Can You Trade in a Financed Car?

If you’re looking to trade in your car, you may wonder if you can do so if you still have a loan outstanding on the vehicle. The good news is that, in most situations, you can trade in a financed car. Here’s how it works.

When you go to trade in your car, the dealership will pay off the remaining balance on your loan. They will then apply your equity in the car towards purchasing your new vehicle. If you owe more on the loan than the car is worth, you may still be able to trade it in, but you may have to pay the difference out-of-pocket or roll the negative equity into your new loan.

When trading in a car you still owe money on, it’s essential to research and understand the implications. In addition, weighing all your options before committing to either route is important, as this will help ensure you get the most value out of your vehicle

Let’s take a closer look at the different considerations involved in trading in a financed car and what you can do to ensure you get the best deal.

Table of Contents:

What is a trade-in?

A trade-in is when you use your current vehicle as collateral toward the purchase of a new car. You essentially hand over the keys to your old car to the dealer, who then uses that car to lower the price of the new car you’re buying. In this process, your previous loan is paid off, and any equity you may have in your car is applied toward the price of the new vehicle.

Sometimes, trading-in a car can give you less money than what you would get if you sold the car outright — so if getting top dollar for your old car is a priority, trading it in might not be the first option to explore. However, in order to be sure, you need to take a few steps.

Person holding a mobile phone in hand and scrolling on the screen. Information is about finding out what your car is worth which is in the text below

Find out what your car is worth

Before trading in your car, it’s essential to know precisely how much it’s worth. The trade-in value is not the same as the retail value, so don’t walk in thinking that’s what the dealership will offer for your car. The trade-in value is generally closer to the wholesale price the dealer will give you for your vehicle. However, the retail value is higher and would be what you could expect to get if you sold your car yourself.

That said, knowing the retail value of your vehicle is still important because it will give you a better understanding of the equity you have in your car.

There are a few different ways to determine your car’s trade-in value. One is to use an online tool like Edmunds’ Trade-In Marketplace or Kelley Blue Book’s Trade-In Calculator. You can also check “black book” values at sites like NADAguides

Get the most for your trade-in

Once you know the trade-in value of your car, it’s time to start thinking about how to get the most for it. Remember — the dealer’s goal is to make money on the sale of both the new car and the trade-in, so they’re not going to give you top dollar for your current vehicle. However, that doesn’t mean you can’t negotiate a reasonable price for your trade-in. Here are a few tips:

Hand flipping through a roll of 100 dollar bills. The text is informing readers how to get the most out of a trade in and is the same as the text in the story below
  • Research recent sales of similar cars in your area to see what they sold for. This will give you a good idea of what dealers currently pay for cars like yours. 
  • Get multiple appraisals from different dealerships. This way, you can compare offers and see who will pay the most for your car. 
  • Be prepared to walk away from any offer that isn’t satisfactory. After all, if they’re not willing to give you a fair price for your trade-in, there’s no reason why you should buy a car from them anyway. 

Additional recommendations for earning top trade-in dollar on your car include:

  • Repair any minor damage to the vehicle, including dings, scrapes, and scratches.
  • Have the car washed and detailed so it looks its best.
  • Provide any relevant service records to prove that the car has been well-maintained.
  • Remove any aftermarket accessories or modifications if possible.

Know your remaining loan balance

The next step is determining how much you owe on your current loan. If you’re unsure of your remaining balance, contact your lender and request a payoff quote. This will tell you exactly how much money needs to be paid off for you to trade in or sell the car. 

It’s important to understand where you stand on principal vs. interest payments on your loan. If you haven’t paid much of the principal, you’re mostly paying off interest charges, which will impact how much equity you have in your car. 

Calculate the equity on your vehicle

Now that you know what your car is worth and how much you still owe, you can calculate the amount of equity you have in the car. To do this, subtract the remaining loan balance from the car’s trade-in value. If you have negative equity in the car, you still owe more than what it’s worth. 

  • Trading in a financed car with positive equity – This is a good position to be in. It means you have some equity in the car, which you can use toward purchasing a new vehicle. In this situation, your new auto loan will be lower since it will only need to cover the difference between your car’s trade-in value and the amount of your new car purchase. 
  • Trading in a financed car with negative equity – This is not ideal, but it’s still possible. In this case, your new loan may need to include some of the remaining balance on the old loan to cover the entire purchase price of the new car. Be aware that this can lead to higher monthly payments and more interest charges, so it’s important to make sure you understand all the terms before signing anything. 
Photo of hands placing a for sale sign on the windshield of a car that is parked
For sale sign on windshield of car.

Should I trade in my financed car or sell it privately?

When you’re looking to upgrade to a new car, you may wonder if it’s better to sell your old car privately or trade it in. While both options have pros and cons, the decision ultimately comes down to what makes the most financial sense for you. Using the information you’ve gathered throughout this guide, you can make an informed decision and get the best value for your vehicle. 

