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How does refinancing an auto loan work?

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Anonymous
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How does refinancing an auto loan work?

So im about to finance a car with really bad credit.

 

I know im going to need to refinance in 6-12 months but how does it really work?

Message 1 of 11
10 REPLIES 10
Anonymous
Not applicable

Re: How does refinancing an auto loan work?

That's a good question. I want to know too.
Message 2 of 11
medicgrrl
Valued Contributor

Re: How does refinancing an auto loan work?

What specifically do you want to know? Basically the new lender gives you a loan to pay off the old lender. If you're purchasing a new vehicle with little down payment, be aware of depreciation and that it could affect your ability to refinance because of the loan to value. If you have the ability to pay extra towards principal, this will be very beneficial to getting your refinance.


EQ 778 EXP 782 TU 729
Message 3 of 11
Anonymous
Not applicable

Re: How does refinancing an auto loan work?

I got a letter in the mail from cap one that offered to refinance. I went online and it said it was a soft pull. It was such a simple process. I never even spoke to anyone, it was all done online. 

Message 4 of 11
Anonymous
Not applicable

Re: How does refinancing an auto loan work?

so theres a chance companies wont refinance me if my interest rate is too high?

 

im paying 25% apr lol .

 

Message 5 of 11
medicgrrl
Valued Contributor

Re: How does refinancing an auto loan work?

No, the loan to value is the amount you owe vs the value of the car. New cars will depreciate quickly so you don't want to get in a position where the loan amount exceeds the "used car value". I hope that makes sense.


EQ 778 EXP 782 TU 729
Message 6 of 11
Sandman771
Valued Contributor

Re: How does refinancing an auto loan work?

yes in used cars there is a Loan to Value number or LTV. based on the state you live in, they will either go off Black Book or NADA book value to find the clean trade amount. Just an example with round numbers because maths are hard. 

If you want to finance a $20000 car but the book says it is valued at $18000. Then your LTV will be 111%. many banks want to go no more than 110%, but some will go up to 140% with good credit. So this is where your FICO score comes into play. Many times though a credit union that you have a good relationship with will take a chance anyway and step up to a higher LTV in order to capture your auto financing for the current vehicle and probably get you for the next two or three cars you finance. I hope this helps. 

Starting Score: EQ497/TU496/EX 499
Currently: EQ 620 TU 654 EX 627
in the garden since 6/16/2021
Message 7 of 11
Anonymous
Not applicable

Re: How does refinancing an auto loan work?

**bleep** , These guys are charging me $588 / mo for 60 months , on a $14,000 car...

 

Thats around $30k id be paying.

 

Would it be impossible to refinance a car of that nature?

Message 8 of 11
medicgrrl
Valued Contributor

Re: How does refinancing an auto loan work?

Is it a used car? Is $14k the actual value? How much is your loan amount? Have you tried the Capital One Auto Navigator?


EQ 778 EXP 782 TU 729
Message 9 of 11
Sandman771
Valued Contributor

Re: How does refinancing an auto loan work?

at 25% APR you are probably paying at least 50% of your monthly payment just to interest and not paying down the principal. so a re-finance is going to be tough. I think you should get an intermediate step in here before you get deeper in debt. Assuming you've paid you auto loan perfect you can get a captive lender such as GM Financial, Chrysler Capital, Ford motor Credit to use their special APRs often down in the low single digits. The downside is you would need to buy a new car and use the rebates to offset your negative equity in your current auto loan. But this would be beneficial because you would be paying a car payment for a car not a car payment that is half going to interest. Just an option. 

You can get a guess on what your car is worth from kelly Blue Book, but no dealership is going to give you that in trade. they may get fairly close though, so it gives you better understanding. 

Starting Score: EQ497/TU496/EX 499
Currently: EQ 620 TU 654 EX 627
in the garden since 6/16/2021
Message 10 of 11
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