If you’re worried about getting behind on your car payment, you may be able to refinance to make your auto loan more affordable. But, if you’re already behind, you may still have options to get rid of a car you can’t afford.
Refinancing an Auto Loan
If you’ve had your auto loan for at least a year or two, you may be able to refinance and adjust your monthly payment. There are two ways that refinancing can lower your monthly payment:
- Lower your interest rate
- Lengthen your loan term
Usually, refinancing is reserved for borrowers with good credit scores. However, if your credit score has increased since the start of your loan, you may be eligible for refinancing. A good or increased credit score isn’t the only requirement for refinancing, though.
Requirements for Refinancing a Car Loan
Every lender has different rules, but many require similar things for you to be considered for refinancing. Here are some refinancing requirements to keep in mind before you talk to your lender:
- You’re up to date on payments – Lender’s won’t consider you for refinancing if you’re behind on your loan payment.
- Good payment history – Having a consistent, on-time payment history may help your chances of getting approved for refinancing. This shows the lender you’re likely to continue making payments after the refinance.
- The car has equity – A car with negative equity can’t be approved for refinancing.
- Age and mileage – Lenders typically only refinance vehicles that are less than 10 years old with fewer than 100,000 miles. The specifics vary by lender.
- Loan amount – Some lenders may not refinance your loan if you owe too much on the car, and the acceptable loan amount varies between lenders.
Many of these requirements can be met with a little bit of time and patience. If you still owe too much on the vehicle, keep making payments and wait a few months. If you have negative equity, making extra payments should help you earn equity more quickly, or you could simply wait it out until the car’s depreciation catches up to the actual cash value (ACV).
However, if you’re really in a jam, can’t wait, and you can’t refinance, trading in the vehicle could be your next step.
What if You Can’t Refinance?
If you’re upside down and you can’t afford the monthly payments, or you simply can’t afford the loan anymore, you may be able to trade the vehicle in for something more affordable.
If your payments are current, and the car has equity, trading it in could be relatively painless. You trade the vehicle in, pay off the loan balance, and use the equity as a down payment toward another car, with loan terms that you can afford. This is easier with a good credit score, as well.
If the vehicle has negative equity, trading in becomes a little harder – but it’s still possible. When trading in a car with negative equity, you could trade the vehicle in and pay the difference between the ACV and the loan balance in cash. Or, you could trade in the car and add the negative equity to the new loan, which is called rolling over. If you do this, you essentially end up paying on two loans at the same time.
When you roll over an auto loan, your loan balance is higher than it would’ve been. With a higher loan balance, you’re going to pay more in interest charges unless your loan term is relatively short or you make extra payments. Because you’re basically paying off two loans with one payment, you’re likely to have a long loan term to make the monthly payment affordable.
Remember, the longer the loan term, the higher the risk of negative equity, and the more you pay in interest charges. A rollover means you pay more for the car than its actual cash value.
Unique Credit and Auto Loan Situations
If you have a unique credit situation or just bad credit, and you need a lender to work with you, we want to help. At Auto Credit Express, we’ve teamed up with dealerships that work with bad credit lenders. These bad credit, or subprime, lenders work through special finance departments, and are equipped to handle borrowers with less than perfect credit.
We want to match you to a special finance dealer for free. To get connected to a dealership in your local area, simply fill out our free and secure auto loan request form. Having bad credit doesn’t mean you’re out of options when it comes to car loans, so start today!