You don’t usually need to put any money down to refinance a vehicle. You may have to lower your loan amount in certain circumstances to be eligible for refinancing.
Requirements To Refinance
Car loan refinancing doesn’t normally require a downpayment to be eligible. To qualify for refinancing, however, you must have equity in your vehicle.
Equity is when your vehicle’s worth exceeds the amount of your loan. Lenders won’t approve a refinance of a car loan with negative equity because it presents a risk. You may have to borrow more money to make equity if you don’t own equity in your car.
You won’t likely be faced with a downpayment but you will need equity in your car as well as meet a list of refinancing criteria.
These are generally:
- Your credit score has improved significantly since you received the loan
- No late or missed payments
- The auto loan must be less than one year old
- You have less than 100,000 kilometers on your vehicle
- Your car is less than 10 years old
- Your loan balance should not be too high or too low (depending on the lender).
You could refinance if you meet the common requirements.
How Refinancing Works
Refinancing means replacing your existing auto loan with one that offers better terms. Many borrowers search for another lender to refinance their auto loans. They also take time to rate-shop for lower interest rates and better loan terms.
The most compelling reason to refinance is usually a lower monthly payment. This can be achieved in one or both of the following ways.
- You can lower your interest rates
- Extending your loan term
If you are a borrower who was originally qualified for a very high-interest rate, refinancing may allow you to get a lower rate. This will save you significant interest fees. It is important to improve your credit score to be placed in a higher credit tier.
You might be able to extend your auto loan to reduce your monthly payment if your interest rate is too high. But, you won’t be able to save any money on interest. If you do not qualify for a lower rate of interest, then you will pay more interest fees. This means that you end up paying more money for the car than you originally paid. When refinancing your car loan, think carefully. It could lead to you paying more for the car than it is worth.
Your Credit Score And Auto Financing
Refinance approval is dependent on your credit score. A lender won’t approve your application if you don’t have an improvement in credit or evidence of how you manage the auto loan and any other credit.
If you are not satisfied with your current auto loan terms and don’t believe refinancing is possible, it might be time to trade your vehicle in and open another car loan. Lenders that specialize in helping people with bad credit are available to help you get auto financing.