What Military Members Need to Know About Auto Loan Refinancing

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by Carter Kilmann

Navigating the auto loan refinancing process as a service member doesn’t have to be complicated.

Frequent relocation, deployments, demanding job responsibilities — active military life can make it difficult to manage your finances. That includes finding the best auto loan rates.

There are a lot of reasons to consider refinancing your car loan. Market rates could have dropped. Your credit score may have significantly improved since you applied for your current loan, so you could be interested in better terms. Or, maybe your lender isn’t living up to expectations.

Whatever the reason, we’ve compiled a comprehensive guide to help walk you through the auto loan refinancing process.

2021 Auto Refinance Rates See Today's Rates

What Is Car Loan Refinancing?

Car loan refinancing is the process of replacing your existing auto loan with a new loan. Generally, people seek a refinance loan because they want more favorable terms, such as a lower interest rate. But you could also take this route if you’re dissatisfied with your current lender or had to settle for a subprime auto loan when you purchased your vehicle.

Or, if market rates have simply dropped, you might consider refinancing to get the best rate.

As a service member, your application process won’t look much different. However, assuming you plan to use military income on your application, lenders will need your most recent Leave & Earnings Statement (LES).

With that in mind, let’s overview the benefits of refinancing.

What Are the Benefits of Auto Refinance Loans for Military Members?

The most common reason to refinance your current auto loan is to get more favorable terms. For example, if you had a low credit score when you applied for your current car loan, you probably received less-than-desirable terms, like a high-interest rate, high fees, and prepayment penalties.

RateGenius analyzed customer data from 2012 through 2019 and found that military members saved an average of $995 a year when they refinanced their existing auto loans.

If you’ve improved your credit-worthiness since then, you could be eligible for better terms and a better interest rate — which means a lower monthly payment and more money in your pocket. RateGenius analyzed customer data from 2012 through 2019 and found that military members saved an average of $995 a year when they refinanced their existing auto loans.

Saving one thousand dollars each year sounds appealing, but you have to qualify first.

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Do I Qualify for an Auto Refinance Loan?

The qualification requirements for military service members are the same as any other occupation. Lenders will primarily focus on these areas of your refinance loan application.

Your vehicle

Lenders will consider the model year and condition of your vehicle. We are talking about auto loans after all. To maximize your chances of qualifying for a car refinance loan, your vehicle should be:

  • Under 10 years old
  • Under 120,000 miles
  • A personal use vehicle

Typically, lenders prefer new cars, but not necessarily for the reason you think. As cars age, they depreciate in value. As a result, an older car tends to have a lower loan-to-value ratio (LTV). Your LTV is the ratio of your current vehicle loan balance to the value of your vehicle. Lenders use your LTV to assess if your current car and loan are worth refinancing.

For example, when you initially purchase a vehicle, your car’s value will match your loan balance. This represents an LTV of 100%. However, if your car depreciates over time to $8,000 but your loan amount is still $10,000, your LTV would now be 120% — which is considered an upside-down loan.

That said, just because a loan is upside down doesn’t mean it can be refinanced. According to RateGenius data, 90% of approved applicants between 2015 and 2019 had a loan-to-value ratio of 123% or less.

90% of approved applicants had a LTV of 123% or lower.RateGenius

Car (LTV) Loan-to-Value Calculator

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Your credit

Your credit score and credit history are key components of your auto refinance loan application. They demonstrate your credit-worthiness to potential lenders. If you have a history of making on-time monthly payments and prudently managing debt, lenders will be more inclined to loan you money.

The average credit score of an approved active duty applicant was 698, according to analysis of RateGenius customer data from 2012 to 2019. Based on the FICO Score ranges, a 698 would qualify as a “Good” score.

  • Exceptional: 800-850
  • Very good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Very poor: 300-579

But it’s not a make or break situation. A good credit score doesn’t guarantee credit approval, and a bad credit score doesn’t guarantee a denial. Lenders take your entire financial profile and loan application into account.

Your income

Borrowers must demonstrate financial stability before they can be approved for an auto refinance loan. As you can imagine, it would be incredibly risky for a lender to issue a loan to an applicant who doesn’t have a job since they likely couldn’t afford to make monthly loan payments.

That’s why lenders consider your debt-to-income ratio (DTI) when you apply for a loan. Your DTI represents the ratio of your monthly debt payments to your monthly income. In other words, this metric determines what percentage of your income is restricted or obligated to someone else.

