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Refinancing a Car With High Mileage

Refinancing a Car With High Mileage
Anna Davies
Anna DaviesUpdated April 13, 2023
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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.
As prices for used and new cars skyrocket, you may be wondering how to get the most value from your current vehicle. One option you might consider is refinancing. Refinancing can lower your monthly payment, which can give you more flexibility in your overall budget. But refinancing is dependent on multiple factors, which can include features relating to your vehicle. One of these can be the car’s mileage. So, if your car has high mileage, you may wonder whether your loan application will be successful. Yes, refinancing a car with high mileage is possible but can be difficult. Below we highlight some of the difficulties of refinancing a car with high mileage.

Difficulty of Refinancing a Car With High Mileage

A potential lender typically analyzes several factors in your refinance application, one of which is your loan-to-value ratio (LTV). This number analyzes how much you owe vs. how much the car is worth.The lower your LTV is, the better. A car with high mileage may have a low appraisal value, and that can push the LTV ratio up to a percentage that the lender may not be comfortable with. That’s because a car with high mileage can become a liability to lenders, especially if they’re concerned that the car won’t outlast the life of the loan.A lender may also be worried about car value. If the loan is worth more than the value of the car, then the loan is considered “upside down” or “underwater.”. In that case, it may be hard to find a lender to refinance your car. Your interest rate on the loan may also be higher. But high mileage doesn’t necessarily mean that your car has little life left. Overall, vehicle condition plays a role in your application profile, too, as does your own creditworthiness.

What’s Considered High Mileage On a Vehicle?

In the past, the rule of thumb was that high mileage was anything above 100,000 miles. But that isn’t necessarily the case any longer, thanks to new technology.Now, cars can be driven well beyond the 200,000- mile mark, especially if they’re in good condition. But while 200,000 miles may be a benchmark for the “average” car life expectancy now, high mileage is typically measured in how many miles you drive per year. The average driver puts 13,000 to 14,000 miles on their car a year. If you put more mileage on your car each year, then your car may be considered a high-mileage vehicle.High mileage is an issue for lenders because it may signify more wear and tear on the vehicle. Your lender may also have specific guardrails when it comes to how much mileage it will consider for refinancing applications, while others may have general questions about the condition of your vehicle.Recommended: Importance of Calculating Depreciation on a Car

What to Know When Considering a High-Mileage Refinance Loan

Refinancing your auto loan can make sense in some cases, including:
  • If your credit has improved to the point at which you’ll have a lower interest rate on your loan
  • If it will lower your monthly payments. 
  • To shorten the life of your loan, which may lower the amount of interest you pay over the life of the loan 

Things to Consider When You’re Thinking of Refinancing

Knowing why you want to refinance can help you assess whether refinancing is the best idea for you. Keep in mind that refinancing a high-mileage car may mean that the new interest rates you’re offered will actually be higher than your current interest rate, which may not make refinancing worth it.Weighing the pros and cons of refinancing is also important. Refinancing can be beneficial if it lets you pay less over the life of the loan or reduces monthly payments you can’t afford by extending your loan term. But if it threatens to make you go upside down on your loan, it’s likely not a good idea.Going upside down on your loan, as it’s called in auto loan terminology, means that you owe more than your car is worth, and it’s one of the dangers of refinancing a high-mileage car. It can put you in a financially vulnerable position, especially if your car does become unusable at any point through your loan. If this were to happen, you would still be responsible for paying down your loan — and you would also need to somehow budget for a new mode of transportation.Finally, it can also be a good idea to think of next steps: How long do you plan to have your current car, and how will you finance a new one, when and if you need one?

Lenders Evaluate Creditworthiness

In addition to checking out the condition of your vehicle, a lender will also assess you as a potential borrower, using your credit score as one way to evaluate your creditworthiness. If your credit score has improved since your initial car loan, you may find a lower interest rate on a refinance. But if your credit score is similar or went down, you may find that refinancing doesn’t necessarily make financial sense, and it may make more sense to find wiggle room elsewhere in your budget.Recommended: Guide to When to Refinance a Car Loan

Avoid Going Upside Down On a Car Loan

Refinancing a car can be risky if you’re not careful. Here are ways to avoid going upside down on a car loan:
  • Minimize your loan length. This may mean you’re paying more money each month, but if a refinance gives you a lower interest rate, then you’ll save money in the long term.
  • Keep your car in good condition. Follow your manufacturer’s recommendations for servicing, including replacing the battery, to avoid letting a minor issue become a major issue.
  • Pay off your loan early. If you have the means to do so, pay off your car loan early before its ultimate due date. Make sure your lender doesn’t have any prepayment penalties.
Some car dealers may offer you incentives to trade in your old car for a new car — even if you still owe money on your current car. This can be financially risky. While your loan gets paid off on the old car, your loan on the new car will include what was still owed on the old car loan, raising the overall loan amount and setting up the potential for you to get even deeper in debt.You may also want to assess whether you really need a car at all. In some cases, car owners realize that they can sell their financed car for more than what they owe on the car. Of course, this depends on whether you can live without a car or if you’ll still have access to transportation if you need it. In short, consider all options and assess how the financial moves you make today may impact your finances tomorrow.In all scenarios, crunch the numbers, consider what-ifs, and assess next steps. 

The Takeaway

A car refinance can be beneficial: It can lower your current interest rate and can free up money in your budget. But because refinancing a car with high mileage can be tricky, it may lead to you spending more money and more time paying down the loan. It can be a good idea to look at your overall financial picture:How will the refinance serve you? If you’re in a better financial spot than you were when you started the loan, then it may mean you can save money. But if you’re thinking of a refinance to try to free up money in your budget, you may need to crunch your numbers to see whether auto refinancing is right for you.If you decide that refinancing is a good option, Lantern by SoFi may be able to help. Fill out one simple form to view auto refinancing offers from multiple lenders in our network so you can find the one that’s right for you.

Frequently Asked Questions

What is considered high mileage?
Is it worth it to refinance a high-mileage vehicle?
Is it possible to refinance a high-mileage car?
Will refinancing your vehicle put you upside down?
What other options are available besides refinancing?
Photo credit: iStock/gradyreese

About the Author

Anna Davies

Anna Davies

Anna Davies specializes in writing for the fintech and startup space. In addition to her personal finance and investing articles for SoFi, she has written for such startups as WeWork, Happy Money, and Haven Life. Fortune 500 finance clients include American Express, Citi, and Chase. Davies has ghostwritten and collaborated on multiple New York Times bestsellers.
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