Cars are more expensive than ever before, and most people need financing in order to afford their new vehicle. Unfortunately, many people find that their car loan represents a significant financial burden. There are many reasons why you might not have qualified for a competitive rate when you first purchased your car loan:
Regardless of the reason why you’re buried under an onerous car loan, refinancing can help you save a significant amount of money. At iLending, our clients save $145/month on average when they refinance their car loan. This money can provide significant financial relief, making it easier to afford your monthly expenses.
If you’re considering refinancing a car loan, it’s important to understand that you’ll need to meet certain eligibility requirements to qualify. These include:
Lenders tend to look at two different items when assessing the value of your vehicle prior to a refinance:
Many lenders will set age and mileage requirements when determining whether to grant your car loan refinance application. This is due to the fact that older, high mileage vehicles typically don’t have much value and therefore may not allow the lender to recoup their investment if you default on your loan payments.
Each lender has their own guidelines regarding the age and mileage of a vehicle they will deem acceptable for a refinance. That being said, you are generally more likely to be turned down for car loan refinancing if your vehicle is older than ten years or has more than 100,000 to 150,000 miles.
Similarly, you will need to have equity in your vehicle in order to refinance your car loan. Cars tend to depreciate in value quickly, especially if you put a lot of miles on it. If you owe more money on your car loan than the vehicle is worth, you have negative equity in the vehicle (this is also called being upside down on your car loan). In this situation, you most likely won’t qualify to refinance your car loan unless you’re able to pay the difference between the value of your loan and the value of the vehicle at the time you refinance.
Before trying to refinance your car loan, you should look up the value of your vehicle on Kelley Blue Book, Edmunds or NADA. This will help you know whether you are upside down on your car loan and will need to come up with an upfront cash payment as part of the car loan refinancing process.
Lenders will often look at how much time you have remaining on your existing loan when deciding whether to approve your car loan refinance application. This is due to the fact that most loans are structured in a way that frontloads interest at the start of your loan term and as you move through your loan term, you begin paying more principal than interest. If there isn’t a sufficient length of time remaining on your loan, it may not be worthwhile for the lender to offer refinancing since they won’t be able to make much money off of the transaction.
There’s no hard and fast rule regarding how much time must remain on your loan. However, if you are within your last year of payments, it may be more challenging to find a lender willing to refinance your car loan.
Since lenders make money by charging interest on your loan, they will want to see a significant amount of money remaining on your existing loan to make refinancing worthwhile for them. While each lender will have their own minimum amount owed requirements, you should expect to need at least $3,000 to $5,000 left on your existing loan to be considered for refinancing.
Your credit score is one of the most important factors evaluated when you apply to refinance your car loan. In general, the higher your credit score, the more likely you are to receive a favorable interest rate. If your credit score has improved significantly since you took out your existing loan, you will most likely be able to secure better terms when you refinance. If your credit score has dropped since you took out your initial loan, refinancing your car loan may not be worth it.
Before applying to refinance your car loan, make sure you take the steps necessary to ensure your credit score is as high as possible. To do this:
It’s important that you are up to date on your current loan payments. If you’ve fallen behind on these payments, it will indicate to lenders that you are too risky to approve for refinancing.
Your debt-to-income ratio refers to the percentage of your monthly income that is owed to other debts. If you have a high debt-to-income ratio, it indicates that a large portion of your income is spent paying off debt, leaving you with less money to spend on additional debt you take on. When evaluating you as a candidate for a car loan refinance, lenders will want to see that you have a relatively low debt-to-income ratio, as this will indicate that you can afford your new loan payments.
Once you’ve determined that you meet most of the eligibility requirements, it’s time to start looking at car loan refinance options. iLending’s exclusive You First Approach™ makes this process easy and hassle free.
Our online application form makes it fast and easy to submit all necessary documentation. You’ll then be paired with a personal loan consultant who will:
On average, our clients save $145/month when refinancing a car loan with iLending. This savings can help alleviate cashflow problems in your budget, allow you to save for a big purchase, or provide numerous other benefits to your daily life.
Apply now to get the car loan refinance process started.