Financing a Used Car

Everyone has heard of home mortgage refinancing, but not everyone is aware of auto loan refinancing as an option. This is often for the same reasons one might refinance a mortgage. Taking advantage of a lower interest rate, adding more time to the loan, or otherwise lowering payments is usually the goal. This is all very possible with an auto loan refinance.

What is Auto Refinancing?

Automotive loan refinancing is as its name implies: taking a car loan and refinancing it for better terms or to move it to a new lender. Interest rates on most loans have dropped in the past couple of years and many who have an existing loan are unhappy with the amount they are paying. They are interested in the newer, lower rates available.

Perhaps circumstances for you have changed and your credit is better now, or your finances have changed dramatically? This is where auto refinancing can help.

Read more on the 10 Mistakes Consumers Make When Getting an Auto Loan.

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How to Refinance a Used Car

Any automotive loan acquired after the original point of sale is on a used car. Whether your car is one year old or ten, it’s a used car and refinancing is possible. Most current loan rates are lower than they have been in a long time.

Refinancing is just a matter of qualifying for another car loan. You’ll fill out a loan application and seek approval for a new loan on the same car. The only difference will be who is “selling” the car (your current loan holder). Some lenders have a process for current debtors to refinance through them to renegotiate an existing loan. This can often be done without a new credit check. The lender would like to retain you, and so will have options for refinancing.

If not, there are other lenders out there that may offer you a loan, in which to refinance the current loan you have on your car.

Why Refinance Your Current Car Loan

Refinancing can have several benefits. You may, for example, be approved for a better interest rate, a lower monthly payment, or be able to move your loan to your primary financial institution and take advantage of the benefits they have to offer their members. You may also be able to lengthen or shorten the loan period. A refinance on your auto loan could also improve your credit rating and chances of getting a new car loan in the future.

One chief advantage of car loan refinancing, if you have poor credit, is gained by refinancing through your current lender. Your current lender may be more understanding of your situation and may refinance without a credit check. In addition, your current lender may refinance based on your payment history instead of your credit score, which could mean a better rate than your credit would otherwise dictate.

Even if you don’t qualify for refinance on your auto loan, any lender who rejects you is required to explain why. They will list the credit bureau(s) used to determine your creditworthiness and a free copy of your credit report with that bureau, (note that you usually must request this).

This information can be invaluable in finding out why your credit may not appeal to that lender and, most likely, other lenders as well. Your reasons for rejection and credit report will show you ways you can improve your credit rating or give you an option for appeal based on information not included or that is incorrect.

Read more on Bad Credit Auto Loans here.

Best Refinancing Lenders

Here are popular, well-regarded car loan lenders who specialize in refinance on auto loans. These are not direct lenders, however, but are instead aggregators who pull your credit report one time and then shop that information amongst several lenders to find the best rates and options for you.

RefiJet - Offering APRs as low as 1.99% on refinance for anyone with a credit score of 600 or greater. Matches the borrower with several loan options from various lenders.

myAutoloan - Refinancing experts with comparatively low interest rates from lenders. Requires a credit score of 575 or higher and has refinance options as low as 1.89% APR.

RateGenius - Brings offers from multiple lenders and can find offers that lump loans together, such as for debt consolidation or home/auto refinance options. Credit scores as low as 500 can be accommodated for auto loan refinance.

Is Auto Refinancing Worth it?

Auto refinancing can be very worthwhile. Especially for those who have had a car loan for some time and are looking to get it paid off more quickly or to improve their financial standing by lowering payments. Most refinancing is at current rates, which are often lower than what was to be had two or three years ago. A loan with a co-signer can also be refinanced to remove the co-signer as well.

A few caveats are included in refinancing, however, and should be considered. If your current loan is:

  • Less than one year old
  • Underwater on value of the vehicle versus amount owed
  • Already at a relatively low rate (4% or less)
  • For a non-collectible vehicle over 10 years old
  • Then you may not be in a position to refinance. Some of these are not definite roadblocks to a new loan, but some can mean higher interest rates or less chance of getting a refinancing offer.

Read more on the Best Auto Loans in the industry here.

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FAQ

Is it OK to finance a used car?

Yes. Most used car purchases are financed via car loans.

Can you finance a pre-owned car?

Yes. The majority of pre-owned vehicles sold are sold through an auto loan.

Can you finance a car older than 10 years?

Maybe. This depends on the value of the vehicle versus the price paid to purchase and the credit rating of the buyer. Some older cars can be financed without an issue, others may have stipulations or requirements, while some lenders will outright refuse auto loans for any vehicle over 5 years old.

Will applying for an auto refinancing loan hurt my credit?

It could, if your credit has been checked often in the past year or if you are rejected for the loan. For most people, however, applying for a new loan or pre-approval for a loan doesn’t negatively affect credit. For more information, read our article about How to Get a Car Loan Without Hurting Your Credit.

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