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Military Refinance Auto Loan: How the Process Works

Military Refinance Auto Loan - How Does It Work?
Austin Kilham
Austin KilhamUpdated December 3, 2022
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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.
Refinancing the loan on your vehicle can be an important tool in helping you save money. This is especially true if your financial situation has recently improved, as lenders could be willing to offer you a lower interest rate and better terms on a new loan. And if you’re a member of the military, you might be able to access even more benefits and protections that aren’t available to the general public. For members of the military, here’s a look at the auto loan process, the ins and outs of refinancing a vehicle, and some of the special considerations for those in the armed services.

What Is Car Loan Refinancing?

Cars are big-ticket purchase items. This means many people need to use a financing program — be it through a bank, dealership, or another lender — to pay for them. In some cases, the interest rates and terms offered on that initial loan might not be favorable. For example, if an individual has a poor credit score, their lender will likely offer them a loan with a higher interest rate. Later, if that person’s credit score improves, they may be able to refinance their loan with another lender. The process of refinancing involves taking out a new loan to pay off the old one. Ideally, the new loan offers good interest rates or terms that help the individual save money in the long run. For example, a shorter loan term or lower interest rate can save an individual money over time. Before taking out a new loan, consider both the positive and negative sides of auto loan refinancing.

How Does Military Auto Refinancing Differ?

You may be eligible for special lender discounts if you’re an enlisted service member who qualifies for auto loan refinancing. That means you may receive interest rate discounts not available to a civilian if your military car refinance application gets approved. A refinance car loan military product functions no differently than similar products for civilians. Banks, credit unions, and other financial institutions can set terms and conditions for lending products. A refinance auto loan military lending product is a traditional auto refinancing product that may provide you with special terms. The U.S. Department of Veterans Affairs does not offer VA refinance car loans, but private lenders may offer special military car refinance rates to current and former service members. Special discounts aside, the refinancing process itself is basically the same for military and non-military members.  Essentially, you’re taking out a new loan. In most cases, you’ll fill out a loan application and lenders will take a look at financial information like your credit score and history to determine the interest rate and terms they’re willing to offer. Generally speaking, the better your credit score, the better the interest rates you’ll be offered and the more favorable the loan terms will be. Lenders will also take a look at the make, model, and condition of your vehicle to make loan decisions. For example, if your car is worth significantly less than what you already owe on your previous loan — a situation known as an upside down auto loan — you may have a difficult time securing a new loan. Also, it’s typically easier to secure a refinance loan on newer vehicles. So if you’re thinking about refinancing, it may be better to do it sooner rather than later. If your credit rating is low and you’re having trouble securing a loan, you’ll have options. For example, you may seek out an auto loan cosigner with a stronger credit history. Beware that this person will be on the hook financially if you fail to make payments.

Benefits of Refinancing an Auto Loan in the Military

When it comes to your car, be aware of the advantages you can get if you are in the military: caps on auto loan interest, discounts on insurance, access to some credit unions’ advantageous rates, protection from repossession, and even price slashing on the new car purchase price for certain brands. These things come into play with an auto refinance loan for the military. As mentioned above, you may be eligible for special lender discounts if you’re an enlisted service member who qualifies for military car refinance loan products. The VA does not offer VA refinance car loans, but private lenders may offer special military car refinance rates to current and former service members. The benefits of refinancing an auto loan in the military is you may enjoy certain protections and rate discounts not available to a civilian who never served in the U.S. armed forces. Refinance auto loan military products are traditional auto refinancing products that may provide service members with special terms.

Military Auto Loan Refinance Criteria

Qualifying for a military refinance auto loan may require that you meet the following car loan requirements
  • Proof of identity
  • Proof of income
  • Proof of residence
  • Valid vehicle documentation
  • Proof of insurance

Refinance Auto Loan With Bad Credit for Military Members

If you have a poor credit score, it’s doubly important to familiarize yourself with the breaks that being in the armed services provide for a military refinance auto loan. You have access to deals and discounts that civilians don’t, like favorable credit union loans for military personnel. Having bad credit is not ideal, but it’s also no reason to panic. It’s possible to get car loans and refinance with bad credit.

