auto loan refinance Archives

How Many Times Can You Refinance a Car?

Posted on January 10, 2023January 10, 2023 by Autopay

Quick Answer:

Most people assume there is a restriction on the number of times you can refinance a car, but there is no legal limit. You can refinance your vehicle as many times as you want. However, that doesn't mean that you should refinance your car every chance you get. There are other factors to consider, such as the impact on your credit score and the amount of money you'll save.

Refinancing a car means taking out a new loan to pay off the balance of your existing loan. This can be done for various reasons, such as getting a lower interest rate or extending the loan term. While there are some advantages to refinancing, there are still some risks. For example, if you extend the duration of your loan, you pay more interest in the long run. And if you refinance multiple times, you could end up with a negative equity in your car (meaning you owe more than the car is worth).

Let’s explore why refinancing a car might be a good idea and some of the top questions people have about refinancing multiple times.

Table of Contents:

Why Would You Refinance a Car?
Why Refinance a Car Again?
Top Questions About Refinancing a Car Multiple Times
The Bottom Line on Refinancing More Than Once

Why Would You Refinance a Car?

Most people refinance their car when they can no longer afford their monthly payments or want to lower their interest rate. When you refinance your car, you take out a new loan with new terms to replace your old loan. Remember that refinancing does not eliminate your debt. Still, it may help you lower your monthly payments or save on interest. And with auto debt continuing to rise, according to the Federal Reserve Bank of New York, it’s no wonder folks are trying to find ways to lower their payments.

Man leaning out of the driver side window with his arms crossed on top of the driver's side door. The text lists reasons why car owners would refinance, which is also outlined in the following paragraph

Let’s take a closer look at these three reasons to refinance a car.

1. You can no longer afford your monthly payments. If you struggle to make your monthly car payments, refinancing may be a good option. By refinancing your car, you may be able to lower your monthly payments and free up some extra cash each month.

2. You want to lower your interest rate. If you qualify for a lower interest rate, refinancing may help you save money on interest over the life of your loan. A lower interest rate could also help you pay off your debt sooner.

3. You want to change the terms of your loan. If you originally agreed to a 60-month loan but now want to pay off your debt sooner, refinancing for a 48-month or 36-month loan could be a good option. Or, if you originally agreed to a 36-month loan but now want to lower your monthly payments, refinancing for a 60-month loan could be a good option for you.

Male hands with one holding a pen while typing on a calculator, while the other is on the keyboard of a laptop

Why Refinance a Car Again?

If you’ve already refinanced your car once, you may wonder if it’s worth refinancing again. The answer to this question depends on a few factors, such as your current interest rate, the terms of your new loan, and your financial goals.

High-Interest Rates – If you’re currently paying a high-interest rate, refinancing may help you save money on interest over the life of your loan. For example, let’s say you have a $20,000 loan with an interest rate of 15 percent. Over 60 months, you would end up paying $6,000 in interest. However, if you could refinance for a lower interest rate of 10 percent, you would only end up paying $4,000 in interest, a savings of $2,000.
Change of Loan Terms – This is no different than the first time you refinanced. If you want to change the terms of your loan, such as the length of the loan or the monthly payments, refinancing may be a good option for you.
Financial Goals – If you have other financial goals, such as saving for a down payment on a house or taking a much-needed vacation, refinancing may help you free up some extra cash each month. For example, let’s say you have a $15,000 loan with an interest rate of 10 percent and monthly payments of $350. If you refinanced for a 60-month loan with an interest rate of 15 percent, your monthly payments would decrease to $308. However, you would end up paying $3,000 more in interest over the life of the loan, but the trade-off could be worth it if you need the extra cash each month to reach your financial goals.

The Bottom Line on Refinancing More Than Once

If you’re considering refinancing your car, there’s no limit to how many times you can do it. However, keep in mind the lender’s policy on refinancing, the administrative process of title transfer, and the impact on your credit score. Refinancing can be a great way to save money on interest or change the terms of your loan, but make sure to consider all the factors before making a decision.

Is Refinancing a Car Loan After Bankruptcy Possible? Everything You Need to Know

Posted on December 14, 2022December 14, 2022 by Autopay

Bankruptcy.

