How to arrange a car loan refinance

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  • It's in the lender's best interests to help customers keep their cars.
  • Refinancing a car loan may help you avoid a negative credit rating.
  • Provide the lender with information to buttress your hardship case.

There may be a light at the end of the recession tunnel, but millions of Americans still suffer stressed budgets due to job loss or underemployment. Those with unaffordable car payments may be eligible for a car loan refinance.

According to Thomas Webb, chief economist for a unit of Manheim, in Atlanta, 1.9 million vehicles were repossessed in 2009, an increase of 5 percent from 2008. That figure represents the highest number of repossessions since the organization began keeping track in 2001.

"As people continue to default on their auto loans, I think more banks and auto lenders will do more auto refinancing," says Robert Baker, director of education for Housing and Credit Counseling Inc. in Lawrence, Kan., an agency of the National Foundation for Credit Counseling.

In the market for a car loan? Get Bankrate's auto app to compare prices and do loan calculations.

A win-win situation

Many banks and auto lenders offer people relief on their auto loans by either extending the term of the loan or lowering the interest rate, both of which effectively lower the payment. "It's really in your best interest to keep your car and in the bank's best interest to keep people in their cars," says Mark Edelman, an attorney and partner in charge of McGlinchey Stafford, a law office in Cleveland, that represents banks that finance auto loans.

Baker says refinancing your auto, rather than allowing it to go past due or get repossessed, will help you avoid late fees and a possible negative credit rating. It also saves you from paying on a car you no longer possess.


Refinancing a car loan can be an arduous process. Baker says that while many companies advertise auto loan modifications as a way to give instantaneous relief, there are no shortcuts. He suggests that you try to work with your original lender and be prepared to provide a lot of information.

How it works

When my husband was laid off in 2008 and accepted a new position the next year in our tiny rural region, he took a 50 percent pay cut. That severely impacted our budget.

I called our creditors to see if they could work with us. A representative with the bank that holds our auto loan, which finances many GM vehicles, immediately suggested a loan modification, recognizing that a one-month deferment or other temporary fixes wouldn't help us keep our vehicle.

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