If you are thinking of ways to lower your monthly expenses, you may have considered refinancing your auto loan. When you refinance a car loan, there are two ways consumers can achieve a lower monthly payment: By extending the loan term or by finding a lower interest rate.
Requirements to Refinance
When you refinance, you are replacing your existing auto loan with a brand new loan, most likely with a brand new lender. Some lenders may allow consumers to refinance with them again, but this is not usually an option.
Although there is no time limit when it comes to refinancing, there are usually a few triggers that cause a consumer to consider refinancing – a boost on your credit score or an increase in come, for example. Whatever the reason, there are a few refinancing requirements that consumers must meet in order to qualify for auto loan refinancing.
- You must be current on all payments – If you can’t afford your car and need to refinance, you may find yourself having a hard time getting approved with a record of late payments.
- You need equity in the vehicle – If you are upside down on your auto loan (you owe more on the car than its value), refinancing may not be possible. A vehicle’s value has to be at least equal to what a person owes on it.
- Age and mileage requirements – A lender will have their own preset requirements of what mileage a certain vehicle can have and how it can be to be refinanced.
- Your car must be for personal use only – Most lenders will not offer refinancing to commercial clients or even those who are Uber or Lyft drivers. A refinanced vehicle must have a clean title as well. No salvage or rebuilt titles.
- Credit scores – If you have bad credit, it’s going to be an uphill battle to find a lender that will refinance you. Usually, your credit score must have improved since the initial loan was taken out in order for the lender to approve your refinancing.
With these requirements stated, we can begin to take a look at how refinancing can save you money on your auto loan.
Lowering Payments Through Refinancing
When you refinance, the goal is to lower your monthly payments. This is usually done by lowering the interest rate on the loan, or by extending the term of the loan in full.
When you decide to extend the loan term, your payments will increase but you will be paying more for the car than before, since extra interest is added on with the extra time. Ideally, consumers should attempt to lower the overall interest rate of the loan instead.
Refinancing your auto loan can be a great way to save on monthly payments. If you have improved your credit score since the loan was taken out, there is a good chance that you may be approved for an auto loan.
If you are in need of a car but have less-than-perfect credit, CrediReady can help. Our team of auto lenders and creditors are eager to approve you and get you into a new car. Take a moment to fill out our 100% free not obligation loan inquiry form to begin searching for your next car today!