It’s a scary word describing someone in an unenviable financial position. But it’s not exactly a rarity. In 2021, there were 413,616 bankruptcy claims.

The word “bankrupt” stems from the Italian term “banca rotta,” which translates to “broken bench.” In 16th century Italy, money dealers worked from benches and tables. If funds ran dry and they went out of business, their benches would be broken in half. Fortunately, if you file for bankruptcy, no one’s going to come smash your furniture. But there could be some repercussions.

One immediate drawback is the extensive damage bankruptcy can do to your credit. For auto loan borrowers, that means you could have a hard time qualifying if you want to refinance your car loan— but it’s not impossible.

Whether you’re on the fence about filing or you’re in the middle of court proceedings, let’s explore bankruptcy and how to approach refinancing afterward.

What Is Bankruptcy?

Whether you’re on the fence about filing or you’re in the middle of court proceedings, let’s explore bankruptcy and how to approach refinancing afterward.

Bankruptcy can help individuals or businesses climb out of major financial holes. When borrowers can’t repay their lenders, they have the option of filing for bankruptcy in a federal court. This legal process could result in the discharge of all or a portion of your debts, essentially setting you up for a fresh start.

There are six types or “chapters” of bankruptcy:

Chapter 7, also known as “liquidation,” results in the sale of nonexempt property in order to repay creditors.
Chapter 9 is for the reorganization of municipalities, which is very rarely used (fewer than 500 times since the 1930s) and irrelevant to drivers.
Chapter 11 is often referred to as “reorganization” bankruptcy. Although individuals can file for chapter 11, this is the most complex and expensive form of bankruptcy, so it’s more commonly used by businesses.
Chapter 12 is reserved for family farmers and fishermen with regular income.
Chapter 13, which is also called “a wage earner’s plan,” allows for individuals with regular incomes to set up debt repayment plans.
Chapter 15 is the most recent addition to the U.S. bankruptcy code. This chapter was designed for cross-border insolvency cases, so it’s rare and likely irrelevant for the typical driver.

We’ll focus on the two most applicable bankruptcy chapters for auto loan borrowers: chapter 7 and chapter 13.

An Overview of Chapter 7 Bankruptcy

Chapter 7 bankruptcy is also known as “liquidation.” Despite the ominous title, the goal of bankruptcy law is to protect borrowers from crippling debt and help them get back on their feet.

Once you file for chapter 7, the government will assign a trustee to your case. They’re responsible for liquidating your nonexempt assets — such as second vehicles, vacation homes, and collectibles — and repaying your creditors with the proceeds.

On the other hand, some of your property is considered exempt under federal and state laws. These definitions vary, and borrowers may have the right to leverage their state’s definition of exempt property instead of the federal definition. For instance, the U.S. Bankruptcy Code allows a filer to exempt up to $2,400 of equity interest in one vehicle, while the state of Idaho bumps that limit up to $10,000.

However, bankruptcy does not remove liens on property. So, if you have a secured loan (like a car loan), the lender will still have a security interest in the underlying asset after bankruptcy, meaning they can repossess the car if you stop making payments.

Note that chapter 7 eligibility isn’t guaranteed — you have to qualify.

Can you refinance a car during chapter 7 bankruptcy?

Generally speaking, you’ll need the court’s approval to enter a new loan agreement during bankruptcy. It’s probably not worth applying for a refinance loan during legal proceedings though.

For starters, chapter 7 bankruptcy typically lasts between three and six months. Waiting could help you avoid going through the court system. Moreover, once you file for bankruptcy, it’s public record and accessible by the major credit bureaus (e.g., Experian, TransUnion, Equifax). In all likelihood, making it difficult to find a lender.

An Overview of Chapter 13 Bankruptcy?

Chapter 13 can be a less drastic option compared to chapter 7, especially if you want to avoid liquidation.

This type of bankruptcy enables you to set up a repayment plan for your debts, potentially at a discount. Plans are typically three to five years and effectively consolidate your payments — everything flows to the trustee, who then distributes the remitted funds to your creditors.

You may even be able to reduce your secured debts to the values of the underlying assets, a process known as a cramdown.

For instance, if your car is worth $10,000 but your loan amount is $15,000, you could cram down your obligation to $10,000 through your repayment plan. The remaining $5,000 would be lumped into the rest of your unsecured debt (like credit cards), of which the court may only mandate you to repay a portion back.

