Can I refinance my auto loan to get another vehicle?
You cannot refinance your auto loan to get another vehicle. The whole point of refinancing is to get a better deal on your current car. More often than not, borrowers do this to get a lower monthly auto loan payment. If refinancing is not for you, there are still other ways to get another vehicle.
What is refinancing?
Refinancing is when you get a new car loan deal on your existing vehicle. This is often done by lowering the interest rate or by extension of loan term, or both. Almost everyone who refinances is doing so to save money.
To save the most money overall, you want to try and qualify for a lower interest rate without extending the term of your loan. Lowering your rate and extending your loan saves you money each month, but you don’t save as much overall over the life of the loan.
If you’re only eligible to extend the term of your auto loan, your monthly payment is lower, but it costs you more in the long run, unless you lower your interest rate.
Eligibility for refinancing your auto loan
In order to refinance your car loan, you, your vehicle and the amount of your loan must meet the requirements of the lender. Usually people refinance with another lender, but you can always see if your current lender is able to help.
Refinancing terms vary by lender, but you generally cannot refinance a loan that is less than a year old. Here are some other qualifications that you will typically need to meet:
- Credit score – Generally, a borrower must have a good credit rating to be eligible for refinancing. However, if you took out your original loan with bad credit, sometimes you can refinance if your credit score has improved since the time you got your original loan.
- Car value – Your car must have equity, or at least no negative equity. If the value of your vehicle is less than your current loan amount, it is probably not worth it for a lender to refinance your loan.
- Current payments – Your loan must be current. If you are not up to date with your auto loan payment, refinancing is not an option for you.
- Amount of the loan – The amount of your loan must be acceptable to the lender. They all have their own definition of what an acceptable amount is, but just be aware that your loan cannot be too big or too small. Lenders are not inclined to take out a loan that you have not been able to repay or that is almost paid off.
- Vehicle age and mileage – Your vehicle must be less than 10 years old and have driven less than 100,000 miles. Again, it comes down to the value of the car in relation to the loan amount refinanced.
Get a different car
If you’re not sure whether refinancing is the way to go, you usually still have options to get in a car on a lower monthly payment, even if you have bad credit. If something has changed in your financial situation and you just can’t pay your car loan repayments, you may want to consider trading in your vehicle for something more affordable.
Your loan does not need to be completed for you to be able to take back your car. Indeed, get out of a car loan earlier with an exchange is quite common. If you still owe your vehicle, you usually have the option of trading it in at a dealership, where they appraise it and make an offer that you can use to complete your current loan repayment.
If they offer you more money than you owe on your loan, the dealership usually takes care of paying the lender off, and any leftover money is used as a down payment on your next car. If the value of your vehicle is less than what you owe on the loan (negative equity), you need to add extra money to the amount you get from your trade-in to pay off your lender.
If you are not ready to trade in at a dealership, you can also sell your car as a private sale. However, in order for the title to be returned to the new owner, you still need to repay your lender. You may be able to get a little more for your vehicle at a private sale since you can set your own price, but to be sure you need to know what your car is worth.
You can search for this on review websites such as Kelley Blue Book or NADAguides. These sites use user input to generate an estimated value based on your answers to common questions. Remember to be honest if you want to get the most accurate estimate possible.
Ready to start?
Whether you’ve decided to refinance your vehicle or trade it in for a more affordable car, know that bad credit doesn’t have to stand in your way. Although you can’t get another car when you refinance your auto loan, you can save money. If refinancing seems like the right path for you, consult our refinancing partners here.
However, if refinancing is not what you need and another vehicle is what you dream of, we can help you Auto Express Credit. We specialize in matching borrowers with difficult credit conditions with dealers near them who have the appropriate loan resources. To get started towards a more affordable car for your situation, complete our quick and free auto loan application form.