Refinancing your auto loan is the best solution to your monthly budget issues. By replacing your current loan with an all-new one, you can get lower monthly payments and lower interest rates. As a result, you get to pay less every month for short-term savings or make long-term savings by saving up on your interest rate.
Car loans are easier to refinance as compared to mortgages. You just need to make sure that you meet your lender’s requirements. If you are asking yourself, “Is my car eligible for auto refinancing?” read on to learn about the eligibility requirements of most lenders.
Is My Car Eligible for Auto Refinancing?
Every auto lender has certain requirements for your car to be eligible for auto loan refinancing. Check out the most common requirements below by lenders to make sure your car is eligible for auto loan refinancing:
- Your current auto loan has more than $7,500 remaining.
- Your car has less than 100,000 mileage. Most lenders cap the mileage at 70,000 miles.
- Your car is not used commercially.
- Your car does not have a salvage title.
- Your car is less than seven years old.
If your car meets the above-mentioned requirements, you are eligible to apply for auto refinancing. Most lenders also assess your car’s condition and value while reviewing your application. If they find the value of your car to be too low, they won’t approve your refinance request.
Calculating the LTV Ratio of a Car
Lenders also calculate a car’s loan-to-value (LTV) ratio to make the final decision. The ideal LTV ratio should be less than 125% for your car to qualify. So before you apply, it is always wise to calculate your car’s LTV ratio on your own. You can use different LTV calculators online to do so.
To calculate your car’s LTV value, divide your current loan balance by the car’s value. The percentage you get will be the LTV of your car. For instance, if you have an $8,000 balance on your car that is worth $10,000, your LTV ratio would be 80%. This means that your car qualifies for an auto loan refinance. But if your LTV ratio is higher than 125%, refinancing your car is nearly impossible.
Most lenders conduct appraisals of the car in question before approving your refinance request. They also verify your income, run a credit check, and require proof of car insurance. So make sure you have a tax return or pay stub to show to your lender.