If you decide that trading in your financed car is the right choice, it’s important to be prepared and do your homework. By researching recent sales prices, getting multiple appraisals, and understanding how much is owed on your car loan, you can maximize the value of your car and get the best deal possible. But if you’re still unsure, here are some considerations to help you decide.

When to trade in your car

There are a few scenarios where trading in your car makes more sense than selling it outright. For instance, if you’re upside down on your loan (meaning you owe more on the loan than the car is currently worth), trading in your vehicle can help you avoid having to come up with extra cash at closing. Additionally, trading in your car can help simplify the car-buying process by allowing you to take care of everything at one dealership. And lastly, if you’re interested in taking advantage of special offers or promotions, trading in your car can be a great way to help you save money on your next purchase. 

When to sell your car privately

On the flip side, there are a few scenarios where selling your car outright makes more sense than trading it in. For starters, if your car is nearly paid off and has no major mechanical issues, you’ll likely get more money by selling it yourself than by trading it in. Additionally, if you’re not planning on buying another vehicle right away or don’t have a specific model in mind, there’s no rush to trade in your old car. You can always do it later down the road. Finally, if time isn’t an issue and you don’t mind putting in a little extra effort, listing your car online or through classified ads will give you more control over the sales process and could net you a higher return than trading it in to a dealership.

Remember that privately selling a financed car comes with its own challenges, so it pays to do your research before committing to either option. The biggest one concerns the title. In most cases, you’ll need to have the title in hand before selling your car privately, so you’ll first have to pay off the remaining loan balance. This is a challenge for many people who don’t have access to personal loans or lines of credit from a bank or other lenders. But if you have the funds available and don’t mind taking on the extra effort, selling your car privately can be a great way to maximize its value. 

Photo of two people holding hands and driving down the road in a convertible. Text on the image is about when someone should trade in a car but is listed in the story below

Is there a good time to trade in a car?

If you’re currently driving a car you financed, you may wonder if it’s the right time to start looking for a new one. After all, every car has a limited lifespan, and sooner or later, you’ll need to replace it. So the question is — when is the best time to do that?

There’s no easy answer to that question since there are a lot of factors to consider.

When your car is getting old

One of the most apparent times it makes sense to trade in your car is when it’s getting old. All cars have a limited lifespan. Eventually, they’ll reach a point where they’re no longer desirable, and dealerships will not offer you much, if anything, for them. Cars over 10 years old and with more than 100,000 miles are unlikely to be worth much on the used car market, so if trading it in is in your future and you’re halfway to either of those benchmarks, it may be wise to start researching and shopping for a new car sooner rather than later.

When interest rates are low

If you’re considering financing a new car, timing is everything. Interest rates on auto loans fluctuate just like any other type of loan, so getting a low rate can save you thousands of dollars in the long run. So keep an eye on interest rates and time your purchase accordingly. It’s also a good time for auto refinancing if you’d rather keep the car you have but are looking for a lower rate. To see if this is a better option, use our refinance car loan calculator

When there’s high demand for used cars

Another thing to consider is the demand for used cars. Believe it or not, there are specific periods when used cars are in higher demand than others. For example, when supply chain issues and wait times for new vehicles stretch out, there is often increased demand for used cars. Knowing when the market is hot can help you get a better price for your car if you choose to trade it in. 

Final Thoughts on Trading in a Financed Car

So, can you trade in a financed car? Yes, you can, but it’s essential to research and understand the implications of trading in a vehicle that you still owe money on. It pays to weigh all your options before committing to either route, as this will help ensure that you get the most value out of your vehicle. 

How to Get a Car Loan with No Credit

Quick Answer:

Getting a car loan when you have no credit can be difficult, but it is possible. We'll show you how to get a car loan with no credit so you can get behind the wheel and on the road to building your credit. It starts by understanding what credit is and then working through the strategies to get a car loan with no credit. 

Table of Contents: 

Understanding Credit:

For many, “credit” probably conjures up a reasonably nebulous mental image. But, of course, you may know that it has something to do with borrowing money and paying it back over time. Still, beyond that, the details are probably pretty fuzzy. Well, consider this your crash course.

What is credit?

In a nutshell, credit is simply the ability to borrow money. When you have good credit, lenders are more likely to loan you money – and they’ll probably give you more favorable terms, like lower interest rates. 

What is no credit?

Having no credit is actually not as bad as it sounds. If you have no credit, you don’t have any active accounts that are being reported to the credit bureaus. This usually happens when you’re young and haven’t taken out any loans or opened any lines of credit yet. It’s also common among immigrants who may have established financial history in their home countries but not in the United States. So having no credit is not necessarily a bad thing. In fact, some lenders may actually see it as a positive sign since you don’t have any negative marks on your record.  

Two people looking at a computer screen on a website for no credit
Get Pre-Qualified for a New Auto Loan

What is inactive credit?

