obligation loan inquiry form today!