Requirements for refinancing a car loan

Refinancing an auto loan involves taking out a new loan with better terms and using it to pay off your existing auto loan. You might choose to refinance if you want to save money with a lower rate, repay a loan sooner or lower your monthly payments.

You will need to qualify to refinance your vehicle loan. Before signing off on a new auto loan, you need to confirm that you and your vehicle meet the requirements — and that you can qualify for a lower refinance interest rate.

Common auto refinance requirements: Quick look

Requirements for your current loan

Before refinancing an auto loan, you need to check that your loan qualifies for refinancing based on the time and amount left on it.

Time left on loan

Most lenders expect you to be up-to-date with your current loan payments, and many will require that you have had your loan for at least six months. Establishing a responsible payment history this way can improve your chances of approval as well as your credit score.

Lenders often want you to have at least six months left on your loan as well. Six months is a long enough period for a lender to make money from interest payments on your refinanced loan.

Amount left on loan

Minimum loan amounts vary by lender, but most require you to borrow between $3,000 and $7,500. Lenders don’t like to offer smaller loans because they can’t make as much money from them.

On the other hand, you may struggle to refinance a particularly expensive car as well. Lenders often cap their auto refinance loans at $75,000, although there are some exceptions. Navy Federal Credit Union, for instance, offers refinance loans with no maximum amounts. 

There are also specialized lenders for refinancing luxury vehicles, exotic models, collectors editions and classic vehicles.

Requirements for your vehicle

Another factor in approval is your car itself. Lenders have requirements for the type of vehicle, physical condition and estimated value of the car you want to refinance.

Mileage and model year

Heavily used cars or cars with high mileage can be difficult to refinance. Many lenders cap mileage at 100,000 to 150,000 miles, and some have even lower limits. 

Older cars may not qualify, either. Lenders often set a hard age limit of 10 years, although some lenders may set their limit at eight years. To qualify for refinancing, your vehicle will need to be below these mileage and age thresholds.

Car type and title

Lenders won’t be willing to refinance all vehicle and title types. You’ll have the best luck refinancing a personal vehicle with a clean title. Lenders are often unwilling to refinance commercial vehicles and may not refinance models manufacturers have discontinued. For example, Capital One does not refinance vehicles that are no longer in production, such as Suzuki or Isuzu.

Similarly, some lenders refuse to refinance a salvage title vehicle. The lenders that are willing may require documentation from a mechanic stating that the car has been properly repaired and is now roadworthy. Be prepared to show proof of insurance for the vehicle as well. Even with this documentation, your loan may come with a higher rate to offset the lender’s risk.

Another factor that could make it harder to find a lender is if you have heavily modified or rebuilt your car. It can be difficult to determine the market value of these cars, creating too much risk for some lenders.

Loan-to-value ratio

Lenders may not finance a car with a high loan-to-value ratio (LTV), and those that will are likely to charge higher interest rates due to the greater risk.

LTV compares the amount of money left on your loan to the value of your car. You can calculate it by taking the amount you owe and dividing it by your vehicle’s actual cash value (ACV). The final number is expressed as a percentage.

An LTV higher than 100 percent indicates you have an upside-down car loan. This means you have negative equity in your vehicle — in other words, you owe more than the car is worth. If you were to default on your refinanced loan with negative equity, your lender would lose money.

Because of this, most lenders look for an LTV below 125 percent. A lower LTV can help you qualify for a better interest rate.

Requirements for your credit and finances

The last factor lenders consider is your personal finances, particularly your credit score and debt-to-income ratio.

Credit score

You’ll benefit most from refinancing if your credit score has improved since you first bought your car. Raising your credit score could help you get a better rate, in turn saving you hundreds of dollars in interest.

For reference, in the third quarter of 2024, the average used car loan rate for subprime borrowers was 18.95 percent, while the rate for prime borrowers was almost half that at 9.63 percent. 

Lender requirements for credit score vary, but most look for a score of at least 600 to qualify for refinancing. You are unlikely to get a better rate by refinancing with a lower score.

Debt-to-income ratio

Your debt-to-income ratio (DTI) compares your amount of debt to your income and is expressed as a percent. Generally, a DTI below 36 percent is considered good, while 36 to 49 percent is considered adequate. You may struggle to qualify for refinancing with a DTI of 50 percent or higher.

Each lender sets its own maximum acceptable DTI. If yours is too high, paying down your current debts will lower your DTI and could raise your credit score. You can determine your DTI using a debt-to-income ratio calculator.

How to refinance your auto loan

The process of refinancing is very similar to the process you went through buying your car. You’ll need to gather documents, compare lenders and find the lender offering you the best rate or monthly term.

1. Review your current loan. Make sure that you qualify for refinancing based on the time and amount left on your loan.
2. Check your credit score. You’ll need a score of at least 600 for most lenders, but a higher score may help you get a better interest rate.
3. Decide if refinancing is the right financial move. Refinancing is most beneficial if you can get a better interest rate or a more affordable monthly payment — or both.
4. Estimate your car’s value. Use resources like Kelley Blue Book or Edmunds, and ensure your car meets lending requirements based on its age, mileage, make and model.
5. Gather your paperwork. Lenders generally want to see proof of income, residency and insurance, as well as details of your existing loan and vehicle.
6. Compare lenders. Every lender has its own formula for evaluating a borrower, which is why it’s critical to comparing refinancing rates with multiple lenders.

What documents are needed for refinancing?

Lenders will review your finances to determine if you qualify for a loan. As part of this process, you’ll need to include common financial documents along with your loan application.

• Proof of income, including a W-2, tax return or pay stub, as well as your employer’s contact information.
• Personal information, including your name and previous names, date of birth, Social Security number and contact information.
• Proof of address, which can include utility bills, bank statements or rental agreements.
• Proof of insurance. Some lenders may require collision and comprehensive insurance as well as liability insurance.
• Vehicle information, including your vehicle identification number (VIN), vehicle make and model, vehicle year, current mileage and any add-ons.
• Current vehicle registration. Your registration proves that you own the vehicle and lists current liens.
• Details of your current auto loan. You will need to provide basic information about how much you still owe and the terms of your current car loan.

Bottom line

Refinancing your car loan can help you save money and pay it off faster, but not every borrower will qualify. Your eligibility will depend on your current loan situation, vehicle and credit standing.

If you decide refinancing is right for you, be sure to compare auto loan refinance rates and take advantage of preapproval to find the best loan for your needs.