In either case, before you decide to pursue bankruptcy, it’s worth seeking legal counsel as bankruptcy cases are quite complex.

Can you refinance a car during chapter 13 bankruptcy?

Considering chapter 13 proceedings take longer, you might be wondering if you can refinance during bankruptcy.

The short answer is yes. But you face the same hurdles as before — the court has to approve your refinance loan. Your initial payment plan was approved according to your income and expenses when you filed. By refinancing, the court would likely reassess your financial situation, which could influence your monthly payments.

And, again, you still have to qualify, which is challenging with low credit.

Building blocks that spell out bankruptcy

How Bankruptcy Affects Your Ability to Refinance Your Car Loan

Contrary to what you might think, it’s possible to refinance your car loan after bankruptcy. That said, it’s an uphill climb and don’t be surprised if it takes months (or even years) to repair your creditworthiness.

Let’s explore the various ways a bankruptcy could affect your ability to refinance.

Credit score

Once debts are discharged through bankruptcy, they don’t just vanish. Chapter 7 bankruptcies stay on credit reports for ten years, while chapter 13 bankruptcies stay on credit reports for seven years. As you can imagine, bankruptcies tend to have a negative impact on a credit score.

The severity of the point drop depends on what your score was before you filed. If you have an above average score, expect your scores to plunge 200 to 240 points. If you have an average score like 680, your score could slip between 130 and 150 points. Regardless, loan underwriting programs will likely flag you as a risky borrower.

Qualifying

The very nature of lending money is risky — there’s always a chance that the borrower doesn’t repay. When a borrower has filed for bankruptcy, it demonstrates an inability to manage debt. That’s not very enticing to the typical lender.

When you have a lower credit score or a negative credit history, you may not qualify for refinancing, at least through traditional financial institutions like banks or credit unions.

After filing for bankruptcy, it can be difficult to get the best auto loan rates. Lenders typically reserve their best rates for borrowers with excellent credit. However, you may qualify for a subprime loan with higher interest rates and a steeper monthly car payment. Granted that’s far from ideal, a refinance could still help you secure a better loan rate.

According to data from our sister company, RateGenius, 30% of borrowers with a bankruptcy on their record managed to successfully refinance — and they reduced their rate by 5% on average.

Regardless, it’s prudent to shop around and compare loan offers to potentially get a lower interest rate. You can use a marketplace like AUTOPAY to streamline this process.

Loan Fees

Subprime loans not only have high interest rates but also worse loan terms, such as documentation fees, prepayment penalties, and higher late fees. Keep an eye out for these terms when comparing loans, and tinker with a refinance calculator to ensure a new loan is worth it.

How To Improve Your Chances of Refinancing a Car After Bankruptcy

We’ll give it to you straight — you’ll have a hard time refinancing a car after bankruptcy. And considering it’ll remain on your credit report for 7 to 10 years, you might have trouble getting approved for any sort of loan for quite a while.

But there are steps you can take to improve your credit and chances of qualifying in the meantime.

Bolster your debt-to-income ratio

Your credit scores are an important factor, but they aren’t the only aspect of your financial profile. While your credit quantifies your reliability as a borrower, it doesn’t include your income.

So, in addition to your scores, lenders also evaluate your debt-to-income ratio (DTI). This metric compares your monthly obligations to your gross monthly earnings — essentially measuring the percentage of your income that’s already tied up in other financial commitments.

Generally speaking, it’s recommended to maintain a DTI below 50%. But the lower, the better.

According to data from our sister company, RateGenius, 90% of borrowers who were approved for refinancing had a DTI below 48% from 2015 to 2019. While it’s easier said than done, if you can swing a higher paying job or work part-time for a while, you can improve your DTI and potentially convince a lender to overlook the bankruptcy.

Pay off a chunk of your existing car loan

Auto loans are considered secured loans. In other words, the vehicle serves as collateral, which means the lender could repossess it in the event the borrower stops making payments. The lender would then try to recover its investment by selling the vehicle.

Why is this important? Well, the lower your loan balance relative to your car’s value (known as your loan-to-value ratio), the easier it is for a lender to make itself whole if they ever have to sell your car. This could help mitigate a lender’s concerns about your bankruptcy history and potential risk of missing payments.

