What Kind of Rates Should a Car Refinance Loan Offer?

What Kind of Rates Should a Car Refinance Loan Offer?A car refinance loan rate will vary wildly depending on your credit history, your current loan status and even the time you happen to ask the lender. That being said, there are several different categories of loans given your current financial situation.


An ideal situation for refinancing would be that your credit was good when you got the initial loan and it has improved since then. In these conditions, you may want to reduce the loan duration to pay it off earlier and with less interest. This will net you a lower financing rate.

The low end of these loans would be a 36 month loan with a credit union or similar community-based institution. Your payments could be in the high end of $600-$650 for a $20,000 loan, but your interest rates would be as low as 2.5-4 percent, and sometimes lower.

This interest rate increases when you wish to extend your loan terms to 48 or 60 months. For most institutions, you would receive a rate of 6-11 percent for a longer repayment plan such as this. You would also run the risk of your vehicle reducing its value during this time.

Recovering Credit

If you bought your vehicle with a credit score of 580 or lower, you will most likely be in a loan with an interest rate as high as 11-18 percent. Refinancing after making reliable payments will get you a better interest rate because your credit may have increased.

Assuming your credit score increased to 620 or higher, a 36 month loan in this situation can qualify for a rate of 7-11 percent. Longer loans will keep a higher rate of 10-14 percent, but this may still be better than the rate you received upon your initial vehicle purchase.

Bad to Worse Credit

If you are refinancing to avoid defaulting on your loan, your interest rate may be comparable to your initial loan but with lower monthly payments. You are most likely looking for a 48 month or 60 month loan in this situation, which can get you an interest rate of 11-18 percent or higher.

You can lower your interest rate with some lenders by putting money on deposit or getting a cosigner. In most situations, you may be stuck with a high rate because your credit score is still suffering and you are trying to extend the loan’s terms. Your best bet would be to refinance now and take steps to improve your credit. Some of these steps include:

  • Pay the full balance for unused lines of credit and close them out
  • Make vehicle payments on time
  • Avoid opening new lines of credit for the next year or so, including cash advances
  • Keep credit card balances low

With these strategies, your credit score can improve drastically within 30-40 months. Once this happens, try to get a new car refinance loan again. You will hopefully be in the middle category of “significantly improved” and have a lower interest rate.

You would also do well to save up and prepare for a shorter loan term when you get a car refinance loan. This should get you much lower interest and help you with a faster overall repayment.

Posted in: RefiPayment News

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