How to Refinance a Car Loan

The terms of an auto loan may be negotiable, and it pays to the comparison shop for the best deal. Work with the Max Cash team to understand your available options.

Refinancing may reduce your monthly auto loan payment, lower your interest rate, or extend the loan term. In some cases, you will be able to check if you pre-qualify to refinance an existing loan without impacting your credit score. Only after you accept a loan offer does the credit inquiry appear on credit reports and slightly impact your credit score.

Here are the steps to take to refinance a car loan.

Step One — Pre-Qualify

In this step, you fill out the loan inquiry, and if you are pre-approved, you will be asked to provide the required documents, which include a copy of your valid driver’s license, contact information, proof of income (a copy of your pay stubs or bank statements), proof of your current address (a copy of your lease or utility bill), your current loan documents, and any other things that the lender requires to verify your information. Click here to see if you are pre-qualified for an auto loan refinance.

Step Two — Review and Accept the Loan Terms

Understanding the loan terms, interest rate, and the annual percentage rate (APR) is important. After carefully reviewing everything and discussing your terms with your loan officer, you can accept a loan offer by completing the paperwork.

Step Three — Finalize the Loan

E-sign your loan agreement and submit the required documents, including title transfer documents (if applicable), as your state requires. The lender will verify all of your information, and after verification is made, the loan will be processed and completed.

What are the Requirements for Refinancing?

In most cases, your car must be under ten years old and in good operating condition to qualify for refinancing. There is usually a minimum loan amount of $7,500, but this amount varies from lender to lender. There is a maximum loan amount that varies between lenders as well. This refers to the amount that you still owe on your loan. The maximum amount you can borrow depends on your income, credit score, and credit history. The type of vehicle affects your ability to refinance the loan. A term limit may exist, which limits the ability to extend a loan.

Car Title

The person applying for the loan must be listed on the title as the vehicle’s registered owner. You will typically be responsible for the cost of any title, transfer, or registration fees charged by the state.

Current Loan Status

Your current loan must be up to date on payments in order to qualify for car refinancing. Some Vehicles Cannot be Refinanced

Some vehicles may not be able to be refinanced through a new auto loan. These include cars from companies no longer in production (e.g., Isuzu or Suzuki), any commercial vehicle, salvage vehicles, and vehicle models with a known history of malfunctioning.

To qualify for refinancing, a car must have a visible Vehicle Identification Number (VIN) that matches the VIN on the car’s registration.

Credit Score

Your FICO credit score will likely impact your ability to obtain loan approval and the interest rate you are charged.

Loan Term

The loan term refers to the amount of time you have to repay the loan. Many auto loans have extended terms that allow for slower repayment. This has the effect of lowering the monthly payments. If you take longer to repay the loan, you will pay lower monthly payments but more interest in the long run.

FAQs

What factors influence loan approval?

Depending on your credit score, credit history, income, and debt-to-income ratio, lenders will offer various rates and terms during the inquiry process for car refinancing.

What is pre-qualification?

Prequalification is also called pre-approval. By answering some basic questions and filling out an online form, you can find out if you are pre-approved for car financing or refinancing!5 This pre-qualification process does not affect your credit score and helps you learn more about your loan terms, interest rate, and more.

Can I get an auto loan if I have a poor credit history?

Yes, it is possible to get an auto loan with a poor credit history, although your options may be a little bit more limited.

Is there a prepayment penalty?

For some auto loans, there is no penalty if you want to pay off the loan early or refinance the loan.

Does the lender put a lien on the car?

Yes, whether you are refinancing your auto loan or applying for an auto loan for the first time, a lender will place a lien on the vehicle title. The lien stays in place until the auto loan is completely paid off.

Do I need to have auto insurance?

All lenders require that you have collision and comprehensive insurance protection to cover the vehicle for the amount of the outstanding balance on the loan.