Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our
Editorial Guidelines and
How We Make Money.
If your credit is less than stellar and you’re in the market for an auto loan refinance, you may be intrigued by ads for guaranteed auto refinancing. This isn’t really a legal term, but what this typically means is refinancing from a dealership that often may not be concerned with your credit score. Therefore, these loans, also called no credit check loans or buy here, pay here loans, can be useful for people with poor credit histories. But, of course, these loans typically have certain disadvantages, too, like high interest rates.When looking for guaranteed auto refinancing, compare multiple options. Also stay focused on your financial goals. Your bottom line shouldn’t be just getting approved, it should be either saving money on interest or lowering your monthly payment during a period of hardship. Here’s what you need to know about guaranteed car refinancing and how to navigate the process.What is Guaranteed Auto Financing?
Guaranteed auto financing refers to new car loans you can get regardless of your credit history. Borrowers who have limited credit history or a low credit score may want to apply for auto loan refinancing so they won’t have to worry about getting denied due to a credit check. In some ways this may seem practical. Every hard inquiry on your credit report causes a drop of a few points. And too many inquiries may raise a red flag to lenders that you’re having cash flow issues. But in reality, your credit score won’t see that much damage if you use a little strategy when you make your applications. Shop for auto loans within a 45-day window and they all count as just one entry on your credit report. In other words, even if you have bad credit, you won’t necessarily be guaranteed auto financing. And even if you are accepted, chances are that the interest rate you’ll be charged will be higher than the rate of a conventional loan, even one for people with bad credit. Is There Such a Thing as Guaranteed Auto Loan Refinancing?
There is such a thing, though it is not literally guaranteed that you will be able to get it, just much easier to access even if you have poor credit. Usually, lenders that advertise guaranteed car refinancing focus on assessing factors like a potential borrower’s income and assets rather than credit. In fact, they may not even perform a credit check. Instead, the application process will likely include income and employment verification, as well as a down payment. When refinancing, you may need equity in your car, meaning that the loan amount will be lower than the total value of the vehicle.Pros and Cons of Guaranteed Auto Loan Refinancing
There are both pros and cons to refinancing your auto loan. The big pro for many people is that a credit check will probably not be required. That can make it easier for people with poor credit to get an auto loan refinance.Another possible advantage is that, as with any refi, you may be able to find a way to save money with new loan terms. The best option is to qualify for a lower interest rate which can let you save on interest that you pay over the life of the loan. You may also try to lower your monthly payment in order to save money in the short-term (although you may end up spending more on the car loan over time). Here are some options to consider:- Lengthen your repayment term to lower monthly payments. You could pay more in the long run, but it might make sense if you use the savings to pay down higher-interest debt.
- Use equity for a cash out refinance. If your car is worth more than you owe, you could apply to cash out that equity and use it for another financial goal.
The downsides of refinancing may include typically higher interest rates, the fees and costs you have to pay for, which vary, and any prepayment penalties that might be attached to your original contract.Another possible negative is that you might see a small, temporary dip in your credit score.When considering a guaranteed refinance car loan, ask questions about rates, how much it costs to refinance, and how your credit score will be impacted at each stage of the application process. What Affects Your Chances of Approval?
How does car loan refinancing work? There are three primary factors that affect your odds of getting approved.Credit score. Typically, lenders look at your credit score to determine how well you’ve managed your debt payments in the past. Many use a specific credit scoring model like the FICO Auto Score to weigh past car payments more heavily. If you’ve prioritized your auto loan payments in the past, even with other negative credit marks, your score may be higher than you think. If you’re opting for a guaranteed car loan refinance, however, your credit score may not be reviewed. Instead, a dealership may look at factors like your income and employment. Debt-to-income ratio. Lenders typically want to know you can afford your monthly car payment in addition to all of your other debts. Using your debt-to-income ratio, they’ll analyze your monthly income (before taxes are taken out) to your monthly debt payments. Think about what has changed with your income and debt before you apply to refinance your car loan. Vehicle: Most lenders have restrictions on what types of vehicles are eligible to refinance. For instance, they may have a maximum age, which is typically seven years. Additionally, some lenders have maximum mileage requirements as well. Finally, your loan balance may need to meet a certain threshold; a lender may not want to make a loan that’s too small or too big.How to Offset a Bad Credit Score
First, check with your existing lender to see if they’re willing to change any of your loan terms without refinancing the loan. They may prefer to negotiate rather than lose your business. When you do apply for a refinance, you may want to look for lenders that use the auto-focused credit scoring model, especially if you have a positive payment history on your car loan. This could improve your odds if you have late payments on other accounts, but not your auto loan.You could also consider getting a cosigner. This person, who might be a close relative or friend, shares responsibility for the car loan with you. In return, the lender considers their credit and income in addition to yours. The downside is that any late payments you make could also affect your cosigner's credit score. And if you completely default on the loan, they may be responsible for paying it off on your behalf. Also, a cosigner is usually stuck for the life of the loan. Some lenders do offer a co-signer release in the contract. Otherwise, you have to refinance the loan again or pay it off entirely to remove the cosigner.Checking Auto Loan Refinance Rates
Instead of looking solely at guaranteed refinance auto loans, make sure you review multiple lenders in order to get the most competitive rate (or whatever loan terms you want in order to achieve your goals with your refinancing). Interest rates can vary greatly from lender to lender. Look at both the base interest rate and the APR, which helps you compare other costs associated with the loan. Rates may also be different based on the length of the loan term. Pay attention to the rate as well as how long you’ll be paying it. A lower rate over a longer period may still cost more over time. Use an auto loan refinance calculator to compare your monthly payments with the overall cost of interest.This is the time it’s especially important to stay focused on your refinancing goals. You may be trying to lower your monthly payments regardless of the long-term costs involved. Or you may want to save money on interest, regardless of how that affects your monthly payments. Keeping your goal in mind helps you compare loan rates and other terms in a way that serves your best interests.The Takeaway
Guaranteed car refinances may be one way to get a car refinance loan if you don’t have great credit. But you don’t necessarily need a guaranteed car refinance to find a lender that’s willing to work with you. You can also use Lantern by SoFi to compare rates with multiple lenders and just one short pre-qualification form. Compare auto loan refinance offers at Lantern by SoFi now.
Photo credit: iStock/dragana991
SOLC0921180
About the Author
Lauren Ward
Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