Inactive credit is similar to having no credit in that it means you don’t have any active accounts being reported to the credit bureaus. However, the difference is that inactive credit generally refers to people who have had credit accounts in the past but are no longer using them. This could be because they paid off their debts and closed their accounts or because they’ve become “zombie” accounts that still exist but aren’t being used. Inactive credit can be seen as both good and bad by lenders. On the one hand, it shows that you can manage debt responsibly. Still, on the other hand, it can make lenders worry that you’re not actively using your lines of credit.  

What is low credit?

Having low credit is precisely what you think it is. It means you have active accounts with negative marks being reported to the credit bureaus. This could be because you’ve made late payments, exceeded your credit limit, or defaulted on a loan. Low or bad credit can make it challenging to get approved for new loans or lines of credit. If you get approved, you’ll almost certainly pay higher interest rates than people with good credit scores. That’s why it’s so important to stay on top of your payments and keep your debt under control. Missing just a few payments can tank your score for years to come.  

Are no credit and low credit the same thing?

Absolutely not. As we’ve explained, having no credit means you don’t have any active accounts being reported to the credit bureaus. That’s not necessarily a bad thing. On the other hand, low or bad credit means you do have active accounts with negative marks being reported. This will make it harder for you to get approved for new loans and lines of credit — and if you are approved, you’ll probably pay higher interest rates. 

Inforgraphic explaining the credit scores that are considered high credit

What is a good credit score?

A good credit score is any score that falls in the “good” or “excellent” range on the major credit scoring scale. For FICO scores, that’s a score of 670 or above. For VantageScores, it’s a score of 700 or above. Generally speaking, having a good credit score means you’re a low-risk borrower, which means you’re more likely to get approved for loans and lines of credit. In addition, you’ll probably get more favorable terms, like lower interest rates. So if you currently have no credit, this is what you should aim for.  

Getting a Car Loan with No Credit

You’ve finally saved up enough money for a down payment on a car, but there’s one more obstacle in your way: you have no credit history. But don’t worry — it is possible to get a car loan with no credit. Here are a few things you’ll need to do. 

Collect All the Proper Documents

One of the first things any lender will want to see is proof of your employment history and current pay stubs. They’ll also want to see previous addresses and how long you lived there. If you have any bills that you’re regularly paying, such as rent or utilities, those can also help build trust with the lender. Finally, they’ll need to see your driver’s license. Collecting all of these items ahead of time will help speed up the loan process once you find a lender. 

Woman standing at a table looking through paperwork

The lender will want to see all of this information to verify that you are who you say you are and that you’re capable of making regular payments on the loan. For example, your employment history and current pay stubs show you have a steady income. In addition, an address history indicates stability, and you’re not at a high risk of defaulting on the loan.  

Find a Cosigner

You may need to find a cosigner for your loan if you don’t have any credit history. A cosigner is someone who agrees to take on the responsibility of the loan if you cannot make the payments. This is a significant risk for the person, so make sure you can make the payments before asking someone to cosign for you. If you default, they’ll be stuck with the bill, and their credit will also suffer. 

Speaking of credit scores, it is also important that your cosigner has good or excellent credit. Since you have no credit history, the lender will heavily rely on your cosigner’s credit score to decide the interest rate and whether or not you qualify for the loan. On the other hand, if your cosigner has low or bad credit, you may still be eligible for a loan, but it will have a higher interest rate which may defeat the purpose.  

Inforgraphic on what to do it you have zero credit
Now is The Time to Refinance Your Car Loan

Save for a Bigger Down Payment

A down payment is the money you put down when you get the loan. The bigger the down payment, the less money you’ll need to borrow, and the lower your monthly payments will be. Lenders often like to see a down payment of 10 percent or more, but if you can swing 20 percent or more, that’s even better. 

A more significant down payment also shows the lender that you’re serious about making regular payments on the loan since you have more skin in the game. This can help offset some of the risk associated with lending to someone with no credit history. 

Be Prepared to Pay a Higher Interest Rate

Unfortunately, you will likely be charged a higher interest rate on your loan if you don’t have any credit history. This is because you’re seen as a higher risk to the lender, and they want to be rewarded for that risk. 

If you have a cosigner with excellent credit, their good credit can help offset some of the risk, which may result in a lower interest rate. But if you don’t have a cosigner or your cosigner has bad credit, you’ll likely be stuck with a higher interest rate. 

Build Credit and Wait

If you cannot get a car loan with no credit right away, don’t worry. You can take some steps to build your credit to get a loan in the future. This is more of a long-term strategy, but it will help you get better terms when you’re ready to apply for a loan. There are easy and sure ways to build your credit score, so researching and finding what works best for your situation is a good place to start. General ways people begin to develop a good credit score include: 

Infographic on how to build credit
  • Opening a secured credit card – A secured credit card involves a deposit, which becomes your credit limit. For example, if you put down a $500 deposit, your credit limit — and maximum balance — will be $500. This is an excellent way to build credit because it shows that you can manage a credit limit and make regular, on-time payments. 
  • Becoming an authorized user – You can also become an authorized user on someone else’s credit card account. This means you’ll have your own card that you can use, but the account will be in someone else’s name. As long as the account is in good standing, this will help build your credit score. 
  • Applying for a credit-builder loan – A credit-builder loan is where the money you borrow is deposited into a savings account. Once you make all your payments on time, you’ll have access to the money in the account, plus any interest earned. This is a good way to develop a credit history because it shows that you can make regular, on-time loan payments. 

