While your credit determines if you can refinance, it isn’t bad for your credit if you choose to refinance your current car loan. If refinancing can help you make your monthly payment more affordable, and you can qualify, you should consider it.
How to Refinance Your Car Loan
The main goal of refinancing is to make the monthly payment more affordable and, if possible, save you money. Not only can you lower the monthly payment, but you could qualify for a lower interest rate and save money on interest charges.
In order to refinance an auto loan, you must meet the lender’s refinancing qualifications – usually this means having a better credit score than when you took out your current loan, and a vehicle that meets their qualifications with a loan that isn’t underwater. You can refinance through your current lender, or a new one, but it’s best to rate shop and compare deals before you make a decision.
From there, you can determine how you want to make the monthly payment more affordable, either through qualifying for a lower interest rate or extending the loan term.
Is There a Right Time to Refinance a Car Loan?
When it comes to car refinancing, timing truly is everything. You can’t refinance an auto loan immediately, because your credit doesn’t improve overnight and it takes time to build equity in a vehicle.
If you check your FICO credit score and credit reports after two years or so, and find that your credit has improved, you could be in a great position to refinance for a lower monthly payment and/or better interest rate.
If your credit hasn’t improved much, but your financial situation has changed and you’re struggling to make the monthly payment, you could also consider refinancing.
In this case, however, you need to extend the loan term, which means paying more in interest charges. It may not be ideal in the long run, but it makes your monthly payment more affordable for the time being.
As for when refinancing is a bad idea, there are three situations you need to be aware of:
- Having an old car – Lenders have vehicle age and mileage restrictions. If your car is too old or has too many miles, they can turn you down for refinancing.
- Being upside down – If your vehicle has negative equity (you owe more on the loan than the car’s actual cash value), you can expect to be denied for refinancing.
- Being delinquent – If you have a history of delinquent car payments, lenders are most likely going to turn you down for refinancing.
The Bottom Line
Whether or not refinancing is right for you depends on your current financial and credit situation. Although applying for refinancing does lower your score by a few points, it isn’t going to affect your credit score in the long run. As long as you keep up with the payments, your credit score should continue to improve in time. Check out our free and easy refinance request form if you want to explore that option!
If you’ve been turned down for refinancing, you could trade in your current vehicle and apply for a new, more affordable, car loan. When you’re ready, we can lead you in the right direction to financing.
At Auto Credit Express, we can connect you to a local dealer with the lending resources available to help you get an auto loan, even if you have bad credit. When you’re ready, get started by filling out our online car loan request form. Our service is free of cost and obligation, so you can let us help you find a dealership with confidence.