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What Credit Score Do You Need to Refinance a Car?

What Credit Score Do You Need to Refinance a Car?
Lauren Ward
Lauren WardUpdated August 19, 2022
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Technically, there’s no minimum credit score required to refinance your car. Your score is one of multiple factors that lenders review as part of your application. That said, you’ll typically qualify for better interest rates with a stronger credit profile. But having bad credit may not automatically exclude you from getting approved. 

Is There a Minimum Credit Score to Refinance an Auto Loan?

What credit score do you need to refinance your car? There’s no hard answer to that question. Typically, a FICO® score of 700 or above will give you access to good loan offers, while a score of 660 or more means you’ll likely get standard offers. But it’s important to consider your credit score in relation to your reasons for refinancing your auto loan.The first reason you might want to refinance would be that you might now qualify for a better interest rate than when you first got your car loan. That could be because rates have lowered in general or because your credit score has improved. Either way, a lower interest rate can reduce how much you pay in interest over the life of the loan.Another common reason for refinancing is simply to lower your monthly payments to take some stress off your budget. You might do this by extending your loan term. This means you’ll be making car payments for a longer period of time, and paying more in interest as well over the life of the loan. But if you’re feeling a financial pinch that doesn’t look like it’s going away anytime soon, a refinance could provide some relief. The interest rate you’re offered on a refinance, of course, will be impacted by what type of credit score you have. 

How Different Credit Levels Affect Auto Loan Refinancing

Refinancing a car is most difficult when you have a bad credit score. But you may still be able to get approved, especially if you’ve demonstrated a strong track record of making your current car payments on time. Another strategy that could help you get approved is to use a cosigner. This puts another person on the car loan with you. The idea is that their credit score and even potentially their income could help you get approved. But it also puts your cosigner on the hook for the payments if you don’t make them. And their credit can be damaged significantly if you miss payments.With a good credit score, you’re more likely to get approved for a refinance, and with a more competitive rate. However, your income still needs to support the loan payments. A lender will verify your income as part of the application process and also compare it to your debt levels. This comparison is called your debt-to-income ratio. If your monthly debt payments are too large compared to your income, you could have trouble getting approved.

Cash Out Refinance and Credit Scores

In many cases, the best time for refinancing may be when your car is worth more than you owe. This situation could arise for a couple of different reasons. The first is that you’ve taken good care of your car and it hasn’t depreciated too quickly. The second is that you’ve been making extra payments on your car loan, keeping your overall balance lower than the value of the vehicle.In these scenarios, you could apply for a cash out refinance on your auto loan. This lets you take out a larger auto loan and receive the cash difference between the smaller, original loan and the new, larger loan. The car is used as collateral, just as it would be with any other auto loan. However, you do lose the equity you had before. A cash out refinance can negatively impact your credit score. As you might with any type of loan application, you’ll likely see a slight dip once the lender performs a hard credit check. Additionally, a cash out refinance can change the overall amounts you owe and a higher overall level of debt could lower your score. 

Increasing Your Odds of Approval

If you’re thinking about refinancing an auto loan, you can take a few steps to increase your chances of approval. First, make sure your credit history is accurate. You can do this by checking your credit reports. Double check that your balances are accurate and that no fraudulent accounts have been opened in your name. You can file a dispute with the credit bureaus if you see something that is inaccurate.Next, continue to pay your bills on time, especially your car payment. Most lenders use an industry-specific credit score to buy a car. This places a great priority on your previous auto loan payments. Also, it can be a good idea to work on paying down your debt, especially if you’re concerned about your debt-to-income ratio. Not only can lower debt improve your credit score, it can help you qualify for a higher loan amount. The maximum debt-to-income ratio allowed by a lender is usually between 45% and 50% (including the new car payment). For example, let’s say your monthly income is $8,000 and you’re already paying $1,250 on a mortgage, $250 on a car loan, and $250 on other debts. That puts your debt-to-income ratio at $2,000 to $8,000 or 25%, leaving you comfortably below the usual requirement.  

How Does an Auto Loan Refi Affect Your Credit?

Whenever you take out a new loan, your credit will be impacted in a few different ways. It doesn’t mean that refinancing your car is a bad idea, as long as it helps you meet your primary financial goals. But it’s still smart to know what to expect in terms of your credit score and what exactly may be impacting it.New inquiry on credit report: When you’re figuring out what kind of interest rates you can get, remember to rate shop in a set window of time. Auto credit bureaus may count multiple hard inquiries for the same type of loan as just one inquiry if they're performed within 14 or within 45 days, depending on the scoring method being used. If you’re sporadic with your applications, you could cause your credit score to drop up to five points for each one.New account: Part of your credit score is based on the combined age of all your accounts. When you refinance an auto loan, you’re closing one account and opening another. That can cause your average age of accounts to go down and cause a drop in your score. Amounts owed: A new car loan could cause a big dip in your score since it’s adding a large amount of new debt. But a refinanced car loan is usually for the same amount as the debt you already have, so it shouldn’t have a huge impact unless you do a cash out refinance. 

Auto Loan Refinance Rates

Of course, interest rates vary among different lenders. But the following chart may help you get a sense of what you’re likely to be offered.

Average Auto Loan Interest Rates

The credit bureau Experian published the average auto loan rates based on credit range for the second quarter of 2021. This gives you a jumping off point about what you might expect when it’s time to refinance.New Car Loans
Credit CategoryAverage Interest Rate (Q2 2021)
300-500 (Deep Subprime)0.1459
501-600 (Subprime)0.1103
601-660 (Near Prime)0.0661
661-780 (Prime)0.0348
Used Car Loans
Credit CategoryAverage Interest Rate (Q2 2021)
300-500 (Deep Subprime)0.2058
501-600 (Subprime)0.1711
601-660 (Near Prime)0.1049
661-780 (Prime)0.0549

How to Look for Auto Loan Interest Rates

It’s important to shop around for auto loan refinance rates no matter what your credit score may be. One way to compare multiple rates without hurting your credit score is to use Lantern by SoFi’s free auto loan refinance comparison platformWith Lantern’s robust network of lenders, you can access multiple refinance quotes with just one application. Getting prequalified is quick and easy, so you don’t waste a lot of time filling out multiple forms. Plus, you don’t have to worry about multiple credit checks hurting your credit score.Once you find the best refinance quote, you can finish the application with the new lender and get your new auto loan.

The Takeaway

You can get an auto loan refinance with a wide range of credit scores, depending on the lender and your other credentials. However, the higher your score, the more likely you are to get favorable terms on your refinance. Getting a cosigner or taking the time to establish a stronger credit history can help you get more favorable interest rates on your car loan refinance. And comparison shopping (within a short window of time) can also help you find the loan that is best suited to your needs.
Photo credit: iStock/MicroStockHub

About the Author

Lauren Ward

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.
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