Rebuild your credit

Although bankruptcy helps prevent you from suffocating under a pile of debt, it could put a stain on your credit, making it harder to take out loans and lines of credit in the future. That said, your scores aren’t locked in forever.

To rebuild credit, you need access to credit. Credit-builder loans and secured lines of credit can help. These products are easier to qualify for and help borrowers make on-time payments and establish accounts in good standing.

With good credit repair habits, your credit scores can gradually recover over time.

Consider a cosigner

Applying for a refinance loan with a cosigner can help you qualify. A cosigner promises to take responsibility for the loan if the primary borrower ever stops making payments. Ideally, this is a person who is not only trustworthy (like a parent or spouse) but also has a strong financial profile.

Don’t Rush, Understand Your Options

Bankruptcy is a viable solution for many financially distressed borrowers, but it isn’t the only option. It would be wise to explore alternative approaches to ensure you make the best decision. That may include speaking directly with loan providers to see if they’re willing to work with you, selling unnecessary assets, and asking friends or family for assistance.

You may even realize that you don’t need to go to court to rectify your situation, which can help preserve your credit and increase your chances of taking out new loans — including an auto refinance loan.

How Much Can Auto Loan Refinancing Save Me?

Posted on November 23, 2022November 23, 2022 by Autopay

Car and home purchases are typically the largest purchases that most people will ever make. Because of the cost of the average home or new car, most consumers take out a loan to cover all or part of the cost.

Although both types of loans can take a long time to pay off, car loan terms can range anywhere between 24 and 72 months — sometimes longer. These payments can be a drain on your finances.

If you are currently paying off an auto loan, car loan refinancing can help you save money over the length of your repayment period, in the form of lower monthly payments or both. How much money you save depends on several factors including your goals, current interest rates and your creditworthiness.

stick note with "refinance car" written on it

What Is Auto Refinancing?

Auto refinancing is the process of changing the terms of your current car loan. If your refinancing application is approved, your lender issues you a new loan that replaces the one you had. The differences are in the loan terms.

For example, you could refinance at a time when interest rates are lower than what they were when you took out your original loan, or you could qualify for a lower interest rate based on an improvement in your financial situation or credit score.

Over time, you’ll save money as you repay your balance at the lower rate. You might also be able to shorten or lengthen the amount of time over which you’ll need to make payments.

Understanding Your Savings

When considering a car loan refinance, it’s important to determine what your goals are. If you are looking to reduce the amount of money you pay over the length of your loan, you’ll either want to reduce the interest rate that you were locked into when you first entered into the auto loan financing process, reduce the number of payments left on your loan (even if it means making higher monthly payments) or both.

On the other hand, if you are dealing with financial issues and need to free up some cash every month, you might want to refinance so that the length of your auto financing agreement is longer but with smaller payments each month.

If you don’t secure an interest deduction with this type of auto loan refinance, you might pay more over time than you would have with your original financing deal. However, since your payments are smaller, you’ll have more cash each month.

Factors That Influence Savings

The amount of money that you can save depends on multiple factors, including:

Current interest rates: Current interest rates have a huge impact on the cost of your loan. If interest rates were high at the time that you signed your original contract, but have gone down since then, refinancing could save you money. However, if interest rates have gone up, it could end up costing you more money to refinance.

Your financial profile: A financial profile includes several factors that affect the loan rate and terms that a lender offers you. Credit scores are a large part of this. If your credit score has improved since you were approved for your current loan, you might find that refinancing now could get you better terms.

And although your credit does have an impact on loan approval and terms, it isn’t the only factor lenders take into consideration. Your debt-to-income ratio (DTI) and loan-to-value ratio (LTV) on your current car loan are also factored in during the approval process.

Loan length: In many cases, the fewer payments you make, the more money you save over time. However, if you are refinancing to free up cash for your monthly budget, a longer loan term might provide you with lower monthly payments.

Lender fees: Lenders often charge fees when you apply for a loan, and sometimes your current lender will charge prepayment fees if you pay off your loan early. These fees vary, but you’ll want to check with the lenders and factor them in when you are calculating the cost of refinancing your vehicle.