Beware of Financing Through the Car Dealership

Many car dealerships offer in-house financing, which may seem convenient if you don’t have any credit. In addition, they often claim they can finance anyone, no matter their credit score. But beware — these loans frequently come with high-interest rates, and you could pay more for your car than it’s worth. 

Why do they do this? In truth, dealerships make very little profit from the vehicle sale. Instead, their profit comes from other products they sell, such as extended warranties, gap insurance, and — you guessed it — financing. So while they may claim to be helping by financing you, they’re really just trying to make more money off you in the long run. 

Woman looking frustrated and looking at bills while sitting at a table with her head in her hand

If you decide to finance through the dealership, shop around at different dealerships for the best interest rate. And if you can get pre-approved for a loan from a bank, credit union, or another third-party lender before going to the dealership, that’s even better. This way, you’ll know exactly how much car you can afford and what interest rate you’ll be paying. Otherwise, you’ll be looking at a much higher interest rate and could end up in a loan you can’t afford. And that will leave you looking for tips on how to get out of a bad car loan

Bottom Line

Getting a car loan with no credit is possible, but it may not be easy. You’ll likely need a cosigner or a sizable down payment, and you can expect to pay a high-interest rate. If you cannot get a loan right away, take some steps to build your credit to get better terms in the future. Whatever you do, beware of financing through the dealership. They often try to make more money off you by offering loans with high-interest rates. 

Is Refinancing With Poor Credit Worth It?

Yes, you can refinance your car loan even if you have a lower credit score. But is it worth it? When refinancing with a lower credit score, you must consider all your options. However, there is potential to save money by refinancing your car loan.

You need to begin with understanding how credit scores work and what you can do to improve yours. A higher credit score is essential for getting the best interest rates on a loan because a higher interest rate means you’ll pay more in the long run. 

You also need to ask yourself some important questions like what are your refinancing goals, can you secure a lower interest rate and are the new loan terms better than your current one? 

If you’re unsure whether refinancing is worth it or want to explore it as an option, we’ll examine how a lower credit score affects your chances of getting approved for a car refinance and how you can increase your chances.

Understanding Credit

We’ll discuss credit scoring and what factors influence your score. Knowing more about credit can help you make better choices when borrowing money.

Credit scores explained

Credit scores explained

Your credit score is a number that shows your level of creditworthiness — or how likely you are to repay a loan. The higher your score, the better your chances of being approved for a loan with a lower interest rate. A FICO® score is the most widely used credit scoring model and assigns a number between 300 and 850

  • Excellent: 800–850
  • Very Good: 740–799
  • Good: 670–739
  • Fair: 580–669
  • Poor: 300–579

A lender takes more than just a credit score into consideration – so even if your score falls in the lower range, it’s still possible to qualify for refinancing.

How credit scores are determined

Credit scores are calculated using many factors, each weighted differently. The following is a list of considerations that affect your credit:

  • Payment history (35%) – The less payments missed, the better.
  • Utilization rate (30%) – How much of your total available credit is free.
  • Length of credit history (15%) – 12 months or more is best. 
  • New credit (10%) – Recently acquired loans, credit lines and credit cards.
  • Credit mix (10%) – Showing you can manage different kinds of credit well.

It’s always a good idea to check your credit each year to make sure all of these factors are reported correctly. 

How to check a credit score

If you’re considering auto loan refinancing and you think you have a low credit score, the first thing to do is check your credit score. You can check your credit score online for free or use this form to check it by mail for free. You can do this free credit check once every year. 

Checking your credit score tells you where you stand. You might also be fortunate enough to find that your score is not as low as you thought. If that’s the case, you might have a better chance of being approved for a loan with a lower interest rate. On the other hand, if it’s lower than you thought, don’t worry — there are still things you can do to improve your chances of being approved.

The important thing is having the information, as it will allow you to make informed decisions.

credit report with a low credit score

The reasons for a poor credit score

There are several reasons why your credit score might be low, including: 

  • Late or missed payments – When you miss payments on your bills, it can negatively impact your credit score. In addition, repeatedly missing payments can result in your account being sent to collections, damaging your score even further.
  • Collection accounts – If you have any unpaid debt that has been sent to collections, this will be added to your credit report and lower your score.
  • High balances – Carrying a high balance on your credit cards can also lower your score.
  • Length of credit history – If you haven’t been using credit for very long, you might not have much credit history to show.
  • New accounts – Opening too many new accounts at once can lower your score.
  • Bankruptcy filing – A bankruptcy filing will stay on your credit report for seven years and will significantly impact your credit score as lenders will see you as a high-risk borrower.

