What you need to refinance your car loan


Choosing to refinance your current car loan often comes down to saving money. But before signing a new loan, you must confirm that you and your vehicle meet the necessary requirements. Although there is some variation in the specifics of each between lenders, in general you will be faced with several limitations.

Requirements for taking out a loan to refinance your car

Be aware of these six factors when considering refinancing your car loan.

1. Time remaining on loan

The time remaining on your loan is a common eligibility requirement. Generally, lenders will want you to have paid off at least six months of the loan and have at least six months remaining.

This means that if you took out a 60-month car loan and only have three months to pay it off, you probably won’t be able to refinance it for a few months. Likewise, if you’ve already made 54 payments, you’ll likely need to finish paying it off rather than refinancing it.

2. Remaining amount

Minimum loan amounts vary by lender, but you can expect to need at least $3,000 to $5,000 on your loan. Since refinancing is taking out a whole new car loan, lenders don’t want to offer small amounts because they won’t be able to make as much money out of it.

If you bought a particularly expensive car, you may not be able to refinance it until it has been paid off. Finding auto refinance loans over $50,000 can be a challenge.

3. Mileage

If you bought a heavily used car and want to refinance the loan — or you just racked up a lot of miles — you may not be able to. Lenders tend to have a cap of 100,000 to 150,000 miles.

4. Age of the car

Although there is no minimum age, if you have an older car, you may not be able to refinance your car loan. Typically, lenders set a hard limit of 10 years. But some may require a car to be less than eight years old to refinance the loan.

5. Credit score

As with any loan, your credit score will likely be taken into account. Refinancing is usually a good idea if you have a low interest rate on your car loan and have since increased your credit score. Anything less than around 600 probably won’t get you a better rate and could end up costing you more overall.

6. Debt to income ratio requirements

Your debt-to-income ratio (DTI) is a measure of your overall debt and income. DTI is often expressed as a percentage. The acceptable range varies from lender to lender, but is generally below 50%.

How to refinance your car loan

Refinancing a car loan is relatively simple. It involves the same basic steps you would take to get a new car loan.

  1. Shop around for a loan. Apply for prequalification with at least three lenders, just as you would for a new car loan.
  2. Apply for the loan. Carefully fill in all the information requested – regarding your identity, your job, your current loan and your car – and provide the appropriate documentation.
  3. Receive your loan funds. The lender will deposit the funds directly into your account or pay your current creditor directly. It may take a few days to a few weeks, so keep making payments in the meantime.
  4. Start paying off your new loan. Once your loan is funded, it’s time to start paying it back. Make all your payments on time and send them to the right bank.
  5. Find out how to best use your savings. Once you’ve paid off your new loan, you can use the savings to improve your finances. Consider putting that money into a retirement account, debt repayment or even your emergency fund.

Advantages and disadvantages of refinancing your car loan

Before refinancing, weigh the pros and cons.


  • You can get a lower interest rate. The lender refinancing your loan may offer you a lower interest rate, saving you money over the life of your loan. This is especially true if your credit score has improved or if you have financed through a dealership.
  • Your monthly payment may be reduced. Extending your term or lowering your interest rate can lower your monthly payments. Be careful though, extending the term of your car loan will also cost more in interest.

The inconvenients

  • Your interest rate could go up. If you don’t qualify for as big an interest rate reduction as you would like, consider improving your credit score before applying.
  • You can extend the term of your loan and the interest you pay. Even if your rate is lower, you can still increase the amount of interest you pay if you choose to extend the term of your loan. The longer it takes you to pay off your car, the more interest you will accrue.

What to consider before refinancing your car loan

There are a few important questions to consider before deciding to refinance your car loan.

Are your current interest rates competitive?

If you’re already paying a competitive interest rate, you’ll want to compare current rates to make sure a new loan is worth it.

Discount Rate Advice: You should compare rates from several different lenders to see which one will give you the best deal. Use a refinance calculator to see what your monthly payments and total interest will be compared to your current loan.

What is your current vehicle worth?

Before you refinance your car loan, you need to know the loan to value ratio of your car loan. This refers to the value of your vehicle relative to what you owe. If you’re about to owe more on your vehicle than it’s worth, you may want to refinance on a shorter term.

What are the terms of the loan?

It’s best to know some of the basic details of your current loan when considering a refinance. This includes the APR, the term of the loan and the monthly payment. You can also check your loan documents to find details about late fees, prepayment penalties, and how much time you have left to repay the loan.

Next steps

Refinancing your car loan can be a smart financial decision, but there are a few steps you need to take to prepare for the process. Consider your current credit score, the age and mileage of your car, how much you owe on your car, and your ability to pay the new loan.

Learn more


Comments are closed.