Taking out a car loan opens doors for people unable to pay cash for a new or used car. Sometimes, the borrower may take out a loan that proves a bit costly. Those terms won’t likely change, but it might be possible to refinance a car loan and procure better rates and terms. Would-be refinancers may benefit from determining whether they are eligible for a new loan.
How Refinancing Works
Refinancing involves taking out a new loan to pay off a current one. People generally refinance auto loans to save money, as a new loan with a lower APR may prove less expensive. Other benefits could include a longer loan term and lower monthly minimum payments.
Concerns about Refinancing Eligibility
Persons with bad or less-than-desirable credit scores may find their refinancing options narrower, but they might still find a lender willing to help them. According to Lantern by SoFi, “You may also consider refinancing your car loan when you can’t keep up with payments for your current loan, but you should first consider other options.” Keep in mind that borrowers could discover attempts to refinance an auto loan proves difficult when they are behind on the loan they intend to refinance.
The Car’s Value
Some roadblocks may occur when the borrower owes more than what the car is worth. Refinancing an “upside-down” loan isn’t impossible, but not all lenders may approve such a deal. Interestingly, a car’s value may increase, as many sellers discovered during the supply chain crisis. An increase in the car’s value could prompt a current borrower to look for a less costly loan that complements the current resale price.
The Car’s Age
Age impacts a car’s resale value, and an old car might be tough to refinance. If someone took out a six-year car loan and then refinanced it with another six-year car loan, finding a lender willing to refinance another loan on a ten-year-old vehicle may be difficult. The lender must think about repossession and resale when issuing a loan, and a very old car might have no resale value.
The Remaining Loan Balance
Expect the refinancing lender to look at the balance remaining on the vehicle. When the balance is small, lenders might be less inclined to approve refinancing. The lender may see little benefit in issuing a small loan that would only cover less than a year of payments.
Worries about Credit Scores and Ratings
Again, a poor credit score might not preclude someone from being approved for a refinancing deal. Worries could exist about any hard credit checks performed as part of the application process since a credit check could drive down the score. Credit checks are likely unavoidable when hoping to refinance car loans. So, looking for the lenders that best match the potential borrower may be wise. Of course, borrowers could work at improving their scores since doing so may have upsides.
Would-be applicants may benefit from determining if they and their vehicles are eligible for refinancing. Refinancing a car might not be too difficult when the applicant and vehicle meet specific requirements.