Car condition and mileage: Your car’s current condition and mileage also factor in when applying for an auto refinance. The better condition your car is in and the lower the mileage, the more likely you are to get better loan terms.

To get an idea of what you might be able to save, try using a refinance car loan calculator to determine what your savings and monthly payments might be. Be prepared to provide the balance left on your loan when you use one of these calculators.

Shop Around to Find the Best Auto Loan

Everyone is different, of course, so it’s worth it to do some research, run some numbers and check your options for refinancing. If you decide to apply for refinancing, make sure you shop around for lenders to find the best interest rate and loan terms. You might be able to save money long-term while also reducing your ongoing expenses.

4 Tips to Save Money During Inflation

Posted on November 9, 2022November 16, 2022 by Autopay

As prices continue to rise, saving money is more important than ever. This article will help you understand how inflation affects your finances and offer tips on saving money during this time of economic uncertainty. Everything from car loan refinancing to budgeting habits can help you keep more of your hard-earned cash.

What Is Inflation and How Is It Measured?

Inflation is the rate at which prices for goods and services increase over time and a fall in the purchasing power of money. In other words, inflation eats away at your income and savings, making it harder to afford the things you need and want.

The Consumer Price Index (CPI) is a standard measure or barometer of inflation in the United States. It is a metric that tracks the change in prices over time for select goods and services that represent what urban consumers purchase. That means the CPI can measure how inflation affects the cost of living. Though it isn’t perfect, it remains a popular tool because it is relatively easy to understand and follow.

The Importance of Saving During Periods of Inflation

Saving money is always important, but it becomes even more critical during periods of inflation. That’s because your money doesn’t go as far when prices go up. So, if you’re not careful, you could struggle to make ends meet.

Saving during periods of inflation is also important because it can help insulate you from economic shocks. For example, if there is a sudden spike in inflation or prices start to rise faster than expected, having some extra savings can help weather the storm.

Best Money-Saving Tips for Periods of Inflation

You can do several things to save money during periods of inflation. Here are a few tips:

1. Become budget conscious

A budget is an estimation of income and expenses over a specified period. It’s important because it can help you keep track of your spending, save money and make informed financial decisions. When inflation is high, budgeting can be beneficial.

Budgeting can help you save money during inflation by tracking your spending and adjusting to ensure you are not overspending. Additionally, budgeting can help you to make informed decisions about where to spend your money.

When inflation is high, it is vital to be mindful of where you spend your money to get the most bang for your buck. By budgeting, you can ensure that your money is working hard for you even when times are tough.

a couple smiling while using a calculator and laptop

If you’re new to budgeting, the money experts at Forbes have put together a list of time-tested approaches to making a budget, including some of our favorites:

50-20-30 Budget – A budget that separates your spending into three categories: 50% for essential expenses, 20% for savings and debt and 30% for flexible spending. To make it more savings-friendly, consider upping the percentage that goes toward savings and debt.
Zero-Based Budget – A budget in which you give every dollar a job. This approach can be helpful if you are struggling to make ends meet or get out of debt. Just be sure to prioritize your essential expenses first and pay down debt.
Envelope Budgeting – A budget in which you use physical envelopes to store cash for specific expenses. This system can be helpful if you struggle with sticking to a budget.

It could be a good idea to try out each approach to see which one works best for you.

2. Reduce your expenses

Periods of soaring inflation are a perfect time to re-evaluate your needs and wants and a good time to search out areas where you’re needlessly spending money. It could be time to shop around and reduce some ordinary monthly household expenses, such as:

Cell phone and internet services – Look into bundling these services with the same provider or enrolling in a family plan to save money. You can negotiate your current rates or shop for a new provider.
Television and streaming services – Take a close look at your viewing habits and consider eliminating channels or services you don’t watch. In addition, if you have multiple streaming services, see if there are any that you can live without.
Insurance premiums – Compare rates from different providers to ensure you get the best deal on your car, home, health and life insurance. You might be able to save money by increasing your deductible or switching to a less expensive plan.
Gym membership – If you’re not using your gym membership regularly, consider canceling it. Instead, take advantage of free or low-cost activities like walking, running or working out at home.

There might be other bills you have that you can lower, as well. Make a list of all your monthly expenses, and then you’ll see which ones you might be able to cut out completely or at least try to lower.

