If you’ve been scrutinizing your budget lately, and considering ways to save money, your monthly car payment is probably an expense you’d be happy to shrink. Fortunately, there are options available to drivers seeking to rein in the cost of car ownership without letting go of their ride. Loan modification is one approach to a…
Don’t fret, you can refinance a car with high mileage. But there are a few things you should know.
Some things get better with age. Fine wine, friendships, vintage baseball cards. Other things — like your car’s chances of qualifying for refinancing — well, not so much.
Even though there’s a special place in our hearts reserved for our vehicles, lenders typically don’t give credit for sentimental value. Instead, they assess key attributes like vehicle condition and mileage, which can impact your ability to get a new car loan.
Yes, it’s possible to refinance your car with high mileage, but there are several factors at play. Conversely, if your car doesn’t necessarily fit within a lender’s mileage limits, you still have options.
What’s Considered High Mileage for a Car?
The parameters for “high” mileage can differ depending on who you’re asking. A used car dealership might not consider cars that have racked up more than 10,000 miles a year since they rolled off the production line. A private party could be totally happy with a 200,000-mile truck.
From a lender’s perspective, it’s typically between 100,000 and 150,000 miles. However, this range isn’t broadly enforced or even the end all, be all factor, especially since cars are lasting longer thanks to modern engineering and technology.
For instance, according to the Bureau of Transportation Statistics, the typical light vehicle is a hair over 12 years old as of 2021. Comparatively, 20 years earlier, vehicles were only about nine years old on average.
Other factors are just as important as the reading on your odometer, such as the vehicle’s condition, make, and model. To give you an idea, Toyotas are renowned for their longevity — according to an iSeeCars study, Toyotas accounted for more than half of the top 15 longest-lasting vehicles (and three out of the top five).
So, if the car in question was built to last (and you’ve taken care of it), you could have more leeway in terms of qualifying for refinancing.
How Mileage Factors Into Auto Refinancing
Cars are meant to be driven, so having high mileage doesn’t automatically preclude you from an auto loan refinance. But it’s a critical factor nonetheless.
Car loans are typically secured, meaning the vehicle serves as collateral. If a borrower stops making loan payments and defaults, the lender has the right to repossess and sell the car so it can recoup its initial investment. For this reason, lenders scrutinize the value of used cars when assessing refinance loan applications.
What influences value? In a general sense, depreciation. Most cars lose value as they rack up miles, which is why lenders are wary of high-mileage vehicles.
The Benefits of Refinancing a Car With High Mileage
At this point, it makes sense to question why anyone would consider refinancing older cars with high mileage in the first place. Assuming you qualify, you can use an auto refinance loan to not only bank interest savings but also pivot to a better lender.
Reduce your total interest cost
Arguably the best benefit of refinancing is securing a lower interest rate and, in turn, paying less money in the long run.
Depending on your current auto loan terms and financial profile, your cost savings can be pretty significant. For instance, borrowers who successfully refinanced last year managed to cut their rates by 7% on average. This amounted to $1,158 of annual savings for the typical borrower, according to the 2022 RateGenius State of Refinance Report.
Get a lower monthly payment
Behind buying a house, purchasing a car is often the second biggest expense of a person’s life. Considering money doesn’t grow on trees, it’s common for people to rely on auto loans to finance their vehicle purchases. However, this can lead to pretty hefty monthly payments. (That’s particularly true since car prices are still well above historical levels.)
By refinancing your loan, you can lower your monthly payment a couple of ways. First, as mentioned, you can reduce your interest rate. Second, you can extend your loan’s term — although, keep in mind, a longer term can equate to more total interest in the long run.
Customer service matters. So does convenience. If your current lender rubs you the wrong way or it’s difficult to manage your account, then you might want to switch lenders. Refinancing can help.
Although you might be able to refinance with the same lender, you don’t have to. Maybe you’re eligible to join a credit union, which are often known for their customer service. Or perhaps you want to go with a new lender that’s invested heavily in its digital interface and capabilities.
The Challenges of Refinancing a Car With High Mileage
Although there are clear benefits to refinancing, qualifying isn’t guaranteed, especially with an aging vehicle. To ensure you’re prepared to explore the field, let’s walk through a few challenges you’ll likely encounter.
