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Refinance Vehicle Loan

Mark Cappel
UpdatedSep 29, 2010
Key Takeaways:
  • Lenders look at credit score, income history, and DTI when making a loan.
  • Qualifying for a vehicle refinance is almost the same as new loan.
  • It pays to shop around when looking to refinance a vehicle loan.

My husband lost his job and as a result we cannot afford our vehicle loan. Is a vehicle loan refinance an option?

We would like to refinance our car because my husband lost his job and his unemployment benefit is not enough for everything. I work only part time. We pay $450.66 a month for the car loan and the amount that is left to pay is $16.00. Do you have any suggestion what we can do in this situation? How can we lower our monthly payments for the car?

In theory, it is possible to refinance a current vehicle loan at a lower rate, which would potentially saving thousands of dollars over the life of the loan. However, a consumer must qualify for the new loan first.

Qualifying for a Vehicle Loan

Whether you seek a new loan or a refinance, lenders want three things in a borrower: 1) Positive credit history, 2) Stable income, 3) Debt-to-income ratio of 35% or less. Some used car dealers, the "buy here pay here" dealers selling older cars, will ignore a borrower's credit history and instead rely on quick repossession if the borrower falls behind on their monthly payments.

Borrowers with stellar credit scores, stable income, and a low DTI will find 0% APR deals for vehicle loans. People with less than perfect credit will pay the market rate, which is about 12% today. People with low credit scores (FICO 500-600s), or an unstable income, or a high DTI are considered high-risk borrowers and will pay 20% APR or more for a vehicle loan.

Some lenders will also consider the vehicle's resale value when underwriting a loan for obvious reasons. Some will consider the Loan-to-Value (LTV) of the deal. LTV refers to the percentage that results when the amount owed on the loan is divided by the vehicle's value. In other words, LTV reflects the amount of the down payment the borrower is contributing to the deal. A borrower making a large down payment is viewed positively because the lender is risking less on the deal, and will usually result in a lower interest rate.

Qualifying for a Vehicle Loan Refinance

Almost everything I just wrote about qualifying for a vehicle loan is true for refinancing a vehicle loan. Borrowers with excellent credit scores, a stable income, and a low DTI will pay the lowest rates because they are seen to offer lenders the lowest risk. A deal with a low LTV is more attractive than one with a high LTV.

On the other end of the spectrum are people with low credit scores, or an unstable income, or a high DTI, or a deal with a high LTV.

Many banks and credit unions offer auto loan refinancing. Shop around to find the lowest rates with the best terms. Just because one bank offers you a high rate does not mean all will.


As suggested above, shop around for a vehicle refinance. You did not mention the LTV on your existing financing, or your credit score so it is impossible for me to offer a specific observation. Your spouse's unemployment will pose a serious obstacle to finding an attractive refinance rate. Try to avoid a repossession.

I hope this information helps you Find. Learn & Save.




BBill, Oct, 2010
You are asking about voluntary repossession. See the resource I just mentioned for a discussion of the costs and liabilities to voluntary repossession.
PPaul, Oct, 2010
In April 2006 I purchased a Kawasaki motorcycle from a dealership on Long Island. I was young and stupid, so I probably fell for something I shouldn't have. I was so pumped about getting a bike that in hindsight didn't pay attention to details. I didn't have a down payment. I just remember the sales person saying my payments will be under $100 per month because of a promotion they were having. Each month I was paying the minimum or just a little more. Fast forward two years I get a letter from a lawyer representing the dealership saying that they goofed and put my name on the title as the only owner. When in fact, HSBC was suppose to be listed as a lienholder. They offered me a $500 voucher to send the title to them so they could straighten out the goof. I agreed because I know I was still making payments and I didn't want to get into a legal battle. My payments around this time went over $200 per month. Apparently, the introductory APR was over (I should've been paying hiring payments each month and taking advantage)...I've continued making minimum payments of $205 a month for the last 2 years. So, now 4 years later, I still owe roughly $10k on this bike. I feel like a dumbass. About 2 years ago I went to my bank (Bank of America) and asked about refinancing. Just my luck, but the rep at my local branch said they just stopped refinancing motorcycles. I went to HSBC and they said the same thing. I tried again about a year ago and the same thing. I'm tired of paying for this bike. I've tried selling it on eBay and Craigslist to no avail. No one in their right mind would be willing to pay what I owe on the bike when they can go out and get a brand new bike for $8-10k. So now what? I can't refinance it....I can't sell they take bikes back? Seriously, I'm tired of it and I just want out.