What Are The Requirements For Auto Loan Refinancing

During the credit crisis of 2008 / 2009 many Americans purchased vehicles at exorbitant rates.

Today, 2 to 3 years into the loan, some of them are searching for ways of refinancing auto loans to be relief of the burden of paying excessive interest rate or APR on these loans. After a couple of years most car owners would meet the basic requirements for refinancing.

There are Five main  benefits of  refinancing auto loans:

1. To reduce the interest rate on the loan, which reduces monthly payments
2. To have the terms of the loan match a more improved credit score
3. To change the terms of the loan to reduce interest rates and decrease the terms of the loan
4. To increase the possibility of increasing their FICO or credit score by working with an institution that reports payment to credit bureaus
5. To move their business to a friendlier lender

Refinance to reduce interest rates
Say, Kia, a car buyer purchased a Honda Acura vehicle for $15,000 at 17% rate for 4 years or 48 months term, she will pay $432.83 a month on the loan. However, if she refinances and still has bad credit, but improved from the last credit report, she could qualify for auto loan refinancing with Santander Bank / Road Loans at 10% which will result in a monthly payment of $380.44 and a saving of over $52.00 a month. The requirement in this case will be the same as the initial auto loan, as refinancing could be based on improve credit conditions .

If however, Kia decides to visit her local credit union to refinance the loan, then the first requirement would be credit union membership. Credit union offers low interest rates on refinancing. At Federal Credit Union, for example, you could get as low as 2.49% on refinancing your auto loan if you have good credit. In this case, Kia would only pay $328.64 a month – over a $100 saving every month.

Refinance if your credit score has improved
Since the APR on the auto loan depended on your credit score, one of the requirements for refinancing would be an improvement in your credit score. If you have seen an improvement in your credit score, say from 521 to 693 then you will be eligible to refinance base on the positive change in your score.

Refinancing to reduce the length or term of the loan
If your job /  income situation has changed for the better, say your monthly income changed from $2200 a month to $3000 a month then you have met the requirement for refinancing. A positive change in income indicates to the lender that you are capable of paying the loan off quicker.

Reducing the length of the loan from 48 months to 36 months will lower the interest rate while increasing the monthly payments

Refinancing to improve credit score
There are still auto loan lenders that do not report to the credit bureau. If you have such a lender, then you have met the requirement for moving your business to another institution that reports to the credit bureau, so that your on time payments can be recorded on your credit report to improve your credit score.

Refinance to move to a friendly lender
If you are looking for a friendly, long term relationship with a lender then you have met the requirement for moving your business. Most community credit unions and banks would be happy to work with you to get you a low interest rate conversant with your credit score, even if you have bad credit or sub prime status.

If one lender says that you are not eligible for refinancing, then move to another one. Try banks like Ally, GMAC, Wells Fargo, USAA, Americredit and other lenders specializing in auto loans.

Some lenders like Capital One, has loan amount and year of model requirements. Capital One requires that the “Payoff amount of your current auto loan must be between $7,500 and $30,000. Vehicles must be 7 years or newer and have less than 70,000 miles“.

Some credit unions and banks require that you have a checking or savings account with them

Before you refinancing an auto loan do the following

1. Research information on car loan refinancing
2. Refinance to lower terms – from fours years to three years if you can
3. Ensure that there are no prepayment penalties on the old loan
4. Try improving your FICO score.
5. Some lenders will only refinance loans on cars 2004 to 2011 or no more than 7 years old
6. There should be no application fee