Are There Specific Requirements to Refinance a Car Loan?
Just as with getting an initial auto loan, there are certain requirements that must be met when you refinance your car loan. Each lender will have slightly different requirements, so it’s important to do your research before applying to refinance with a specific lender to ensure you meet their conditions.
Since requirements vary by lender, it’s impossible to provide the exact criteria you’ll need to meet. However, the following discussion will provide you with a general idea of the most common requirements for refinancing a car loan. Most lenders will establish at least some of these requirements for potential borrowers looking to refinance.
Start Date of Your Current Loan
Some lenders won’t approve you for refinancing until your existing loan has been open for at least six months. This is due to the fact that it takes several months for the vehicle’s title to transfer from the dealer or the previous owner to your first lender, and your current lender must have possession of the title before it can be transferred to the lender you refinance with.
Even if a lender doesn’t have a mandatory waiting period, refinancing can’t occur until the current lender takes possession of the title.
Time Left on Your Existing Loan
Most car loans are set up in a manner that has you pay more interest at the start of the loan term and as you progress through the term, a progressively larger percentage of each payment will be applied to the principal. Therefore, in order for the new lender to make enough money on interest to make offering you refinancing worth their while, you will still need to have a significant amount of time remaining on your existing loan term.
For example, if you took out a five-year auto loan and only have six months remaining before you pay it off, you may have trouble finding a lender who will offer you refinancing. While requirements on the specific amount of time left on your loan term varies by lender, you generally want to try to refinance with at least two years left on your existing loan. Not only will this provide the new lender with an opportunity to earn enough interest on the refinance, but it will also allow you to save enough money to make refinancing worth it for you.
Current Loan Balance
The logic for this requirement is similar to the logic on the requirements associated with time left on your existing loan. Since auto refinancing involves taking out a new loan on your vehicle to replace your existing one, many lenders may not want to offer refinancing on a small loan balance since they won’t be able to make enough money for it to be worthwhile on their end.
Minimum loan balance amounts vary by lender, but you can generally expect to need to have a remaining balance of at least $7,500 on your existing loan to qualify for refinancing.
Vehicle Mileage and Model Year
Most lenders establish maximum vehicle mileage and age requirements for refinancing. This is due to the fact that older vehicles present a greater risk to the lender. While these requirements vary by lender, you can generally expect to have trouble refinancing a car loan for a vehicle that is over ten years old. Mileage caps generally fall within the 100,000 to 150,000 mile range for most lenders.
Loan-to-Value Ratio
The loan-to-value ratio (LTV) refers to the total amount owed on your loan compared to the actual resale value of the vehicle. This ratio is expressed as a percentage. An LTV of 100% means the amount owed on your loan is equal to the value of the vehicle. When this figure is less than 100%, you owe less than the current value of the vehicle. When this figure is more than 100%, you owe more on your existing loan than the vehicle is currently worth, which would represent greater risk for the lender.
While many lenders will allow you to refinance with an LTV that is greater than 100%, most set a cap on how much greater this ratio can be. Therefore, if you owe a lot more on your loan than the car is worth, you may have trouble refinancing.
Borrower Credit Requirements for Car Loan Refinancing
The criteria discussed above all relate to details associated with your vehicle or your current loan. However, some lenders also establish certain credit requirements in order for you to be eligible for refinancing. These include:
- Credit score – While you can typically refinance a car loan with bad credit, most lenders set certain minimum credit score requirements for auto refinancing. Minimum credit scores will vary by lender, so it’s important to research these requirements before applying.
- Debt-to-income ratio – Your debt-to-income ratio refers to the difference between your total monthly debt obligations and your gross monthly income. A very high debt-to-income ratio indicates a greater level of risk for the lender since you have less income available each month to take on new payments. As with credit score requirements, debt-to-income ratio requirements typically vary by lender.
- Payment history – Most lenders want to be confident they will recoup the money extended to you as part of the loan. To identify the likelihood that you’ll repay the loan, they typically look at your payment history for your existing auto loan and other loans or lines of credit you have. If you have a history of late payments or have loans that aren’t up to date, you may not be eligible for refinancing.
iLending Makes Car Loan Refinance Easy and Hassle Free
If you’re looking to refinance your car loan to lower your monthly payments and infuse additional cash into your budget, iLending can help. Our exclusive You First Approach™ makes auto refinance easy and hassle free.
As part of our unique approach, you’ll work with a loan consultant who will spend time learning about your refinancing goals. Your loan consultant will then shop around for you so that you don’t have to compare loan options yourself. We leverage our network of over 50 nationwide lenders, allowing us to compare a larger number of loan solutions than you could do on your own. As part of this process, we’ll pay attention to the specific loan requirements of each lender to ensure our recommendations only include potential refinance solutions you qualify for.
Your loan consultant will review the best refinance options with you and answer any questions you may have. Once you understand your options, we’ll help you identify the ideal loan for your specific needs.
Our team will also help you complete the entire process, including filling out all paperwork and following up with your existing lender to ensure your current loan is paid off properly. You’ll have peace of mind that the entire process is handled correctly, and you’ll experience a smooth experience every step of the way.
On average, customers save $143/month when they refinance a car loan with iLending. This additional money in your monthly budget can have a significant impact on your life, allowing you to pay down other debts, save for big purchases, make improvements on your home, take a much-needed vacation, or address just about any other financial need you may have.
Apply now to get the car loan refinance process started.
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