According to Forbes, there are also reasons why responsible people might have low credit scores. One way is having a single credit card that drives up utilization, which is the amount of credit you’re using compared to the amount of credit you have available. 

For example, if you have a $5,000 credit limit and use $3,000 of that, your utilization ratio is 60 %. According to Experian, the average utilization rate is 17.0 % among consumers with FICO® credit scores of 780, which is in the “very good” zone for credit ratings. 

An excellent way to control this ratio is to keep your balances low. You can also grow your available credit if you open a new line of credit or get a credit limit increase. 

Knowing why your credit score is low can help you make a plan to improve it.

Improving your credit score

There are many things you can do to improve your credit score. Try these tips: 

  • Make all your payments on time – This is the most important factor in determining your credit score, so it’s crucial to make all your payments on time, every time.
  • Keep your balances low – Keeping your balances low will help improve your credit utilization ratio, which is important for determining your credit score.
  • Avoid opening too many new accounts at once – Opening too many new accounts at once can cause you to appear riskier to lenders and lower your credit score.
  • Check your credit report regularly – Checking your credit report regularly can help you catch any errors or inaccuracies that might negatively impact your score.
  • Consolidate your debt – Consolidating your debt with a bank or credit union could help you pay off debt faster.

Once you’ve done everything in your power to improve your credit score, it’s time to consider what your goals are with refinancing and some other important factors.

Before Refinancing Your Car Loan

Think about your goals, the terms of your current loan and other important factors with refinancing your car loan.

goals for refinancing

Goals for refinancing

It’s important to know what your goals are. Ask yourself questions like:

  • Am I looking to lower my monthly payment? – This can help to alleviate some financial stress, but keep in mind that it could extend the length of your loan. You might also pay more in interest over the life of the loan.
  • Am I looking to save on interest and pay off the loan faster? – A shorter-term loan can help pay off your loan sooner and save on interest, but it might mean that your monthly payments are higher. This is advisable if you can afford the higher payments.
  • Am I looking to get cash out? – You might be able to get cash back when you refinance your car loan, but keep in mind that this will likely increase the interest you pay over the life of the loan.

Knowing these goals will help you determine what type of loan is best for you. In addition, it will give you direction when working with a lender. 

Terms of your current loan

You’ll need to know the terms of your current loan before you can refinance. This includes things like: 

  • Balance of your loan 
  • Interest rate 
  • Length of the loan 
  • Monthly payment

You’ll also need to know the value of your car so you can determine how much equity you have. You can use a car valuation tool to get an estimate.

Be aware of fees

There are a few fees to be aware of when refinancing your car loan. These can come from the new lender or the old one. The new lender might charge application, processing and origination fees. The old lender might charge an early termination fee or other fees. You might be able to negotiate these away in some cases, but they’re still something to be aware of. 

Understand what you can afford

Knowing what you can afford before starting the refinancing process is important. Remember that just because you’re approved for a loan doesn’t mean you have to take it. Only borrow what you need and what you can afford to pay back.

Calculate your monthly car payment by considering the loan amount, interest rate and length of the loan. Or use a refinance car loan calculator to get a quick idea. Then, use a budgeting tool to see if you can comfortably afford the new payment. 

Strategies to Get Approved for a Refinance Loan

If you’re looking to refinance your car loan with a low credit score, you can do a few things to improve your chances of approval. Here are a few strategies.

strategies to get approved for a refinance loan

Improve your credit score

We’ve already discussed how you can start to improve your credit. However, improving your credit score will take time and depends on why it’s not so great. 

So, if your lower credit rating is due to a lack of credit history, you might be able to fix that by using a credit builder loan or becoming an authorized user on another person’s credit card. If your credit score is low because of high utilization, you can try to pay down your debt or get a debt consolidation loan. 

On the other hand, if you have a history of non-payment, it will take some time and effort to improve your credit score. So the most important thing is to make all your payments on time going forward.

Shop around

Shopping around is essential when looking to refinance your auto loan with a low credit score. Not all lenders have the same standards, and some might be more willing to work with you than others. Therefore, it’s a good idea to compare offers from a few different banks, credit unions and other lenders before you make a decision.

When you’re comparing offers, be sure to look at more than just the interest rate or monthly payment. Other factors like fees and loan terms can affect the overall cost of the loan. For example, a low-interest rate with a long loan term might cost you more in the long run than a higher interest rate with a shorter term. 

Of course, if your goal is to save on interest, this won’t work. However, it might be a good option if you’re hoping to decrease monthly payments to relieve financial pressure.

Get a cosigner

If you’re having trouble getting approved for a loan on your own, you might be able to get approved with a cosigner. A cosigner is somebody who agrees to sign the loan with you and is responsible for making payments if you can’t. 

This will help improve your chances of being approved because it shows that you have someone else who is willing to take on the risk. Your prospective cosigner should have a good to excellent credit score and show enough monthly income to make the payments if necessary.

professional person using a calculator

Is Refinancing Worth It?

