You can't refinance your car loan to get another vehicle. The entire point of refinancing is to get a better deal on your current car. Most often, borrowers do this to get a lower monthly auto loan payment. If refinancing isn't for you, there are still other paths to getting another vehicle.

What Is Refinancing?

Refinancing is when you get a new car loan contract on your existing vehicle. This is often done by lowering the interest rate or by extending the loan term, or both. Nearly everyone who refinances does it to save money.

To save the most money overall, you want to try and qualify for a lower interest rate without extending your loan term. Both lowering your rate and lengthening your loan saves you each month, but you don't save as much overall during the loan term.

If you only qualify to extend your auto loan term, your monthly payment is lower, but it costs you more money in the long run unless you lower your interest rate.

Qualifying to Refinance Your Auto Loan

In order to refinance your car loan, you, your vehicle, and your loan amount have to meet the requirements of the lender. Usually, people refinance with a different lender, but you can always see if your current lender is able to help.

The requirements for refinancing vary by lender, but you typically can't refinance a loan that's less than a year old. Here are a few other qualifications you're generally going to have to meet:

  • Credit score – Typically, a borrower needs to have a good credit score to qualify for refinancing. However, if you took out your original loan with poor credit, you can sometimes refinance if your credit score has improved since the time you got your original loan.
  • Car value – Your car must have equity, or at least no negative equity. If your vehicle’s value is less than your current loan amount, it's likely not worth it for a lender to refinance your loan.
  • Current on payments – Your loan must be current. If you're not up to date on your auto loan payment, refinancing isn't in the cards for you.
  • Loan amount – Your loan amount must be acceptable to the lender. They all have their own definition of what an acceptable amount is, but just know that your loan can't be too big or too small. Lenders aren't apt to take on a loan that you haven't been able to pay down, or one that's almost paid off.
  • Vehicle age and mileage – Your vehicle must be less than 10 years old and have less than 100,000 miles on it. Again, this comes down to car value versus the amount of the loan being refinanced.

Getting a Different Car

If you're not sure that refinancing is the way to go, you typically still have options for getting into a car with a lower monthly payment, even if you have bad credit. If something has changed in your financial situation and you just can't afford your auto loan payments, you can look into trading in your vehicle for something more affordable.

Your loan doesn't have to be finished in order for you to trade in your car. In fact, getting out of an auto loan early with a trade-in is quite common. If you still owe on your vehicle, you typically have the option to trade it in at a dealership, where they appraise it and make an offer that you can use to finish paying off your current loan.

If they offer you more money than you owe on your loan, the dealer typically takes care of paying off the lender, and any leftover cash is used as a down payment toward your next car. If the value of your vehicle is less than you owe on the loan (negative equity), you have to add any additional money to the amount you get from your trade to pay off your lender.

If you're not ready to trade in at a dealership, you can also sell your car in a private sale. However, in order to get the title released to the new owner, you still have to pay off your lender. You may end up being able to get a little more for your vehicle in a private sale since you can set your own price, but to know for sure, you have to know what your car is worth.

You can look this up on valuation websites such as Kelley Blue Book or NADAguides. These sites use user input to generate an estimated value based on your answers to common questions. Remember to be honest if you want to get the most accurate estimate possible.

Ready to Get Started?

Whether you've decided to refinance your vehicle or trade in for a more affordable car, know that bad credit doesn't have to stand in your way. While you can't get another car when you refinance your auto loan, you can save money. If refinancing seems like the right path for you, check out our refinancing partners here.

However, if refinancing isn't what you need and another vehicle is what you crave, we can help with that at Auto Credit Express. We specialize in matching borrowers in tough credit situations to dealers near them that have the proper lending resources. To get started toward a more affordable car for your situation, fill out our fast and free auto loan request form.