3. Pay down interest-heavy debt

If you’re carrying high-interest debt, paying it down should be a priority – even during periods of inflation. The faster you can pay off your debt, the less money you’ll ultimately have to pay in interest. To save money on interest payments:

Refinance your debt – If you have good credit, you might be able to qualify for a lower interest rate by refinancing your debt. This could help you save money on interest payments and become debt-free more quickly.

For example, look at your auto loan financing and compare rates to see if you could get a lower monthly payment by refinancing. Then, use a refinance car loan calculator to estimate your new monthly payment.

Consolidate your debt – If you have debt with different interest rates, you might be able to save money by consolidating them into one loan with a lower interest rate. This could help you become debt-free more quickly and save money on interest payments.

Make extra payments – Whenever possible, make additional payments on your debt. Even an extra $50 or $100 per month can make a big difference over time.
Pay off high-interest debt first – If you have debt with different interest rates, focus on paying off the debt with the highest interest rate first. Once that debt is paid off, you can put more money toward paying off the remaining debt.

Taking these steps can help you pay off debt faster, which will save you money sooner.

4. Invest in inflation-protected investments

Inflation-protected investments, such as TIPS (Treasury Inflation-Protected Securities) and I Bonds (inflation-indexed savings bonds), are a good way to protect your money from inflation. With these types of investments, your principal investment is adjusted for inflation, so you don’t have to worry about losing purchasing power over time.

Planning, Discipline and Patience

Saving money during periods of inflation requires you to plan, be disciplined and have patience because it can take time for your efforts to pay off. But if you stick to a budget, reduce your expenses and pay down high-interest debt, you can make headway on your financial goals – even during economic uncertainty.

Also, don’t forget those inflation-protected investments. They can help you sleep soundly at night, knowing your money is safe from inflation. And you can always look into refinancing debt like your auto loan to help you save money, as well.

What Credit Score Is Needed to Refinance a Car?

Posted on October 26, 2022November 7, 2022 by Autopay

If your car payment is high or you just want to take advantage of a better interest rate, the thought of refinancing your auto loan might have crossed your mind. When your credit score is less than perfect, refinancing might seem out of reach, but this is not always the case.

Your credit score is important when refinancing your auto loan, but it’s not the only factor. Lenders look at other aspects which could improve your chances of getting approved.

How Credit Scores Affect a Car Loan

Although credit isn’t the only factor that impacts your ability to get an auto loan, it still carries a lot of weight. Lenders use your credit score to determine the likelihood that you’ll repay the loan with no issues. Your credit score is a three-digit number used to quickly communicate whether you’d be a risky borrower to lend money to.

The higher your score, this demonstrates that you’d paid off debt in the past and continue to pay your other current bills on time. Meanwhile, a lower credit score can tell just the opposite. Credit scores typically range from 300 to 850, and according to Equifax, anything above 670 is considered “good” and a 740 to 799 credit score is “excellent.”

Even if your credit score is lower than 670, you could still be approved for an auto loan. The lender might just charge you a higher interest rate since you’d be considered a more risky borrower.

Both your FICO® score and VantageScore are based on a range of factors including:

The total amount of debt you owe
Payment history
Length of credit history
New credit you apply for (hard credit inquiries)
Type of credit accounts you currently have (account mix)

All of these factors hold some weight when the credit bureaus calculate your score, which gives lenders a good idea of if and how they should offer a loan. From a borrower’s standpoint, a lower credit score means you might not be approved for the loan terms you want, or you might pay more in total loan costs.

What Is the Minimum Score Needed to Refinance a Car?

There are hundreds of lenders that offer auto loans and auto refinancing. The list ranges from banks and credit unions to online lenders, dealerships, and more. Each lender has its own guidelines including the minimum credit score they accept.

This is why there’s no universal minimum credit score requirement to refinance an auto loan. Some lenders even focus on working with subprime borrowers who have a 600 credit score or lower. Meanwhile, a local credit union might not offer an auto loan or auto refinance to someone with a score that’s less than 660.

The good news is that there will likely be a lender who will be willing to offer you a loan no matter what your credit score is. Still, this doesn’t mean you should accept the loan – especially if the terms are not good or helpful to your situation.

