If your monthly car payment feels a little too high, refinancing your auto loan might be a smart move. But one question comes up a lot. Do you need good credit to refinance your auto loan? The short answer is not always. While good credit can help you get better terms, it’s not the only factor lenders look at.

 

What is Auto Loan Refinancing?

Auto loan refinancing means replacing your current car loan with a new one, usually from a different financial institution. The goal is often to lower your interest rate, reduce your monthly payment or adjust the length of your loan. In some cases, refinancing can even help you save money over time.

 

How Does Your Credit Score Impact Refinancing?

There’s no getting around the fact that your credit score is one of the factors lenders look at when determining your refinancing loan terms. In general, the higher your credit score is, the better your interest rate will be, which can help get you a lower monthly payment.

Here’s a general idea of how credit score ranges affect loans.

Excellent credit (750+): You get the most favorable rates
Good (700-749): You can get competitive rates
Fair (640-699): You can get acceptable rates, but may not qualify for the best terms
Poor (below 640): You will probably get limited options and higher rates are likely

Keep in mind, a lower credit score doesn’t automatically disqualify you from refinancing. In fact, even if your credit has gotten a little better since you first started your loan, you may still qualify for better terms.

 

What Else Do Lenders Look at When You Refinance?

It’s important to know lenders look at more than just your credit score when you apply to refinance your auto loan. They may also consider the following things.

• Your current loan balance
• How much your car is worth
• Your payment history
• Your income and debt
• How much time is left on your loan

If you have been making on-time payments and your vehicle still has solid value, you may have options even if your credit score is average or below average.

 

When Should You Refinance Your Auto Loan?

Refinancing your auto loan may make sense if any of the following situations apply to you. • Your credit has improved

• Your original loan had a high interest rate
• Your monthly payment is too high
• You want to switch from a long loan term to a shorter one
• You need to free up cash flow for other priorities

Before refinancing your auto loan, it’s a good idea to compare your current loan with the new one. You can use our free online calculator to compare two vehicle loans. Make sure the savings are worth it. Watch out for fees, and check whether extending the loan term could cost more over the life of the loan.

Do you need good credit to refinance your auto loan? Not necessarily, but it definitely helps. Even if your credit score isn’t perfect, you may still qualify depending on your loan history, income and vehicle value.

If you’re wondering whether refinancing could work for you, take a close look at your current loan and your financial goals. A lower payment or better rate could help make your budget a little more comfortable and keep you moving forward.