Yes, You Can Refinance an Auto
Most people who own a home are familiar with refinancing a mortgage. But did you know you can also refinance an auto?
Auto refinance is becoming more popular. If your finances have changed and you need to lower your payment, adjust your term or want to take advantage of potentially lowering your interest rate, refinancing might be the way to go.
Much like a mortgage, when you refinance a vehicle, you’re getting a new loan to replace the existing one. The old loan is paid off and you start making payments on the new loan. But there would have to be some benefit to doing that, right?
Reasons to consider refinancing your auto
You might be eligible for a lower interest rate because your credit score is better now than when you financed your original loan.
Your finances have changed, and you need a lower payment.
You want to adjust your term to lower your payment.
Those are all good reasons, but you’ll want to do some research first to see if it makes financial sense for you. Will it really help you save money in the long run?
See where you stand
The first place to start is to evaluate your current loan and the condition of your vehicle.
How long do you have left on your current loan? Most lenders require at least 12 months left on the contract before they’ll refinance. If it’s less than that, you’re probably better off to finish paying the current loan.
Are there prepayment penalties or fees with the lenders you’re looking at These are things to avoid as they could add to the overall cost of a new loan, possibly wiping out any savings.
Lenders look at how old your vehicle is and the amount still owed on it. A high-mileage vehicle has less resale value, and if you owe more than the car is worth (also known as being upside down, under water or having negative equity), that makes lending to you riskier.
Research the value of your car at a site like Kelley Blue Book. Lenders will use their own methods to value your vehicle so it may be different than your research.
Next Steps
Once you determine that you might be a good candidate for refinancing, here are the steps to get started:
See if you prequalify. Most lenders have an online calculator to determine how much you could potentially save without a hard inquiry to your credit report.
Check to see if the lenders have fees or a prepayment penalty.
While it’s good to shop for the best rate, make sure you’re using prequalification tools so there won’t be numerous hard inquiries to your credit report, which could affect it negatively.
Credit application
Once you’re prequalified, it’s time to submit a credit application. This process will result in a hard inquiry to your credit report, so you want to limit these applications to the fewest possible.
A few things you may want to do before filling out the credit application:
Check your FICO score. You can get that information free from most credit card companies. You can also get a free full credit report with your complete credit history annually from AnnualCreditReport.com. It’s a good idea to check it for inaccuracies and correct any with the three major credit reporting bureaus — TransUnion, Equifax and Experian — before making a major purchase.
You may have heard the term “debt-to-income ratio.” That just means how much debt you have in relation to your income. Or another way to look at it, your monthly debt payments divided by your monthly gross income. Lenders use that as one criterion for evaluating your application. Others are:
Monthly income
On-time payment history
In some cases, at least two years credit history
Documents to have ready:
W-2s, pay stubs, tax returns or other proof of income
Recent utility bill, lease agreement or other proof of residency
Proof of insurance on the auto
Details of your existing loan
Details about the vehicle: year, model, mileage and vehicle identification number (VIN)
You’ll want to consider the length of a potential refinance loan. A longer term means you may pay more in interest in the long run. If you can lower the interest rate on your loan by 1% or more, you might be able to save enough in interest over the life of the loan to make refinancing worthwhile.
If you’re approved and you receive a check, make sure you or the new lender applies it to the old loan. If the new lender is paying off the old loan directly, follow up to make sure that transaction is completed on time to avoid late payment fees.
If you are denied a loan, by law the lender has to tell you why if you ask. Finding out may help you improve your credit rating and chances of being approved in the future.
Take a look at Mode
If you think refinancing your auto might be right for you, consider Mode. Not all lenders refinance vehicles, but we do here at Mode, and we have a few advantages you might want to consider:
No application fees1
Friendly and knowledgeable customer service team
Fast and easy online application process.
All our credit and funding professionals in house, so you’ll have an answer on your application in less than 24 hours
Here are some of the things we look for (hint: you don’t have to have perfect credit!)
Monthly minimum income of $2,000
FICO score > 450
Vehicle nine years or newer
Less than 100,000 miles on the vehicle
GM Financial loan customers with an active contract are not eligible to refinance through Mode. If you’re a GM Financial lease customer looking to purchase your vehicle at the end of your lease, visit your GM Dealer or see our information at Mode about a lease buyout.
If you have a loan with a lender other than GM Financial, and you think we might be able to do your finances some good, see if you prequalify today.
1You will not be charged application or processing fees by Mode to refinance your vehicle. Depending on your state, title and registration fees may apply.
By Julie Powell, GM Financial