What you need to refinance your car loan – Bankrate.com | Car Plazas

The decision to refinance your current car loan often boils down to saving money. However, before you take out a new loan, you must confirm that you and your vehicle meet the necessary eligibility requirements. While there are some differences in the specifics of each lender, in general you will face several limitations.

Requirements for taking out a loan to refinance your car

Consider these six factors when considering refinancing your car loan.

1. Remaining Rental Period

The remaining term of your loan is a common eligibility requirement. Typically, lenders want you to have at least six months on the loan and have at least six months left.

That means if you took out a 60-month auto loan and it’s three months from paying it off, you probably won’t be able to refinance it for a couple of months. If you’ve already made 54 payments, you probably need to pay them off rather than refinance them.

2. Balance

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

Also, if you bought a particularly expensive car, you might not be able to refinance it until it’s 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 if you’ve just racked up a lot of miles – you may not be able to. Lenders typically have a cap of 100,000 to 150,000 miles.

4. Age of the car

While 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 at 10 years. However, some may require a car to be less than eight years old in order to refinance the loan.

5. Creditworthiness

As with any loan, your credit rating will likely be taken into account. Refinancing is usually a good idea if you have a bad interest rate on your car loan and have since improved your credit score. Anything under around 600 probably won’t get you a better price 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 total debt and income. DTI is often expressed as a percentage. The acceptable range varies from lender to lender, but is typically less than 50 percent.

How to refinance your car loan

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

  1. Look for a loan. Apply for prequalification from at least three lenders, just like you would when taking out a new car loan.
  2. Apply for the loan. Carefully fill out all the required information – about your identity, your job, your current loan and your car – and provide appropriate documentation.
  3. Get your loan funds. The lender will either deposit the money directly into your account or pay your current creditor directly. This can take a few days to a few weeks, so keep paying in the meantime.
  4. Start paying off your new loan. Once your loan is funded, it’s time to start repaying it. Make all your payments on time and send them to the right bank.
  5. Learn how to best use your savings. Once you’ve paid off your new loan, you can use the savings to supplement your finances. Consider putting that money in a retirement account, debt payoff, or even your emergency fund.

Pros and cons of refinancing your car loan

Before you refinance, weigh the pros and cons.


  • You can secure a lower interest rate. The lender refinancing your loan may offer you a lower interest rate, which would save you over the life of your loan. This is especially true if your credit has improved or you have funded through a dealer.
  • Your monthly payment can be reduced. Extending your term or lowering your interest rate can reduce your monthly payments. Be careful, however, because extending your car loan term also costs more interest.


  • Your interest rate could go up. If you don’t qualify for as much of a rate cut as you would like, consider improving your credit score before applying.
  • You can extend the life of your loan – and the interest you pay. Even if your interest rate is lower, you can increase the amount of interest you pay if you decide to extend the term of your loan. The longer it takes you to pay off your car, the more interest you accumulate.

What you should consider before refinancing your car loan

There are some 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, it’s a good idea to compare current interest rates to make sure a new loan is worth it.

Bank rate tip: You should compare interest rates from different lenders to see which one offers you the best deal. Use a refinance calculator to see how your monthly payments and total interest compare 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 how much your vehicle is worth compared to your debt. If you are about to owe more on your vehicle than it is worth, you may want to choose 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. These include the annual percentage rate, the term of the loan and the monthly payment. In your loan documents, you can also view details of reminder fees, prepayment penalties and the remaining term of the loan.

Next Steps

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

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