What Factors Influence Car Loan Refinancing Approval?
If you’re struggling to make expensive monthly car payments, you may benefit from refinancing your car loan. Refinancing can help you lower both your interest rate and monthly payments, freeing up cash in your budget that can be used for other expenses or to build your savings.
Refinancing a car loan involves replacing your existing car loan with a new one that provides you with better terms. This new loan will pay off your initial loan, and then moving forward you’ll only need to make payments on the new loan.
Before looking into auto refinancing options, it’s important to understand the factors that impact car refinancing approval. The following overview will help you understand what lenders evaluate when determining whether to refinance your car loan.
Credit Score
Your credit score is one of the most important factors that will influence car loan refinancing approval. While it’s still possible to refinance a car loan with bad credit, each lender typically has a minimum credit score they will require for approval.
In addition, the better your credit, the greater the likelihood that you can secure better interest rates. So even if you’ll qualify for car loan refinancing with your current credit score, it may be worth taking steps to improve your credit score before refinancing if your credit score isn’t very good, since this will help you get the best possible terms.
Debt-to-Income Ratio
Your debt-to-income ratio is a figure that measures the percentage of your gross monthly income spent repaying debts you owe. It’s calculated by dividing your monthly debts by your gross monthly income. In general, the lower your debt-to-income ratio, the less you will be perceived as a risk by lenders.
Most lenders will typically consider a debt-to-income ratio of 40% or lower as good. While it’s still possible to get approved for car loan refinance with a higher debt-to-income ratio, you may not always be able to secure the best possible rates.
Your Vehicle Age and Mileage
There are several reasons why lenders have age and mileage requirements for car loan refinance approval:
- Older vehicles with high mileage typically don’t hold their value well, and this increases the risk that you will be upside down on your car loan (the amount you owe exceeds the value of the car)
- Older vehicles are more likely to break down and require costly repairs, which can potentially impact your ability to make your monthly payments
Payment History
Lenders will evaluate your history of making on-time payments for both your existing car loan and other loans you’ve taken out. If you have a strong history of making payments on time, you are more likely to be approved than if you have an extensive history of late payments or failing to make payments.
Remaining Time and Balance on Your Existing Loan
Most lenders will require that you have a minimum balance remaining on your loan to approve you for refinancing. This minimum figure varies by lender. In addition, some lenders may require that you have a certain amount of time left on your loan to approve you for refinancing.
These requirements will benefit you as well as the lender. Most car loans frontload the interest, so you pay more in interest at the start of the loan and more of the principal as you move through the loan term. If you don’t have very much time remaining on your existing car loan, refinancing may not make sense financially since you may incur more interest by refinancing than by just paying off the balance on your existing loan.
Loan-to-Value Ratio
iLending Makes Car Loan Refinancing Easy and Hassle Free
If you’re interested in refinancing your car loan, iLending can help. Our exclusive You First Approach™ makes car loan refinance easy and hassle free.
This approach provides you with the highly customized service necessary to get the best possible loan terms while making sure you enjoy a great experience throughout every stage of the process. You’ll work with one of our loan consultants who will discuss your car loan refinancing goals in detail. Your loan consultant will use this information to compare loan options from our network of over 50 nationwide lenders to find the best solutions that align with your goals. We’ll review these options with you in detail and answer any questions you may have to ensure you have the information necessary to make the right decision.
Once you’ve chosen a loan, our team will handle everything for you:
- We help fill out all the paperwork
- We follow up with your existing lender to make sure your loan is paid off correctly
With our You First Approach™, you’ll enjoy a smooth process and have peace of mind that everything was handled correctly. Most importantly, you’ll be confident that you were able to secure the best possible loan terms for your refinance.
On average, customers save $132 per month when they refinance with iLending. This equates to significant monthly savings that can be a game changer for you. You can use it to pay off other high interest debts, save for an upcoming purchase, make repairs on your home, take a long overdue vacation, or simply experience less stress over how you’ll be able to pay your bills every month.
Apply now to get the car loan refinance process started.
What would you do with an extra $132* in your pocket?
