If you're ready to look at refinancing to save you money on your car loan each month, there are a few requirements you need to be aware of. Your vehicle's equity position is one of them, and refinancing with negative equity might not be possible.

What's refinancing? When you refinance a car, you replace your current loan with a new one, sometimes through a new lender. This is typically done to make space in your monthly budget by lowering your auto loan payment. It can be done by either qualifying for a lower interest rate or stretching your loan term, sometimes both. However, if you're upside down with negative equity, refinancing your car is not be an option.

Can You Refinance A Car With Negative Equity?Why won't a lender work with negative equity? You typically can't refinance a vehicle that's worth less than you owe on its loan, because there's nothing in it for the lender. If you default, the lender can't recoup their costs by selling at an auction. One of the most stringent rules of refinancing is that there must be equity in your vehicle. This means that your car has to be worth more than you owe on its loan.

Refinancing requirements to be aware of. Other refinancing requirements include having had your loan for at least one to two years, having a good or improved credit score, and having a vehicle and loan amount which fit into the lender's parameters – typically cars must be less than 10 years old, and have less than 100,000 miles on them.

Improving your equity before refinancing. If all your ducks are in a row, but you still have negative equity, there are a few steps you can take to speed the process along so you can reach for the refinancing opportunity you're looking for.

To get your vehicle into an equity position, you need to make sure you owe less than the vehicle is worth. You can get an estimate of your car's value by visiting a website such as Kelley Blue Book or NADAguides online and answering a few simple questions. Right now, with supply short, your vehicle may be worth more than you know.

Once you know your car's value, you can work to pay off your loan faster, and save on interest charges. This will help put you in an equity position faster than following your natural loan repayment schedule, especially if you have a higher interest rate due to bad credit.

  • Split your payments in half. By paying half of your car loan payment every two weeks, you actually end up making 13 full payments instead of 12. Additionally, since interest accrues based on your loan balance, this helps knock down your interest charges a little every few weeks.
  • Round up your payment. If you want to save on your loan and get to refinancing faster, round up your auto loan payments to the next highest $50 or $100 dollars. This can be a bit tougher if your budget is already tight, but rounding up will get you into refi range quickly. Say your loan payment is $317.64; you can round up and pay $350 each month, or really bite the bullet and put $400 on your loan each month.
  • Use a lump sum payment. If you come by a windfall of cash or have tax refunds coming, you can take advantage of this to help you get into an equity position. Most auto loans don't have prepayment penalties, so anytime you get extra cash and want to pay, you can.

Once you employ one or all of these methods to get your vehicle into an equity situation where its value is equal to or greater than the loan balance, you'll be in a better position to refinance your car.

If you're ready to refinance, we want to help. Simply fill out our fast, free, auto loan refinancing request form and we'll get to work connecting you with a refinancing specialist to help.