Refinancing your car loan with poor credit can be a good way to save money on interest, lower your monthly payments or both. However, it’s not always the best option, and there are a few times when you shouldn’t refinance.

Refinancing is probably not a good idea if you’re upside down on your loan, meaning you owe more than the car is worth. This is because you could still owe the same amount of money (or even more) after refinancing.

You should also avoid refinancing if you’re close to the end of your loan term. This is because you’ll likely have to pay fees and closing costs, negating savings from a lower interest rate. If you’re only a short time away from paying off your car loan, you’ve also already paid most of the interest. 

This is because most auto loans front-load interest, meaning most of the interest is paid at the beginning of the loan. If you’re nearing the end, you’re working on the principal.

Refinancing When It’s the Best Option for You

Refinancing your car loan with a low credit score can be a good way to save money on interest, lower your monthly payments or both. However, it’s not always the best option, and there are several factors to consider before refinancing.

 For example, if you’re upside down on your loan or close to the end of your term, refinancing might not be worth it. In addition, it’s important to shop around for the best deal. Lastly, always keep your financial goals in mind and ensure that refinancing is the best option for you.

Can You Refinance a Car More Than Once?

Yes, you can refinance your car loan more than once. In fact, as long as you can find a lender to approve you for a loan, you can refinance as many times as you want. There are no laws or regulations against it. However, there are a few things to keep in mind before you decide to refinance your car loan again.

Why Refinancing Your Car Loan Could Save You Money

When you refinance your car loan, you are taking out a new loan, ideally with a lower interest rate and possibly with a different term. This could lower your monthly payment and save you money in interest over the life of the loan. It doesn’t change the initial purchase price of the vehicle, but when you do this multiple times, it’s possible to save even more money. 

Ensure It’s the Right Time to Refinance a Loan

Refinancing should make sense, so you want to be sure that it’s the right move for you before you sign on the dotted line. Here are a few things to consider:

  • Check your credit score – Your credit score is one of the most important factors that lenders take into account during the loan approval process. If your credit score has improved since you originally financed your car, you might be able to qualify for a better interest rate. However, if your credit score has dropped, you should hold off on refinancing until it improves.
  • Wait for interest rates to drop – Interest rates are constantly fluctuating, so it’s important to keep an eye on them. If rates have changed and gone down since you originally financed your car, it might be worth refinancing to get a lower rate and save money.
man on the phone while looking at his interest rate on the computer
  • Your car loan amortization schedule – If you have a simple interest loan and have limited time left on it, it might not make sense to refinance since you’ll have already paid off the majority of interest and be working on paying down the principal. However, if you’re locked into a high interest rate and still have a considerable amount of time left on your loan, it might be worth refinancing to save money in the long run.
  • Your financial situation – When you refinance, you can also change the length of your loan, which can lower your monthly payments. If you’re in a position where you need the financial relief of lower monthly payments, refinancing might be a good option for you. Conversely, if you have a higher income and are looking to clear up debt, you might want to consider a shorter loan term so you can pay off your car loan faster.

After you’ve considered all of the above, you’ll know if it’s the right time for you to refinance.

Consider the Fees

Each time you refinance, you’re taking out a new loan. That means you’ll have to pay any associated fees again. These costs can add up over time, so it’s important to factor them into your decision to refinance. Be sure to ask about any potential fees and compare them to other offers before you choose a new lender.

Additionally, some lenders might charge a prepayment penalty for refinancing. This fee is typically a percentage of your loan amount and is charged if you pay off your loan early.

woman using a calculator and her laptop

Finding a New Lender When You Refinance

When you’re ready to refinance your car loan, the first step is to shop around for a new lender. This could be a bank, credit union or online lender. 

There are a few things to keep in mind when you’re looking for a new lender:

  • Interest Rates – Be sure to compare interest rates from multiple lenders before you choose one. 
  • Fees – As mentioned above, fees can add up over time, so be sure to ask about them upfront. 
  • Reputation – Check out online reviews and Better Business Bureau ratings to get an idea of a lender’s reputation. 
  • Customer Service – Find out what the customer service is like before you commit to a lender. This can be especially important if you have questions or need assistance down the road.

Once you’ve checked into these factors, you’ll have the information you need to decide which lender is best for you.

Refinance to Save

You can refinance your car loan more than once, but be sure to do your homework first to make sure it makes financial sense for you. Start by using a refinance car loan calculator and then compare rates and fees from multiple lenders to find the best deal. Remember to factor in any associated costs so you can make an informed decision that’s right for your financial situation.

What Is Car Loan Amortization?

Simply put, car loan amortization is the total repayment of your car loan over time. It’s calculated by dividing the loan amount by the number of months in the loan agreement.

This results in a specific amount that is due each month. Car loan amortization also includes interest and any fees, so the total cost of the loan will be higher than the principal amount. Auto loans can include simple interest or precomputed interest, depending on which type of loan you’ve agreed to with your lender (you can always ask them if you’re not sure).