According to RateGenius’ 2022 State of Auto Refinance Report, the average credit score of auto refinance borrowers the previous year was 670. However, this doesn’t mean borrowers who had a credit score below 670 weren’t approved to refinance.

Although credit scores are one concern, it’s also important to make sure that refinancing your auto loan makes sense for you financially. And even with an excellent credit score, there is no guarantee you’ll be approved to refinance your auto loan since lenders look at other factors as well.

Aside From Credit, What Else Do Lenders Look At?

Lenders look at more than just your credit score to determine if you qualify for a loan or not. Here are a few other important factors to be mindful of.

Debt-to-income (DTI) ratio (DTI)

Your DTI is a simple calculation that determines how much of your income is going toward current debt payments. DTI is expressed as a percentage and the formula is your total minimum monthly debt payments divided by your gross monthly income (before taxes).

Total debt includes all minimum payments for current loans and credit accounts such as student loans, personal loans, auto loans, mortgages, credit cards and so on. So, if you add up all your minimum debt payments and they total $1,000 for the month and your income is $5,000, your DTI calculation would be:

$1,000 / $5,000 = 0.20 = 20%

The lower your debt-to-income ratio, the better because it tells lenders you can afford to pay for your auto loan along with other current debt. Most lenders prefer to see a DTI below 36% but some mortgage lenders will allow up to 43% to 45%.

Loan-to-value (LTV) ratio

Your LTV ratio is used to evaluate the value of your vehicle. This is done during the application process by comparing the amount of your existing auto loan balance to the value of the vehicle. Since cars depreciate over time, the value of your vehicle will change and likely decrease as the years go by.

Since auto loans are secured, meaning a lender can repossess the vehicle due to nonpayment, your LTV ratio lets lenders know if they can cover the loss should they have to sell your vehicle to pay back the loan.

This means, lenders prefer cars that are newer and have a higher value than the loan amount. There is no set LTV since different lenders have their own guidelines.

Income

Your income is part of your DTI, but in addition to credit, lenders will evaluate your income to make sure you can financially afford to pay back your auto loan.

When you apply to refinance your auto loan, you’ll need to provide proof of employment, including check stubs or even a tax return if you’re self-employed. You can submit proof for all forms of monthly income you receive including salary and tips, social security, or rental income.

Ideally, you’ll want a higher income with less debt to maintain a low debt-to-income ratio.

Your current vehicle’s details

When you apply for an auto loan or auto loan refinance, you’ll need to provide certain details about your vehicle including the year and model, along with the mileage and current auto loan balance.

Lenders set their own maximum age and mileage requirements for auto loans, and this information will also help determine your LTV.

If your vehicle is older or has a lot of miles, a lender could deny you an auto loan refinance. However, you might notice the recurring theme that not all lenders are the same and another one might approve you with the same vehicle age and mileage. So don’t let the fact that you don’t have a new car keep you from applying for a refinance.

As you can see, a good credit score does not guarantee approval for an auto loan just as a lower credit score doesn’t guarantee a denied application. Weaknesses in any area discussed above can impact your approval and the auto loan rates you’ll get.

How to Increase Your Chances of Getting Approved to Refinance an Auto Loan

If you’re nervous about getting approved for an auto refinance loan, don’t worry. There are plenty of things you can do to strengthen your financial profile and reduce the risk to a lender. Remember that you don’t need a perfect financial situation to get approved, but making some of these improvements can help.

Improve your credit score

A higher credit score could help you save money on your auto loan if you can lock in a lower interest rate. To increase your credit score, start by reviewing your credit report to pinpoint areas for improvement. Make sure you’re paying bills on time and limit your hard inquiries. If you have credit cards with low or no balance, keep them open to extend your credit history length.

You can also use tools like Experian Boost to increase your score since it includes reporting for your phone and utility bills. Applying with a cosigner who has good credit can also give you a boost and improve your chances of getting approved.

Lower outstanding debt

Lowering your debt before applying for an auto loan has so many benefits. It can help increase your credit score, lower your DTI, and provide more peace of mind and cash flow. Choose one debt to focus on at a time and consider starting with the one that has the highest interest rate.

Add debt payments to your budget and set up autopay. Then, put any extra money toward the account to chip away at it faster.