The lower your DTI, the better in terms of receiving a car refinance loan.

While there isn’t a universal DTI requirement among lenders, RateGenius reviewed financing application data between 2015 and 2019 and found that 90% of approved auto refinance loan applicants had a DTI of less than 48%.

48% DTI

From 2015 to 2019, 90% of approved auto refinance loan applicants had a DTI of less than 48%.RateGenius

(DTI) Debt-to-Income Ratio Calculator

What is your monthly income?
What's your total monthly debt payments?

Your loan

Lenders often require existing auto loans to meet certain criteria before they’ll consider extending a refinance loan.

For example, lenders in the RateGenius network typically require your current car loan balance to be between $10,000 and $55,000 to qualify for refinancing. Further, the RateGenius lender network usually requires your existing loan to be funded for at least 1 month and have at least 24 months of payments left.

Your title

Many refinance loan applicants are surprised to learn that a vehicle title can cause loan delays or even outright rejections. How? Involuntary liens.

When lenders issue secured loans — such as a car loan — they place a lien on the underlying asset. In the case of a car loan, that’s the vehicle. This type of lien is known as a voluntary lien, which you acknowledge and agree to.

However, involuntary liens do not require your consent. For example, if you have outstanding speeding tickets, you may have a judgment lien on your title. If there are involuntary liens on your title, you’re unlikely to be approved for an auto refinance loan. You’ll need to address and remove them first.

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Car Registration May Be a Hurdle for Military Members

Speaking of car titles, besides involuntary liens, there’s another potential hurdle that can delay the refinance process: improper car registration.

When a car owner moves to a new state, they’re required by the DMV to change their registration, driver’s license, and insurance information to match their new address. It’s always best to have this documentation squared away before applying for refinancing.

Though this rule applies to everyone, service members typically encounter this situation more often due to frequent relocation.

When you refinance a car with a different financial institution, you’ll need to submit a title change to update lien holder information. Except proof of registration is a requirement for a title change in any state. So, if you aren’t registered in your new state when you refinance, the DMV will notice this discrepancy when you submit title change documents. As a result, there will be a delay in the completion of the title change.

Also, many of the lenders in our network have a field of membership, meaning that they can only serve residents of a certain area. So, it’s important to update your information on official documentation before applying for an auto refinance loan. Otherwise, you may have to re-qualify with an applicable lender in your region.

Special Considerations and Auto Refinance Loan Protections for Military Members

Service members can receive certain benefits and protections that aren’t available to the general public. We’ve outlined three examples below.

Military credit unions

If you’re a service member and are in need of an auto refinance loan, you should at least consider a military credit union, such as Navy Federal Credit Union. Military credit unions were established to offer financial assistance specifically to members of the armed forces. As a result, they’re acquainted with the lifestyle and needs of service members.

Plus, they may help you secure better loan terms and a lower interest rate, depending on your qualifications.

Interest rate protection

Military personnel that take out loans prior to becoming active duty are protected by the Servicemembers Civil Relief Act (SCRA). One such protection is a 6% interest rate cap on certain types of loans, including auto loans, mortgages, credit cards, and most student loans. To qualify, you must meet the following requirements:

  • You must be in active duty military service.
  • You must have entered the loan agreement prior to joining the military.
  • You must notify your lender in writing and share a copy of your military orders.

Keep in mind, if you’re on active duty and decide to refinance or consolidate your loans, the new loan will not qualify for protection under the SCRA.

Car repossession

While this isn’t directly related to auto loan refinancing, the SCRA also protects you against car repossession in the event you default on a car loan. Your car loan lender would have to seek a court order before it could legally repossess your vehicle. If the lender fails to do so and even attempts to repossess your car, they could face criminal penalties.

Similar to the SCRA’s interest rate protection policy, your loan only qualifies for car repossession protection if you entered into the loan agreement before you joined the military.

Next steps

For whatever reason, car buyers sometimes get stuck with high rates, unfavorable terms, or a disappointing lender. It happens all the time. The good news is you can get out of a bad loan agreement by refinancing — as long as you qualify, of course.

Now that you have an understanding of auto refinance loans, you can peruse the loan market and find the best rate.

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About The Author


Carter Kilmann

Carter Kilmann is a personal finance writer and editor for hire, covering topics like credit cards, mortgages, budgeting, banking, and investing. He's written for The Points Guy, Investing.com, Thrive Global, Day to Day Finance, Money Mini Blog, and more.


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