Your monthly payment is determined based on the total loan amount, interest rate and term of the loan. But you might not realize that within that payment, a portion is applied toward both the principal (the borrowed amount) and the interest.

Amortization schedules can be confusing, but understanding how they work can save you money on your car loan. Here’s a quick overview of what they are and how to make them work for you.

Principal and Interest

The initial amount of money you borrowed is called the principal. The interest is what a lender charges you to borrow the money, plus any additional fees. Your monthly payment is divided between these two things based on an amortization schedule.

The amount of interest charged is based on the interest rate, which is set by the lender. There are generally industry trends for finance rates that can be easily tracked.

The greater the interest rate, the more you’ll pay in interest throughout the term of the loan. This is why it’s essential to secure the best auto loan financing possible for your credit score and situation, including a low interest rate.

Amortization Schedule

The amortization schedule is a table that shows how much of each payment goes toward the principal and how much goes toward the interest. In the early years of your loan, most of your payment will go toward paying off the interest. But as you get closer to the end of your loan term, more and more of your payment will go toward the principal.

Paying extra toward the principal can save you money in interest charges and help you pay off your loan faster. If you want to do this, just let your lender know how much extra you want to pay each month and they’ll apply it to your loan accordingly.

Short- and Long-Term Car Loan Amortization

It’s good to understand that you can select the term length for your car loan. The most common are 36, 48 or 60 months. However, some companies offer loans lasting as little as 12 months, although others extend as far as 84 months.

Choosing a shorter loan term will result in higher monthly payments, meaning you won’t be able to afford the same car as you would with a longer loan. But it also means you’ll pay less interest and pay off your loan faster.

signing a contract with key fob and toy car sitting on top

A longer loan term will lower monthly payments, allowing you to afford a more expensive car. But you’ll also pay more interest over time, and it will take longer to repay your loan.

This is a decision that each borrower will have to make based on their budget and financial goals.

Changing Circumstances

Many people choose to use long-term loans because they lower monthly payments. But what happens if your circumstances change and you can afford to pay off your vehicle loan more quickly, or you simply want to get rid of it as soon as possible?

If you find yourself in this situation, you can always make additional payments toward your loan’s principal. This will reduce the interest you pay over time and help you repay your loan faster. Just be sure to check with your lender first to make sure there are no prepayment penalties.

Here are some common ways people pay off their car loans early:

  • Refinance – You can refinance your car loan to get a lower interest rate, saving you money over time. You can also choose to extend or shorten the term of your loan, depending on your current needs. Use a refinance car loan calculator to determine how much you could save.
  • Make a lump-sum payment – If you come into some extra money, you can make a one-time payment toward your loan’s principal. This will reduce the interest you pay over time and help you pay off your loan faster.
  • Pay extra each month – You can also choose to make slightly larger payments each month, which will go toward the principal of your loan. Just be sure to let your lender know that you want the extra payment to go toward the principal — not the interest.

You might not ever need to use any of these, but it helps to be aware of them in case you end up in a situation where you need to pay off your car loan faster.

man sitting on couch smiling while working on his laptop and holding his credit card

How Understanding Car Loan Amortization Can Help

Car loan amortization is the process of repaying your car loan over time. The amount you owe each month is divided between the principal and the interest, and the schedule is set by the lender. You can choose a shorter or longer loan term, depending on what you can afford.

Understanding how car loan amortization works can help you save money and repay your loan faster. Be sure to ask your lender about their amortization schedule so that you can make the most informed decision possible.

How Soon Can You Refinance a Car?

If you’ve considered refinancing your car, know that it might be possible to refinance as soon as a few months after your original purchase, though your terms could be better if you wait six months to a year. Don’t wait too long, though. If you are too far into your repayment term, lenders might be unwilling to approve your application.

Refinancing a Car Loan

Refinancing a car loan involves getting approved for a new loan that will:

  1. Pay off your current auto loan.
  2. Allow you to pay off your vehicle under more favorable terms.

Refinancing will require you to apply for a refinance loan, a process similar to auto loan financing for a new car.

Refinancing in the First Months of Your Loan

If you recently purchased a car and aren’t happy with your current loan terms, refinancing might be a possibility. Still, there are several factors that could hamper your ability to win approval for a refinance or to get the terms you are looking for:

  1. In cases where you have very recently purchased your car (such as in the past month), your car title or registration might not yet be processed. A lender will either need the title (if you are in one of the states that allows car owners to hold their titles before loan payoff) or registration to begin the refinancing process. Because of this, there might be a delay in being able to refinance.
  2. Taking out a car loan often lowers your credit score. This is due to two factors. First, the hard pull on your credit report results in a credit inquiry being reported to the credit bureaus. This can take a few points off your score. Your loan also contributes to your debt load, which, depending on how much debt you have, can also lower your score.
  3. Some lenders have a policy against refinancing a new loan. They’ll want to see at least six months of payments before considering your refi application.

Still, everyone’s situation is unique and you could be able to get approved for refinancing in the earliest months of your loan.

