Refinancing a Car Loan

Refinancing a car loan involves taking out a new loan to pay off the balance and replace an existing car loan. People generally refinance their auto loans to reduce their monthly payment. This can happen in two ways: with a lower interest rate on the new loan (best), or extending the loan term with the same interest rate as the old loan. A new loan with a lower interest rate will not only reduce the monthly payment, it will also reduce the interest charges paid. And while a longer loan term with the same interest rate will also lower the monthly payment, doing this will increase the interest charges paid on the loan.

There are a few requirements in order to qualify for auto loan refinancing:

• The vehicle's ACV must be more than, or equal to, the loan balance – as a rule these lenders will not finance a vehicle with negative equity
• Loan payments must be up to date
• Vehicle age and mileage, as well as the loan amount, must meet the lender's requirements
• The borrower's auto-enhanced credit score typically should be, at a minimum, in the "good" range