Decide if refinancing makes sense for you
However, this might not be possible if any of the following factors apply to you: You're behind on your payments: Any late payments on your existing loan or other credit problems could eliminate the possibility of qualifying for a loan with better terms.
Lenders will look for a history of on-time loan payments for your existing auto loan and other loans. If your credit report shows past late payments or loans that aren't up-to-date, you may be turned down for refinancing.
If you find you owe more than your car is worth, you most likely can't refinance until you get into a positive equity position. The best way to do this is to keep making on-time car payments, and paying extra — even if it's a small amount — each month.
If you miss too many car payments, your lender could repossess your car. In other words, they'll take your car away and sell it, and apply the proceeds to the amount you owe, minus fees. You will still be responsible for the delinquent amount, and the cost of the repossession, interest, charges, and fees.
Contact Your Lender
Contact your lender as soon as you know you won't be able to make payments. Many lenders are willing to work with borrowers to avoid vehicle repossession and get their payments under control. The sooner you get in touch, the more options your lender may be able to offer.
Regardless of your credit score, debt load and home equity, some lenders may deny your refinance if you have too many late mortgage payments. For example, some VA lenders won't refinance your loan even though the VA guidelines permit refinancing loans that are 30 days or more past due with prior approval.
One way to get out of a car loan is to sell the vehicle privately. If you're not upside down on the loan, meaning the car is more valuable than what you currently owe on it, you can use the proceeds of the sale to pay off the current loan in full. Another term for an upside-down car loan is negative equity.
If you have negative equity, what you owe is more than what your car is worth. You can still trade in your car with negative equity, but you'll still be responsible for paying off the difference. Your dealer will typically roll your remaining balance into a new loan which makes your monthly payments greater.
Refinancing your car means you're taking out a new loan and replacing it with a new one. Your new loan will pay off your old loan, and you'll start making payments to your new lender. You may want to refinance your car loan if your credit has improved or your situation has changed since you took out your original loan.
There is no minimum credit score required to refinance a car loan. That being said, there is a range that is considered a “good credit score” to refinance a car loan. In general, a credit score over 700 will unlock the best interest rates, and a credit score between 660-700 will give you access to standard rates.
If you bought a heavily used car or have racked up lots of miles and want to refinance the loan, you may not be able to. Lenders tend to have a cap of 100,000 to 150,000 miles. You may not qualify with an older car, even with fewer miles. Typically, lenders set a hard limit at 10 years old.
High debt-to-income ratio
How much of your money is tied up in paying off debts is a major factor in getting approved for refinancing. Your debt-to-income (DTI) ratio is determined by dividing your total monthly debts (including your current mortgage) by your gross monthly income.
Ask about voluntary repossession: Voluntary repossession involves asking the dealer to take back your car because you can no longer afford the payments.
You might be able to refinance the loan or arrange for a new payment plan. The lender might even allow you to pay off part of what you owe and set a deadline for receiving the remaining payments. Ideally, you should start these negotiations before the repossession process.
Voluntary repossession
Best for those who cannot afford their vehicle and have exhausted other options. You should consider turning your car over to your lender as your absolute last resort. To make this process more bearable, ask your lender if turning over your car voluntarily will clear you of your loan obligation.
If you have improved your credit and can get a better interest rate, refinancing can be a great option, as long as you consider any additional fees required. If you've fallen behind on a few payments and aren't current in your loan, refinancing is not the answer and is most likely not an option.
Note: If you're selling a car with an active loan, you're still the one responsible for paying it off, so the remaining balance on the loan will likely be subtracted from the price the dealer offers you. So if you owe more than what the dealer offers, you'll need to pay the difference to the lienholder.
If your vehicle is worth more than you owe, we'll pay you the difference, or you can apply it toward the purchase of your next vehicle from Carvana. Until the sale of your vehicle to Carvana is completed, please continue to make your normal loan payments to avoid late payment penalties with your lender.
CarMax buys vehicles that are not paid off. To sell a car you still owe money on to the retailer, you must provide loan information so CarMax can pay off the lender. If you owe more than your offer, you will need to cover the difference.
Another option is to give up the vehicle to the lender voluntarily rather than going through the repossession process. The lender may find this option appealing because it avoids the costs of repossession, and it may agree to reduce or eliminate the deficiency balance on the loan.
You may be able to arrange a negative equity trade-in. You also can negotiate a trade-in deal that rolls over the negative equity. Trading in a car with negative equity can be difficult, but with a little bit of research, you can find a deal that works well for you.
If you want the lender to release the car title to the buyer, you'll need to cover the full loan payoff amount. If you have positive equity, your lender will reimburse the difference. If you still owe money on the loan, you'll need to pay the difference.
You can refinance your car after a charge-off if you act quickly and show the lender you are willing to work to pay off the loan. Since the charge-off is likely already on your credit score, it might be harder to refinance, especially if you are looking for lower rates.
FHA rate and term refinance
As long as your new loan-to-value ratio is 90% or lower, you'll only need a 500 credit score to qualify for an FHA refinance. If it's higher than this, a 580 score is required. Keep in mind these are just the minimums set out by the Department of Housing and Urban Development.