Do You Qualify to Refinance Your Vehicle?

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by Julia Guardione

Some people may avoid applying for auto refinancing because they are uncertain about whether or not they qualify. However, getting approved for a new auto loan might not be as difficult as you think.

A common misconception is that credit score is king — that it is the main determining factor for loan approvals, offers, and terms. Though credit matters, it’s not the only factor lenders consider.

These misconceptions can lead to hesitation, which can lead to missing out on thousands in potential refinance savings.

Rather than letting your uncertainty get the best of you, understanding lenders’ key considerations in loan decisions should make you feel more comfortable about applying to refinance.

2020 Auto Refinance Rates See Today's Rates

Are You Over 18 and a United States Citizen?

Though we never want to exclude people, most lenders in our network have these two basic requirements — age and citizenship — for their auto refinance loans.

Is Your Car New-ish?

Though it’s true that most lenders do prefer newer models, it might not be for the reason you think. It’s all about LTV, or loan-to-value ratios. The values of newer cars tend to match the loan amount, as they’ve had less time to depreciate while their associated loans accrue interest.

Typically, older cars with higher interest rates have the least desirable LTV ratios. Put another way, new-ish cars or models with high resale value take longer to be “upside down” in their loan.

However, lenders do not expect to only encounter brand new vehicles with positive LTVs. In fact, most lenders in our network accept a wide range of vehicles ages and have a forgiving threshold for upside down LTVs.

Below is a list of the minimum criteria your car needs to qualify for refinancing. Keep in mind, however, that some models, even if they meet this criteria, may still have LTVs that exceed lender maximums. 

Auto Refinance Eligibility Requirements

Do You Have Decent Credit?

No, perfect credit isn’t a requirement. No, credit isn’t the only factor lenders consider. If you have minimal missed or late payment history, keep your revolving debt relatively low, and manage how often you apply for credit, you should be within acceptable credit range for more lenders in our network.

Lower credit won’t necessarily prevent you from refinancing. Other factors (the other items on this list) are weight into these decisions.

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Are You Relatively Financially Stable?

Lenders always assess risk when determining whether or not to loan money. It’s the reason why they assess all of the factors that they do — they want to ensure that they’ll be paid back.

Think about your finances: weigh your income, other debts and financial responsibilities, and your auto loan. This calculation, called a DTI, or debt-to-income ratio, is important for lenders because it determines your financial ability to handle the loan payments.

Of course, a general rule is that less debt is more, but most Americans carry a considerable amount of household debt (it’s an average of about $134,000 including mortgages). Lenders understand this, which is why they typically accept a range of DTI risk.

In addition to your DTI, many lenders like to see stability in lifestyle. They appreciate when borrowers have lived in the same home and worked in the same job for extended periods of time, as it shows financial consistency. Though this is certainly not a deal breaker. Lenders understand that change is inherent to life, though some lenders may simply ask for more documentation in order to determine a borrower’s lifestyle stability.

Things to Remember

  • Perfect credit isn’t necessary, and credit isn’t the only factor lenders consider.
  • None of these factors are more important than the other.
  • Because we work with a variety of lenders with different requirements, it’s likely that even if you don’t have the perfect financial situation or the newest car, we may still be able to find you an offer.

As Wayne Gretzky said, “you miss 100% of the shots you don’t take.” Why miss out on thousands on potential savings for fear of non-approval?

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