Mistakes to Avoid When You Refinance Your Auto Loan (2024)

FAQs

Mistakes to Avoid When You Refinance Your Auto Loan? ›

A lender may not approve you for a refinance unless you meet a certain loan-to-value ratio (LTV). The LTV is the loan amount divided by the appraised value of your car. Check if you'll meet this requirement by finding the value of your car using online resources.

A lender may not approve you for a refinance unless you meet a certain loan-to-value ratio (LTV). The LTV is the loan amount divided by the appraised value of your car. Check if you'll meet this requirement by finding the value of your car using online resources.

The downsides to auto loan refinancing can include paying lender fees and additional interest if you extend the loan term or cash out auto equity. You could also end up owing more than your car is worth.

You should not refinance your car if you are close to paying off your loan, owe more than the car is worth or if interest rates are high. Other factors to consider before refinancing include the age and mileage of your car, potential fees and penalties and other options like a car loan modification.

That's because you'll likely increase the amount of interest you pay over the life of the loan. But even if you're offered an interest rate that's slightly lower, the terms of the new loan may lead to a higher monthly payment. You'll have to decide what works for your monthly budget. Here's an example.

What to do after refinancing a car? ›

Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.

How long after refinancing my car can I trade it in? You can trade in a car at any time after refinancing. The key is ensuring it makes financial sense to trade in your vehicle. You will still be responsible for paying off the loan.

Cash-out auto loan refinancing, also known as cash-back refinancing, is like traditional refinancing in the sense that you apply to receive new, more favorable terms to replace your current loan. But, along with that, you will also receive a lump sum of cash as part of the refinance.

A lender might refuse to refinance a car if your current loan is too new, if your car is too old or has too many miles on it, or if your current loan balance is too low or too high.

In general, lenders expect you to have a minimum of 20% in home equity to refinance. In other words, the loan balance must be 80% or less of the home's value. If you don't have enough equity to meet the lender's requirement—especially if you want to take cash out of the home—you may not be eligible to refinance.

There is no minimum credit score required to refinance a car loan. That being said, there is a range that is considered a “good credit score” to refinance a car loan. In general, a credit score over 700 will unlock the best interest rates, and a credit score between 660-700 will give you access to standard rates.

You owe more than the car is worth.

Many lenders won't refinance an “upside-down” car loan, or a loan with a higher balance than the car is worth. Even if you find a lender to refinance a car with negative equity, you'll likely pay a higher interest rate, increasing your overall cost.