Obstacles With Car Registration for Military Members

People in the military don’t often stay in one place. Your refinance lender will almost certainly ask to see your car registration when you apply for a refinance loan. When you move, states typically require registration to be updated with their department of motor vehicles (DMV). Rules will vary by state, and some will even waive registration fees for military members. Most states will require proof of insurance when registering your vehicle, and the address on insurance documents will often need to match registration documents. For military members who move frequently, these steps may be overlooked. However, it’s important to get them squared away before applying for a military refinance auto loan.

Military Auto Refinance Considerations

When it comes to purchasing a car or an auto insurance policy, or seeking financing, there are some important benefits military members need to know:

Interest Rate Protection

The Servicemembers Civil Relief Act (SCRA) puts a 6% cap on loans that military members took out prior to joining the service. Creditors must retroactively forgive interest that is greater than 6% per year, and they cannot accelerate principal payments as a result of a request for a 6% cap. This cap not only applies to auto loans, it also applies to credit cards, mortgages, home equity loans, student loans, and other vehicle loans. Be aware that any loans, including refinance loans that you take out while on active duty, will not be subject to the same interest rate cap protections.

Car Repossession

The SCRA also provides protection against car repossession. According to the law, lenders cannot repossess your car while you’re in military service without a court order. Even if the creditor does take their claim to court, they could face other hurdles. For example, SCRA rules may require the lender to return some or all of the payment you made prior to repossession. Or they may require an equity payment equal to the difference between how much you still owe on your auto loan and the value of the car. 

Military Financing

Members of the military may have access to credit union auto loans and military bank auto loans that traditional lenders don’t offer. For example, the Navy Federal Credit Union (NFCU) was established specifically to help members of the armed services access loans with affordable rates and terms military personnel could manage. It’s worth checking with the NFCU and other lenders like the Pentagon Federal Credit Union to see what types of loans they offer. Because these organizations are used to working with military personnel, they are familiar with your special needs.

Discounts on Cars for Military Members

Many automakers offer special pricing deals for military members. As you’re shopping for a new car, you may want to take these brands into consideration to help you save:
  • Acura
  • BMW
  • Ford
  • General Motors
  • Honda
  • Hyundai
  • Mitsubishi
  • Nissan
  • Subaru
  • Toyota 
If you are stationed overseas, there may still be opportunities for you to purchase a vehicle at a discount. Volvo and BMW offer military benefits abroad. You may also consider services like Military Autosource, which can deliver a vehicle while you’re serving outside the country.

Car Insurance Discounts 

Monthly auto loan payments are not the only recurring expense related to car ownership. Keeping your car insured is another, and it can get pricey. Luckily, many insurance providers also offer car insurance discounts to active military members and veterans. 

Can You Get Out of a Car Loan with Military Orders?

If you receive military orders to move, you’ll still be on the hook for your car loan. That’s generally how car loans work: you’re responsible for repaying the debt. That said, if you have leased a vehicle, you might be able to terminate the contract under certain circumstances prescribed by the SCRA. In order to break your lease, one of the following must be true:
  • You must have entered into the lease agreement prior to active duty, and then you must have been called to active duty for 180 days or longer.
  • During active duty, you received orders for a permanent change of station from inside the continental U.S. to outside the continental U.S. The same is true if you received an order to move from outside the continental U.S. to anywhere else.

Explore Auto Loan Refinancing Options With Lantern

If your auto loan has become unmanageable, if interest rates have changed, or if your financial situation has improved, it may be time to look into auto refinance rates. Lantern by SoFi can help you find a refinance car loan that’s right for you. Find and compare auto loan refinance options with Lantern.

Frequently Asked Questions

Does being in the military help with car loans?
What are the benefits of auto refinance loans for military members?
Can you get out of a car loan with military orders?
Photo credit: iStock/Ankit Sah

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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