Before you lose control of a struggling car loan, refinancing can help. However, not all borrowers or loan situations are eligible for refinancing. Let’s take a look at some things that might bother you.
7 obstacles to refinancing your car loan
There are a lot of reasons why you might want to refinance, but you must qualify first. Here are some things that could prevent you from refinancing:
- Your loan is too recent. If you haven’t got your loan for at least a year, lenders might not even consider drafting a new car loan agreement with you.
- Your credit score is bad or has not improved. You don’t necessarily need good credit to refinance if you originally had bad auto credit, but your credit score should have improved. If your loan started with good credit that is now lower than it was before, don’t expect to start refinancing deals either.
- You are behind on your payments. If you are not up to date on your loan, you will not be considered for the process. Think of refinancing as a reward for working hard to get the rate and term you didn’t want.
- You owe too much money. Refinancing replaces your existing contract with a new loan on the same vehicle. However, if you initially paid too much for a car, a lender probably won’t want to shell out a huge chunk of the change for an asset that isn’t worth that much.
- You owe too little on your loan. If you’re almost done paying off your loan, a lender may not want to take the risk of refinancing you. There is no reward in refinancing if you lower your interest rate or extend the term of your loan just so you can pay off the few hundred dollars left on your loan.
- Your vehicle does not meet the standards of the lenders. Not all cars, trucks or SUVs are eligible for refinancing. Most lenders have an age range and mileage limit that vehicles must meet. As a general rule, cars cannot be over 10 years old or have more than 100,000 miles, but this varies by lender.
- There is negative equity in your vehicle. To be eligible for refinancing, your car must be worth more than what you owe on its loan. It is fairness. If you owe more than the value of your vehicle, you must make enough payments to have at least the same value in your car that you owe on the loan.
Why refinance your auto loan?
If you take out a bad credit car loan, chances are your interest rate is much higher than you would like. Interest is the cost of borrowing money, and the higher your rate, the more it can cost you to finance a vehicle. Higher interest rates mean higher overall auto loan costs, and if your loan isn’t managed properly, you could end up owing a lot more for a vehicle than it’s worth.
The monthly cost, rather than the overall cost, usually ends up being the reason for refinancing a car. When you need to save money month-to-month, lowering your interest rate through refinancing is a good place to start. With a lower interest rate, you reduce your monthly payment and the overall cost of your loan.
The other option that you usually have is to extend the term of your loan. This results in a lower monthly payment, but your overall loan amount may actually increase if you go this route without getting a lower interest rate.
If you can’t refinance now …
Refinancing isn’t always in the cards for everyone, but if you hit a roadblock, sometimes a little time is all it takes. Most of the obstacles to refinancing can be overcome if you simply wait until you have the qualifications that stand in your way.
For example, if you want to refinance but your credit score hasn’t improved much, it hasn’t been a year since you took out your original loan, or if you have negative equity, all of these hurdles can be overcome. if you continue to repay the loan. In some cases, however, wait for your loan to catch up. refinancing needs may not be an option.
The solution to getting out of a problematic auto loan in these cases might be to trade in your vehicle for something more affordable. Swaps can be wonderful options for getting a lower cost auto loan that may have better rates and terms than your original loan.
Another good news is that you don’t have to wait until there is equity in your vehicle to trade it in. You should always be up to date on your payments, but, many times, lenders can transfer negative equity into another loan if necessary. Be careful doing this though, and know that you still have to pay for negative equity – it’s just included in the cost of your next auto loan.
Remove the barriers for a car loan
Even if there are roadblocks between you and refinancing, we can help pave the way for your next car loan by connecting you with a local dealership who has signed up with subprime lenders. These lenders know how to work with people in unique credit situations.
TO Auto Express Credit we’ve connected consumers with special finance dealers for over 20 years, and we want to help you too. To get started, simply fill out our quick, free and easy form auto loan application form.