If the market values are low and you are planning on refinancing your car loan, remember that there are a few factors that come into play. Your credit score is the most important factor that lenders consider when reviewing your application for any auto refinancing.
Read on to find out what a good credit score is for car refinancing.
What Credit Score Is Needed to Refinance a Car?
A person’s credit score represents their creditworthiness to a lender. It tells how likely they are to pay back their loan. When it comes to car refinancing, there is no magic number for a “good credit score.” However, the higher your credit score is, the better your chances of getting lower interest rates.
Your credit score is affected by a number of factors, including your repayment history, the span of your credit history, accounts owed, new credit, and credit mix. All of these factors make up your total credit score. However, your payment history and accounts owed carry more weight than the other factors.
Credit scores are typically divided into five categories: Exceptional, Very Good, Good, Fair, and Very Poor. The chances of approval for car refinancing and the interest rates you get depend on which category you fall into.
Below are the ranges for each of these credit score categories:
- Super Prime (Exceptional): 800-850
- Prime (Very Good): 740-799
- Near Prime (Good): 670-739
- Subprime (Fair): 580-669
- Deep Subprime (Very Poor): 300-579
If your credit score falls in the “Very Poor” category, you will have a hard time finding a lender who entertains your car refinancing application. And even if you find one, they will offer you an incredibly high interest rate. But if your credit score falls in the “Exceptional” category, you can get the best car loan APR (annual percentage rate) possible.
According to Experian, the average car loan APR offered for people with an exceptional credit score in 2021 was 2.47%. Whereas that offered to people with a very poor credit score was 12.53%.
So if you are planning on applying for car refinancing, make sure your credit score is at least between 650 and 850. Otherwise, you will get a really high car loan APR, and you will end up spending too much money on interest.