What Does My Credit Score Have to Be to Refinance a Car?

Refinancing a car loan involves replacing your existing auto financing with a new loan, often from a different lender, typically with the goal of securing more favorable terms. This process can lead to a lower interest rate, reduced monthly payments, or a shorter loan term. Lenders consider your credit score as it indicates your financial responsibility and risk as a borrower.

Credit Score Requirements for Car Refinancing

A credit score is a numerical representation of your creditworthiness, with FICO and VantageScore being the two most widely used models. These scores generally range from 300 to 850, where a higher score indicates lower risk to lenders. While no single minimum credit score is required to refinance a car, lenders use these scores to determine eligibility and offered interest rates.

Different score ranges translate to varying eligibility and loan terms. For instance, a FICO score of 670 to 739 is “good,” 740 to 799 is “very good,” and 800 to 850 is “exceptional.” Borrowers with scores in the “good” to “exceptional” ranges are more likely to qualify for competitive interest rates and favorable loan terms. Conversely, scores in the “fair” (580-669) or “very poor” (300-579) ranges may still allow for refinancing, but often come with higher interest rates due to increased risk.

The average credit score for approved auto refinance borrowers often averages around 670. Some lenders specialize in working with individuals who have lower credit scores. Most lenders commonly seek a score of at least 600 for refinancing. Checking your own credit score, through free credit reporting services or credit card companies, does not negatively impact your score and can help you understand your standing before applying.

Additional Lender Evaluation Criteria

While a credit score is a significant factor, lenders consider several other criteria when evaluating a car refinance application. These elements help lenders assess overall risk.

The debt-to-income (DTI) ratio compares your total monthly debt payments to your gross monthly income. Lenders evaluate DTI to ensure sufficient income for new and existing debt. While a DTI below 36% is often preferred, many auto refinance lenders may approve applications with DTI ratios up to 50%, and some may not have a strict cap.

The loan-to-value (LTV) ratio compares the amount owed on the car to its current market value. A lower LTV ratio, ideally 100% or less, indicates the car’s value sufficiently covers the loan amount, making it less risky for the lender. Many lenders cap the LTV ratio for refinancing at about 125% to 150%, meaning you might still qualify even if you owe slightly more than the car is worth.

Lenders also examine income stability and employment history to gauge your ability to make consistent payments. A steady job and a reliable income stream are viewed favorably. The vehicle itself also plays a role, including age, mileage, make, and model. Most lenders have maximum mileage and age requirements, typically around 125,000-150,000 miles and no older than 10 model years, as older or high-mileage vehicles pose greater risk due to depreciation and mechanical issues.

Strategies to Enhance Your Refinance Eligibility

To improve your chances of qualifying for a better car refinance rate, take several proactive steps. Improving your credit score is a key strategy, directly influencing interest rates. Making timely payments on all debts builds positive payment history, significantly impacting your score. Reducing outstanding credit card debt lowers your credit utilization ratio, a key component.

Regularly checking your credit report for errors and disputing inaccuracies can improve your score. Avoid new credit inquiries just before applying, as multiple hard inquiries within a short period can cause a temporary dip. However, when rate shopping for an auto loan, multiple inquiries within 14 days are often treated as a single inquiry by scoring models.

Managing your debt-to-income (DTI) ratio by paying down overall debt can enhance eligibility. A lower DTI demonstrates more disposable income for loan payments. Understanding your vehicle’s current worth using resources like Kelley Blue Book or Edmunds helps assess your loan-to-value (LTV) ratio and determine if refinancing is financially sound.

Shopping around and obtaining pre-qualification offers from multiple lenders is beneficial. Pre-qualification involves a soft credit check that does not affect your credit score, allowing you to compare potential rates and terms without commitment.

Navigating the Car Refinance Application

Once you determine car refinancing aligns with your financial goals, the application process involves several steps. The initial stage requires gathering essential documents. These include:
Proof of income (e.g., pay stubs, tax returns)
Proof of residence (e.g., utility bill, lease agreement)
Proof of car insurance
Driver’s license
Vehicle information (make, model, year, VIN)
Current loan details (payoff amount, remaining balance)

After collecting documents, submit your application. Many lenders offer online portals, while others facilitate in-person applications at banks or credit unions. The application form will request personal, financial, and vehicle details. Upon submission, the lender will review the application, including a credit check and document verification.

Following the lender’s review, you will receive a decision on approval or denial. If approved, you will typically receive one or more loan offers. Carefully review these offers, comparing interest rates, loan terms, and any associated fees to ensure financial benefit. The final step involves finalizing the loan by signing new loan documents. The new lender will pay off your old loan and their name will be added to your car’s title.