Auto dealers are eager to ensure their customers get the financing needed to purchase a vehicle in today’s world. However, when customers have less than perfect credit scores, they sometimes accept loan terms that are not the best. Over time and after making numerous payments, they may decide to refinance their car loan. Since credit scores significantly impact refinancing, it’s essential to know what score is needed for a car loan refinance.
The Higher, The Better
Though it is always possible to refinance a car loan with almost any credit score, individuals with higher credit scores get better offers on their loans. According to Lantern by SoFi, a credit score of 700 or better will open up a person to the very best refinancing deals. With a minimum score of 660, customers can still get reasonable offers but at interest rates that are slightly higher than those with perfect or excellent credit.
Bad Credit Scores
When many people start examining how to refinance a car based on their credit score, they often mistakenly assume they can’t do this if their credit score is lower than required, which would be in the range of 300-500. However, a bad credit score does not automatically disqualify them from refinancing their existing loan. In these situations, getting someone to act as a cosigner can get a loan approved, although this then puts the co-signer’s credit at risk if any payments are late or missed.
Why Bother to Refinance?
If the original loan terms had higher interest rates, it pays for those individuals to learn more about how to refinance a car. For example, if they have significantly increased their credit score since they first obtained the original loan, it makes little sense to continue paying higher interest rates. Refinancing can also substantially reduce the amount of a monthly car payment, which can help people have more control over their monthly budget and other expenses.
The Best Time to Refinance
According to Lantern by SoFi, people should learn more about how to refinance a car when their car is considered to be worth more than they actually owe on their current loan. It occurs when people make extra payments on their loans or when they have taken excellent care of their car and thus slowed its depreciation. When this is the case, a cash-out refinance is usually pursued. Using the car as collateral, a customer gets a larger loan and receives the cash difference. However, a cash-out refinance can negatively impact a credit score, so those considering this option should keep that in mind.
When individuals consider car loan refinancing, they should never forget to shop around before making their final decision, even if they have an excellent credit score. Some lenders may be hesitant in today’s economic climate, especially when working with loan applicants who have lower credit scores. However, by knowing what’s involved in the refinancing process, almost anyone can get a refinanced car loan.