Auto refinance refers to replacing your current auto loan with a new one. While this may sound counterintuitive — taking on debt to pay off debt — refinancing your auto loan can actually save you a lot of money month to month, and many auto refinance companies advertise that they can save you up to $150 per month.
When you refinance, you get a loan with lower interest rates and/or a longer loan term, which would help lower your monthly payment significantly. Your auto refinance lender would then pay off your old loan, and you will then be responsible for your new loan. Since it can be a potential risk for lenders to refinance a borrower’s loan, they may often require a high credit score to qualify for refinancing.
That being said, the majority of auto refinance companies are marketplace lenders, meaning that they connect you with multiple lenders, generally credit union lenders, in their network, which can provide some options if you have a low credit score.
In addition to a potentially higher minimum credit score requirement, there are other eligibility requirements that most lenders have:
Some auto refinance companies may also require that your vehicle have less than a specified amount of miles, but this may vary by company.
Applying for auto refinancing is generally a simple process that can usually be completed entirely online. Upon approval, you can generally receive your new loan fairly quickly. However, some lenders do not have an online application process, which is something to look out for if that is a requirement you have for an auto refinance company.
One of the important things to remember is that you should maintain loan repayment “best practices” when you refinance, including making consistent on-time payments and contacting your lender if any potential payment issues arise. Your refinanced loan is just like any other loan, so make sure you are responsible with your new and improved debt.
Refinancing your auto loan is a good way to lower your current auto loan monthly payment by getting a lower interest rate and extending your loan term. However, you could also choose to shorten your loan term, helping you pay off your loan faster.
It is a good idea to refinance your car if interest rates have dropped since you took out your original loan or your personal finances have improved. Perhaps you got a new job, or you’ve been able to pay down other debt, lessening your debt-to-income ratio (DTI). It could also be a good idea to refinance if you are having trouble keeping up with your current auto loan payments, or you are having a difficult time keeping up with other bills, as refinancing can lower your auto loan payments, helping you manage other payments accordingly.
It could also be a good idea to refinance your car if you want to either add or remove a cosigner to your loan. Adding a cosigner could help you get a lower interest rate, but removing a cosigner is also a helpful option, especially if the person cosigning would prefer to be released, removing their responsibility to the loan.
If your credit score is low or it has taken a hit because you haven’t been keeping up with your current auto loan payments, it may not be the best idea to refinance because you may not be able to get a lower interest rate. It may also not be a good idea to refinance if you don’t have much more time left on your loan, since you could possibly pay more in interest by refinancing, especially if you extend your loan term to lower your monthly payment.
Many auto loan companies have a lower-than-average credit score requirement ranging from 560 to 580. While this may be an easy requirement to meet for many consumers, those with bad credit or no credit may have a more difficult time qualifying for auto refinancing.
Yes and no. For initial pre-qualification, your credit score shouldn’t be impacted. But once you choose a lender/offer, a hard credit check is generally performed to complete the loan application process which will impact your credit score.
It depends on your lender, but it is generally a quick process. In most cases, you will fill out an initial online application and then you will receive a variety of offers from lenders in the company’s network. Once you choose a lender, funding shouldn’t take long to ensure that you aren’t continuing to accrue interest on your existing loan. However, funding times will vary by lender.
Some companies, but not all, do offer refinancing on motor vehicles beyond cards. You may be able to also refinance the following:
Most lenders do not refinance commercial vehicles of heavy equipment machinery.
Yes, if your current lender offers refinancing services. Sticking with your current lender could reduce the headache of switching your information to a new company/lender.
Guaranteed Asset Protection (GAP) coverage is a type of insurance that protects you by paying the remaining difference between the value of your car and what is still owed on your loan if your car is totaled.
Most auto refinance companies offer this coverage, and it is not required when you refinance.
A lease buyout is when your lender allows you to purchase a car you’re leasing before the lease contract ends. Many, but not all, auto refinance companies offer this option.
Our top-rated auto refinance company is iLendingDirect, a ranking based on market factors as well as unique customer reviews.
iLendingDirect offers competitive rates and reliable customer service, and even has refinancing options for high-mileage vehicles. Compared to other lenders, iLendingDirect offers standard products and services, but customer reviews are overwhelmingly positive, indicating that it is a good choice for auto refinancing.
Ninety-four percent of iLendingDirect customer reviews are 5 stars. Customers frequently mention a painless and fast loan process, as well good experiences with customer service with mentions of specific loan officers that helped customers in the refinancing process.
Overall, iLendingDirect has an average 4.5-star rating for value for money, product or service quality, customer service, and company trustworthiness.
Sign up below to receive a monthly newsletter containing relevant news, resources and expert tips on Auto Refinance and other products and services.