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Key takeaways
- Refinancing does not require a down payment.
- However, you may be on the hook for fees like prepayment penalties or transaction fees.
- If you want to refinance a loan, you’ll need equity in the car, a stable or better credit score and a current loan that fits lender refinancing requirements.
Refinancing means a new lender replaced your current loan with a brand-new loan. Most borrowers seek refinancing to land better terms and refi rates.
No matter your reason for refinancing an auto loan, you may wonder if you’ll need to bring cash for your new loan. Do you need a down payment to refinance? Luckily, you do not, though you may have to cover some fees.
There may be circ*mstances where refinancing your loan is not the best financial option. It is important to consider the pros and cons before refinancing your auto loan.
Do you have to pay to refinance a car?
While refinancing an auto loan can save you money over time, doing so can sometimes cost the borrower more money than it will save.
You also want to look closely at the prepayment clause of your current loan. A prepayment penalty is a fee you’ll be charged for paying off the loan early or even making extra payments. If your lender charges you a prepayment penalty that exceeds your potential savings, staying put may be better than refinancing.
Other fees you might incur include:
- Transaction fees: Your new lender may charge fees related to processing your application. Ask about waiving them.
- Title transfer fee: Depending on your state of residence, you may incur a fee when you transfer your title from your old lender to the new one.
- Registration fee: If your state requires you to re-register your car after refinancing, you may have to pay this fee.
Additionally, you may not qualify for a lower rate than you currently have. If rates have risen overall or your credit has not substantially improved, the refinancing terms you’re offered may not be an improvement over your current ones. Be prepared to remain in your current loan.
What you’ll need to refinance a car loan
You already made a down payment when you purchased your car — you don’t need to do so again to refinance. But you’ll want the following in place before refinancing.
Equity
First and foremost, you will need equity in your vehicle before you can consider refinancing. You’ll need to owe less on your loan than the vehicle’s current value.
Be mindful that if you owe a figure close to the vehicle’s value, you could become underwater on your new loan– a situation that can complicate your finances if you try to sell or if the vehicle is totaled.
A stable or improved credit score
If your credit score has stabilized or gone up since you borrowed your existing loan, you may see a benefit in refinancing. Your credit score significantly influences your interest rate. A higher credit score can mean a much lower interest rate on auto loans and other forms of credit.
An awareness of average car loan rates and the prime rate is also helpful when considering refinancing. Even if your credit score has not changed, market conditions may have decreased rates overall since you borrowed your current loan.
A car and current loan that meet refinancing requirements
Not every auto loan can be refinanced. Your vehicle and the current loan must meet certain eligibility requirements. You’ll need a record of on-time payments and a car that is neither too old nor too heavily used (fewer than 10 years and under 100,000 or 150,000 miles are good rules of thumb).
It’s important to note that a refinancer going up to 150,000 miles is fairly rare — lenders like RefiJet and Autopay are the exception, not the norm.
In addition, to make a refinance worth the lender’s cost and effort, they usually require you to have a minimum amount of money and time left on the loan. For example, if you only have six months’ worth of payments, you may not see a return by refinancing the loan. That minimum will vary from lender to lender.
The bottom line
Refinancing your auto loan can save you money. In some cases, though, a refinance may not be the most cost-effective option. If you struggle to make your monthly payments, consider alternatives to refinancing and run the math carefully before signing off on a refinance.
FAQs
Key takeaways. Refinancing does not require a down payment. However, you may be on the hook for fees like prepayment penalties or transaction fees. If you want to refinance a loan, you'll need equity in the car, a stable or better credit score and a current loan that fits lender refinancing requirements.
Can you refinance without a down payment? ›
You don't need a down payment to refinance, but you'll likely have to come up with cash for closing costs. Some lenders let you roll closing costs into the mortgage to avoid upfront expenses. You can also try negotiating with the lender to waive them.
What credit score is needed to refinance a car? ›
Most lenders require at least 600. You likely won't get a better rate by refinancing with a score lower than this. It could even cost you more overall, especially if you increase your loan term to reduce your monthly payments. You can check your credit score for free.
How much money do you need to refinance a car? ›
Large Loan Balance
Your original lender also wants to ensure your balance is large enough to make a profit off the interest. While minimum loan amounts vary, most banks want to refinance at least $3000 to $5000, so you must ensure the vehicle is worth the effort before applying.
What are the cons of refinancing a car? ›
If you refinance and extend your loan's term, you are more likely to end up owing more than your vehicle's worth. This is called being upside-down or underwater on your loan. Your chances of going upside-down with a longer loan term increase because cars generally depreciate in value each year.
Does refinancing hurt your credit? ›
Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.
Can I refinance without deposit? ›
No-deposit home loan using equity
You may be able to get a home loan with no deposit if you have an existing property with enough equity. Equity is the difference between your property's value and how much you owe on it. You can use your existing equity as a deposit by refinancing your current mortgage.
How much do you have to put down when you refinance? ›
If you want to refinance, no down payment is needed. Still, it does not mean that you won't have to pay anything to refinance your mortgage. You will have to pay closing costs that typically add up to about 2 to 5 percent of the loan amount. Get Your Refi Quote See How Easy it is to Get Your Custom Rate!
How long does it take to refinance a car? ›
How Long Does Auto Loan Refinancing Take? If you refinance your auto loan, expect it to take anywhere from several hours to a few weeks. If your new lender approves your loan on the same day you apply, it's possible to get the money, pay off the old loan, and sign the new loan agreement in a matter of hours.
What disqualifies you from refinancing a car? ›
A lender may not approve you for a refinance unless you meet a certain loan-to-value ratio (LTV). The LTV is the loan amount divided by the appraised value of your car. Check if you'll meet this requirement by finding the value of your car using online resources.
Required documents for auto loan refinancing
- Proof of employment or income, such as a paycheck stub or tax return.
- Proof of car insurance.
- Your driver's license.
- Proof of residence — for example, a utility bill — if the address on your driver's license and credit report don't match.
- Your car's registration paperwork.
A lender might refuse to refinance a car if your current loan is too new, if your car is too old or has too many miles on it, or if your current loan balance is too low or too high.
Can I refinance my car loan without down payment? ›
The application process is very similar to securing a new loan, but a down payment isn't required. If your credit score and financial situation have recently improved, it might be a great time to consider an auto loan refinance.
Is it better to put money down when refinancing a car? ›
Most of the time lenders require down payments, but even if it is not a requirement, it might be a good idea. (Providing a down payment will decrease your monthly payments and reduce the possibility of your car loan becoming underwater.)
How many pay stubs do you need to refinance a car? ›
Hourly/Salaried Employees – Your lender will likely request pay stubs for the last two pay periods before allowing you to refinance your car loan. If you apply at the beginning of a year, they may also request a W-2 from the previous year.
Do you skip a payment when you refinance a car? ›
Auto loan refinancing does not allow you to skip a payment. However, it does offer the flexibility to delay the start date of the first payment. This can offer short-term financial relief.
What happens if you don't put a down payment on a car? ›
What does “no down payment” mean when buying a car? Buying a car with no down payment means you'll be financing the full price of the vehicle, including costs like dealership fees and sales tax, rather than paying some of that money upfront.
Will refinancing my car put money in my pocket? ›
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
How does refinancing a car work? ›
Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly.