Although there isn’t a hard-set, universal rule, lenders often impose limits on how many miles a vehicle can have to be considered for refinancing. Generally speaking, lenders within the RateGenius network set restrictions between 100,000 and 150,000 miles.
If your car has less than 100,000 miles, high mileage is less likely to disqualify you from a new loan. If you’re somewhere in between or above this range, you could have more trouble finding a willing lender. That said, mileage is by no means the only factor that impacts your ability to refinance.
Your loan-to-value ratio (LTV) is a critical metric for lenders. It measures your loan balance against the value of your car — the lower, the better. For instance, an LTV below 100% indicates that your car is worth more than your loan amount. As such, if a lender had to repossess and sell the vehicle, they’d likely recoup their investment.
Similar to mileage restrictions, there isn’t an industry-mandated LTV limit — one lender might be comfortable with an LTV of 100%, but another might be open to even higher LTVs. Regardless, you could face an uphill climb if the wear and tear on your car has significantly reduced the value side of this equation.
Car (LTV) Loan-to-Value Calculator
In terms of qualifying, the condition of your vehicle can either work in your favor or against you. If you’ve taken care of your car over the years (e.g., routine maintenance, no accident history, etc.), then your car has a better chance of retaining its value. However, the inverse is also true — if your car is in rough shape, you’ll have a harder time refinancing.
Risk of going upside-down
When you owe more money than your car is worth, that’s considered an upside-down loan. To put it another way, you’d have negative equity in your car. Since depreciation affects most cars, that’s not unusual. However, it does open the door to risk.
If you’re ever in an accident and your car is beyond repair, your car insurance payout would likely be less than what you’d owe on your loan. Depending on your personal finances, that could put you in a tricky situation.
As mentioned, high mileage can translate to accelerated depreciation. In turn, you might have a harder time refinancing a high-mileage car if it’s lost a lot of value.
3 Routes to Take if You Couldn’t Refinance a Car With High Mileage
High mileage might have prevented you from qualifying for refinancing. If you didn’t get approved, that doesn’t mean you’re out of options. Here are a few routes you can take.
Sell your car
Although cars are staying on the road longer these days, it might be time to hand over your keys. Used car prices are still near historical highs, so you could get a better deal than you’d expect. Who knows, you might even be able to sell it and pay off your loan entirely.
That said, if you sell your car for a lower amount than your original loan balance, you’ll still be on the hook for the difference.
Improve your financial profile
Perhaps you couldn’t qualify due to a combination of your car’s value and your financial profile. Don’t worry, not every applicant gets approved for refinancing. Fortunately, there are a few ways to boost your financial profile:
- Improve your credit history and scores. Last year, borrowers who successfully refinanced had an average credit score of 670, according to the RateGenius State of the Industry Report.
- Earn more money. Although it’s easier said than done, adding a part-time job or side hustle to your application can increase your chances of qualifying because it boosts your debt-to-income ratio.
- Pay down your existing loan. On top of helping you pay off your loan sooner, making a larger repayment than your scheduled bill can help improve your LTV.
Once you take these steps to improve your financial profile, you will be more likely to qualify for refinancing.
Negotiate with your lender or shop around
If you’re on the cusp of a mileage limit, you might be able to talk your lender into accepting your refinance loan application.
If the lender still refuses to issue you a loan, nothing is stopping you from exploring loans with different lenders. Another financial institution might have a higher limit or more leniency for high-mileage vehicles. Shopping around can also help you garner multiple loan offers and find the best auto loan rates on the market.
Things to Remember Before You Refinance a Car With High Mileage
Even if your car’s odometer reads well above 100,000, it doesn’t hurt to at least investigate auto loan refinancing. Let’s quickly go through a few things to keep in mind as you do.
- Call different lenders to gauge mileage limits. Ask if other strengths in your financial profile could help offset an older vehicle with high mileage.
- Check your credit report (for free). Your car’s mileage might be a moot point if you have bad credit or you’re below minimum credit score thresholds. Plus, you might find errors on your report that are hurting your scores.
- Take advantage of a marketplace to find the most competitive rates and terms.