Can You Refinance a Side by Side?
Understand if refinancing your side-by-side loan is an option and the steps to adjust your vehicle's financing.
A side-by-side vehicle, also known as a UTV (Utility Task Vehicle) or SxS, is an off-road vehicle designed for recreation or utility, featuring a steering wheel, foot pedals, and bucket or bench seating for one or more passengers seated side-by-side. These vehicles are distinct from ATVs (All-Terrain Vehicles) due to their multi-passenger configuration and automotive-style controls. For individuals who have financed the purchase of a side-by-side, refinancing the existing loan is a viable financial option. This process allows borrowers to adjust their financing terms to better suit their financial situation.
Understanding Side-by-Side Refinancing
Refinancing a side-by-side loan involves securing a new loan to pay off an existing one. This new loan comes with different terms, such as a revised interest rate, a new repayment period, or an altered payment structure. The primary goal of refinancing is to achieve more favorable financial conditions for the borrower. When refinancing, the new lender disburses funds directly to the original lender to clear the outstanding balance, and the borrower then begins making payments to the new financial institution.
Various financial institutions offer refinancing options for powersports vehicles like side-by-sides. These include traditional banks, credit unions, and specialized online lenders for recreational vehicle financing. Each type of lender may offer different rates, terms, and application processes. Credit unions, for instance, often provide competitive rates and personalized service to their members.
When Refinancing Makes Sense
Refinancing a side-by-side loan can be a strategic financial move in several circumstances. One common scenario is when a borrower’s credit score has improved since the original loan was obtained. A higher credit score (670 or above) often qualifies borrowers for lower interest rates, leading to substantial savings over the loan’s life. For example, a FICO score of 740 or higher secures the most favorable rates.
Another reason to refinance is a decrease in market interest rates since the initial financing. If prevailing rates for vehicle loans are lower than the rate on the current side-by-side loan, refinancing can reduce the overall cost of borrowing. Borrowers might also consider refinancing to lower their monthly payments by extending the loan term. While extending the term may result in paying more interest over time, it can free up monthly cash flow, beneficial for managing a budget. Conversely, some borrowers may choose to shorten their loan term to pay off the debt faster and reduce the total interest paid, provided they can afford higher monthly payments.
Preparing for Refinancing
Before initiating a refinancing application, gathering financial and vehicle-related documentation is important. Lenders require proof of income, which may include recent pay stubs or tax returns (W-2s or 1099s). Lenders use this information to assess a borrower’s debt-to-income ratio, which should be below a certain threshold (often 35% to 50%).
Proof of residence, such as utility bills, bank statements, or a mortgage statement, may also be requested, especially if the address on a driver’s license does not match current residency. Details of the existing loan, including the current loan balance and the original lender’s information, are needed for the payoff amount. Vehicle-specific documentation is required, such as the Vehicle Identification Number (VIN), make, model, year, and proof of insurance. An odometer reading or photo may also be needed.
The vehicle’s characteristics, such as its age, mileage, and current market value, impact eligibility and the terms offered. Lenders have restrictions, preferring vehicles less than 10 years old and with mileage below 100,000 to 150,000 miles. The market value of the side-by-side, assessed against its loan amount (loan-to-value ratio), also impacts approval.
The Refinancing Application Process
Once necessary documents are prepared, the refinancing application process begins with identifying potential lenders. This involves researching various financial institutions, including banks, credit unions, and online lenders specializing in powersports vehicle refinancing. Many lenders offer online pre-qualification tools that allow applicants to check potential rates and terms without impacting their credit score, as these involve a soft credit inquiry.
After comparing offers, the borrower selects a preferred lender and submits a formal application. This can be done through an online portal, though some institutions may require in-person submission. The application mirrors the original loan application, requiring personal, employment, and vehicle details. Following application submission, the lender performs an underwriting review, which involves a hard credit check that may cause a temporary dip in the applicant’s credit score.
Upon approval, the lender presents the new loan terms, including interest rate and repayment schedule. If the borrower accepts these terms, new loan documents are signed. The new lender then directly pays off the outstanding balance of the original loan. The borrower then starts making payments to the new lender under the agreed-upon terms, completing the refinancing process.