Requirements Needed to Refinance a Car Loan

Refinancing your car loan may be the best option depending on your situation and how much money you will save. However, if you decide it is the best option for you, you must ensure it is possible. Keep reading to learn more about the requirements needed to refinance your car loan.

Time Left on the Loan

The amount of time left on the loan can significantly affect the likelihood that you will get approved for refinancing. Lenders usually look for at least six months of active, on-time payments and a minimum of six months remaining on the loan.

Amount Left on the Loan

The amount left on the loan varies from one lender to another. Typically, the amount ranges from $3,000 to $5,000 minimum. Many lenders will refuse to refinance a loan if it is too small. Similarly, if the loan is substantial, like $50,000 or more, many lenders will avoid the risk of refinancing.

Model and Mileage

Most lenders have a cap on the age and mileage of a car when considering refinancing. The exact numbers vary by lender, but many will not refinance the loan if the vehicle is over 10 years old or has more than 150,000 kilometres on it.

Your Credit Score

Just as when you got approved for your current loan, you must have a satisfactory credit score to get approved for refinancing. Many people consider refinancing when they financed their vehicle with a low credit score and have built their score up with regular on-time payments. However, if your credit score has decreased since the start of your loan, it may be difficult to get approved for refinancing.

Your Debt-to-Income Ratio

Debt-to-income ratio is exactly what it sounds like, the amount of money you make against how much debt and recurring payments you have. Lenders like to see this number low, ideally below 50%.