Make a larger down payment

Making a larger down payment will lower your loan amount and total loan costs. When applying for an auto refinance loan, you can also choose to make a down payment which can help lower your LTV ratio.

Even if you’re upside down on your car loan (meaning you owe more than the vehicle is worth), you could still get approved to refinance with a new loan. Making a down payment can only improve your chances for approval and make lenders feel that their risk is even lower.

The same goes for making extra car loan payments when possible. If you know you plan to refinance in the future, it could make sense to lower your loan amount by making extra payments.

Increase your income

Increasing your income is another way to lower your LTV ratio. See if you can pick up extra hours at work or apply for a promotion. If you have time in your schedule, apply for a part-time job or consider a temporary side hustle that can raise your income. Just remember, you’ll need to show lenders that your income is consistent and validate it with pay stubs or a bank statement.

Shop around

You probably shop around before making a purchase more than you think. Since a car is a very costly purchase, you can benefit from shopping around for a new lender to compare rates and loan offers. Use the information you find to ensure you’re getting the best loan terms for your needs.

Don’t Give Up On Auto Loan Refinancing Due to “Bad Credit”

Refinancing an auto loan with a lower credit score is possible. There are so many lenders and each one sets its own guidelines and requirements for eligibility. Ultimately, your credit score will most likely not count you out for getting a new auto loan since there are other factors lenders look at.

How to Calculate Interest on a Car Loan

Posted on August 29, 2022October 11, 2022 by Autopay

Buying a car is a significant financial commitment. In fact, car loans are the second largest financial commitment most people will make (the first being a home mortgage). Learning how to calculate interest on a car loan will help you sift through your options and choose the loan terms that are best for you and your budget.

The Elements of a Car Loan

When calculating how much interest you’ll pay on your car loan, you’ll need three pieces of information:

Amount of loan: Whether you are seeking a new loan or refinancing your existing car loan, you will need to know the exact amount that you will be financing, including the price of the vehicle and taxes, as well as any add-ons that you’ve chosen, such as a GAP waiver.

Your interest rate: When you apply for an auto loan, your lender will use information from your application to determine your interest rate. Interest rates depend on several factors, including economic conditions, as well as your credit score, income and the age of the car that you purchase. Some lenders use other criteria in determining your rate, which could include your educational background and work history.

Length of repayment: You’ll need to know the length of your repayment period. Auto loan terms are expressed in months instead of years, and auto loan terms typically range from 24 to 84 months, though other terms might be available.

Calculating Your Monthly Interest Payments

Car loans are amortized, which means that you’ll be paying your loan balance off in installments. This means that the interest you pay over the duration of your loan will be based on an ever-declining principal balance. Because your principal balance changes each month, so will the amount of your interest payment.

If you want to know what you are paying in interest each month, you’ll need to do the following:

Begin with a straightforward calculation: Your interest rate (percentage) divided by how many payments you’ll make on the loan annually.
When you have that number, multiply it by your loan’s balance.

This calculation will give you the amount of interest you’ll be paying each month. It’s important to note that this number reflects only the amount of interest you’ll pay that month. This will change each month during the duration of your loan repayment period.

Another thing to remember is that your monthly interest payment is only one portion of your monthly car loan payment. The other portion is what you are paying against the loan balance.

If you aren’t a numbers person and all this seems too complicated, you can check out the AUTOPAY refinance car loan calculator to get a quick calculation, plus your estimated savings if you opt to refinance at a lower rate.

Man checking credit score on mobile phone

Other Factors That Determine Affordability

If you’ve run these numbers and are experiencing a bit of “sticker shock” at how much interest you are (or will be) paying each month, keep these things in mind:

As you pay down your loan, the percentage of each payment that goes toward interest decreases over time. This is because the amount of interest you pay is based on your loan balance. As the balance shrinks, so does the interest.
There are things you can do to reduce the amount of interest you’ll pay on a loan. These include improving your credit score by making timely payments and paying down existing debt, buying a new car instead of a used vehicle and, if necessary, finding a co-signer for your loan.
The larger your down payment on a vehicle, the smaller your balance will be. This can significantly reduce your interest payments.

Taking out a car loan or refinancing an existing loan can be a challenge, particularly when it comes to understanding your total costs. Make sure to shop around to get the loan you need with terms that you can afford.