Do I Need a Down Payment to Refinance a Car?

Do I Need a Down Payment to Refinance a Car?

In most cases, you don’t need any money down to refinance a car. There are some scenarios where you may need to lower your loan balance to qualify for refinancing, though.

Requirements for Refinancing

Refinancing doesn’t typically require a down payment to qualify. You do, however, need to have equity in your auto loan.

Do I Need a Down Payment to Refinance a Car?Equity is when you owe less on your loan than the vehicle’s value. Lenders don’t want to refinance a car loan that’s underwater (negative equity), because it represents a risk to them. If you don’t have equity in your vehicle, then you may need to put some extra cash down on your loan to put yourself in an equity position.

While you probably aren’t going to be faced with a down payment requirement, you must have equity in your car and meet a list of refinancing requirements.

These generally include:

  • Your credit score has improved since you started the loan
  • No missed or late payments on the loan
  • The auto loan is at least a year old
  • Your vehicle has less than 100,000 miles on it
  • Your car is less than 10 years old
  • Your loan balance isn’t too high or too low (varies on the lender)

If you can meet these common requirements, then you could be on your way to refinancing.

How Refinancing Works

Refinancing involves replacing your current auto loan with another one, and hopefully, you qualify for better terms this time around. Most borrowers look for another lender to refinance with, and many take time to rate shop for better interest rates and loan terms.

The biggest motivation for pursuing a refinance is typically a smaller monthly payment. This is achieved in one of two ways (or a combination of both):

  • Lowering your interest rate
  • Extending your loan term

For borrowers who originally qualified for a high interest rate, qualifying for a lower interest rate during refinancing could save you a lot of money in interest charges. The key is improving your credit score so you can be placed in a better credit tier.

If you don’t qualify for a lower interest rate, you may be able to extend your auto loan to lower your monthly payment. However, this doesn’t save you any money in interest charges. Extending your auto loan without qualifying for a lower interest rate actually means racking up more interest charges, so you pay more for the vehicle than you would have originally, you just get to do it more slowly. Think hard before extending your car loan term during refinancing. Stretching it too far could mean paying more for the car than it’s worth.

Your Credit Score and Auto Refinancing

An improved credit score is vital in order to qualify for refinancing. Without an improved credit score or proof that you’ve handled the auto loan and your other credit well, a lender isn’t likely to approve you.

If you’re not happy with your current auto loan terms and don’t think refinancing is in the cards, it may be time to trade in your vehicle and start another car loan. While bad credit can get in your way of auto financing with traditional auto lenders, there are lenders that specialize in assisting borrowers who have credit challenges.

Subprime lenders are signed up with special finance dealerships, and use more than your credit score to determine auto loan eligibility. Instead of sticking it out with an auto loan that you’re not happy with, consider starting the auto loan process with us at The Car Connection.

We’ve created a nationwide network of dealerships that are signed up with subprime lenders that can help if you're in a bad credit situation. When you're in need of a car loan and don't know where to start, let us look for a dealer in your local area that can assist you. Get started right now by filling out our auto loan request form. There’s never an obligation, we do the hard work of searching for a dealership for you, and it’s completely free!


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