The Requirements Needed to Refinance a Car Loan


The decision to refinance your car loan ultimately depends on how much money you’d be able to save. But even if you decide that refinancing is the route you want to take, you’re going to need to ensure you meet the requirements needed to refinance a car loan. While different lenders may vary in their requirements, typically there are a few universal requirements. In this article, we will talk about these requirements, explain how to refinance your car loan and consider the pros and cons of refinancing. 

Requirements for Refinancing a Car Loan

The time left on the loan

The amount of time you have left on your car loan is a common requirement of lenders. Typically, lenders like to see a history of at least 6 months of active payments with a minimum of 6 months remaining on the loan. The reason for this is so they can see that you were able to make payments the previous 6 months and they have enough time remaining on the loan to make a profit on refinancing the loan for you. 

The amount left on the loan

While the minimum balance required for a lender to refinance the loan varies on the lender, typically it ranges from $3,000-$5,000. Refinancing a loan is essentially the same as taking out a new loan so lenders are looking for a profit. If the amount left on the loan is so small that they can’t make a worthwhile profit it will be tough to find a lender willing to refinance. On the other side of the spectrum, if you bought a super expensive car and owe $50,000 or more it can be difficult to find a lender willing to take the risk of refinancing an amount that large.  

The model, make and mileage

If you bought the car you’re hoping to refinance used or if it has a few hundred thousand kilometres on it, lenders will be hesitant to refinance. While most lenders don’t have a specific amount of kilometres or age of vehicle limit, if you have an old vehicle, that may disqualify you. 

Your credit score

Just like any loan, if you want to be approved you’re going to need to have a decent credit score. If you try and refinance a loan and your credit score has decreased since you got your initial loan, your refinancing terms will likely come with a higher interest rate than your original loan. Chances are, if your credit score is below 600 you won’t get refinancing at a better rate. 

Your debt-to-income ratio

The last thing lenders want to know before considering refinancing your loan is your debt to income-ratio. This is as it sounds, how much money you make against how much debt you have and recurring payments. This number is often reflected as a percentage and dealers typically like to see a debt-to-income ratio of under 50%. 

How to Refinance Your Car Loan in 4 Steps

Refinancing a car loan is fairly simple and isn’t that different from obtaining a new car loan. Here’s how to do it in 4 steps:

1. Shop around lenders. Chances are, you’re going to get different quotes from different lenders so it’s good practice to speak with 2-3 lenders to find the best terms. 

2. Apply for the loan. Take your time filling out all the necessary documentation about your identity, employment, current loan and any other credit information.

3. Receive your loan. This typically happens in two different ways, either the lender will directly deposit the money into your account or pay your current lender directly. This sometimes takes a few weeks so continue to make payments until the new lender takes over. 

4. Start paying off your refinanced loan. Once you start receiving funding for your loan, you need to start making payments on that loan. 

Pros and Cons of Refinancing a Car Loan


  • You may refinance at a lower interest rate. The lender who you choose to refinance your car loan may be able to do so at a lower interest rate than your current loan. This is mostly true in cases where your credit score has improved. 
  • You can reduce your monthly payments. Depending on your new terms, your monthly payments may be reduced due to extending the term or lowering the interest rate. Be reminded though, if you extend your loan term you will pay more in interest. 


  • Your interest rate may increase. If your credit score has decreased since getting your original loan, having to refinance your loan will likely result in a higher interest rate. Consider improving your credit score before applying for refinancing.
  • You may extend the term length. Even if you're refinancing the car at a lower rate, the term may be longer, causing you to pay more in interest in the long term.

3 Things to Consider Before Refinancing Your Car Loan

1. What is your current vehicle worth? 

Before you make the decision to refinance your car loan, you need to figure out your car loan-to-value ratio. This is as it sounds, comparing how much you owe to how much your car is worth. If you owe more than your vehicle is worth or are close to owing more than your vehicle is worth, you should consider refinancing for a shorter loan term. 

2. Are your current loan rates competitive?

If you’re already committed to a car loan with competitive interest rates, you may not want to refinance your loan. Refinancing a loan may not be worth it, the grass is not always greener. 

3. What are the loan terms?

Before looking at refinancing your loan, be sure you know all the terms of your current loan. Including APR, length of the term and monthly payments. In order for you to make an informed decision on whether or not to switch your loan, you need to understand the terms of both loans. 

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