When Is the Right Time to Refinance a Car Loan?

Loans that are six to 18 months old are often in the “sweet spot” for refinancing. There are two primary reasons for this:

  • No administrative or credit issues: By this time, your paperwork has been sorted out and your credit score has likely rebounded.
  • Loan balance is still high: A higher loan balance makes the refinance profitable for the lender.
  • It’s less likely that you are upside down on your car loan at this point. Being upside down on your car loan means that you owe more to your lender than your car is worth. Many lenders won’t consider refinancing in this situation.

There are other factors to consider, however. If interest rates are currently high, refinancing is likely not a good idea. Pay attention to economic indicators before seeking a refi loan.

Another thing to consider is your use of credit and financial situation. If you have recently financed a large purchase, you might find it hard to get attractive terms on a refinance. Use our refinance car loan calculator to determine how much you’ll pay each month and over time.

Don’t Wait Too Long to Refinance Your Car Loan

Unfortunately, it’s also possible to wait too long to refinance your auto loan. Here are some scenarios in which this could be the case:

  1. Your car has a lot of miles on it: Cars with a lot of mileage are worth less, which can make refinancing more of a challenge.
  2. You are close to paying off your loan: Lenders want there to be at least a few thousand dollars left on your loan balance before agreeing to issue a refinance loan.
  3. You are already in financial trouble: Refinancing a car loan can be a decent strategy if you need to lower your monthly payments, you still have good credit and a verifiable income. If your credit has already been damaged or you’ve lost your job, you might still qualify for refinancing, but the process might take a bit longer.

It pays to be a savvy consumer, particularly when it comes to large purchases. If you believe that you might be able to get a better deal on your auto loan through refinancing, take the time to do some research and then make sure to shop around to find the best loan for you.

Should Both Spouses Be on a Car Loan? Things to Consider Before Cosigning with a Spouse

Nobody disputes that spouses should make major financial decisions — such as purchasing a car or refinancing an auto loan — together. A more complicated question is whether spouses should be on a car loan as cosigners. Although having a spouse cosign on your car loan might make sense in some instances, it can be a risky personal and financial move in others. 

What Is a Cosigner?

A cosigner agrees to pay a loan if the primary borrower defaults. When someone cosigns a loan, they assume responsibility for making loan payments if the original borrower falls behind on repaying the debt. Once the primary borrower defaults on payments, the cosigner is responsible for paying the balance of the loan, along with any fees related to the late payments. Also, the lender now treats the cosigner as the debtor.

Cosigner vs. Co-Borrower

Cosigners are not quite the same as co-borrowers. Co-borrowers apply for a loan together so that they can purchase (or refinance) an asset that they both own and use. When a married couple takes out a mortgage on a home that they both live in and own, they are co-borrowers.

A cosigner, on the other hand, assumes responsibility for paying someone else’s loan. The cosigner does not co-own the asset that the loan was used to purchase.

Why Do People Need Cosigners for Loans?

Lenders evaluate loan applications using multiple criteria, including income, credit history and current debt. If a loan applicant has poor credit, no credit, doesn’t earn very much or is struggling under a lot of debt, the lender might reject the application outright, offer a smaller loan or a loan at a higher interest rate. Sometimes a lender might ask that the borrower reduce the lender’s risk by finding a cosigner.

man looking upset while sitting at his desk near a computer and calculator

The Risks of Being a Cosigner

The risks of being a cosigner are significant. If you cosign a debt, and the original borrower doesn’t make payments on time, here’s what can happen:

  • The lender can require you to start making payments on the debt.
  • The lender can initiate collection proceedings against you, including a lawsuit. 
  • Your credit score can be damaged. 

In addition, cosigning a loan increases your debt load, impacting your credit score. This affects your ability to obtain a credit card, take out a loan for your own needs or qualify for good interest rates on goods and services. Because of these risks, you might want to check out other alternatives that can help you buy a car or refinance a car loan.

smiling couple standing in front of a new car holding the car keys

Spouses as Cosigners: What You Need to Know

Having your spouse as a cosigner might seem counterintuitive: You share finances and will both benefit from an automobile purchase or refinancing. Co-borrowing might make more sense, as would having the spouse with the best credit apply for the loan.

In some households, however, only one spouse drives and will have ownership of the car. Many people owned a car before getting married and could  want to refinance that vehicle without putting their spouse on the title. In these cases, cosigning might make some sense.

As you make your decision, be aware that some lenders might tell you that your spouse is required to cosign a loan that you take out for your own vehicle. The federal Consumer Financial Protection Bureau makes it clear, however, that although a lender can require you to have a cosigner, it cannot require that person to be your spouse.

The Risks of Cosigning for a Spouse

There are significant risks to being a cosigner of a loan. These risks increase when a spouse acts as a cosigner. Cosigning impacts a spouse’s credit and finances, so your household might not have at least one spouse with pristine credit and financial stability. Should you face unexpected financial difficulties, your household will have to manage the debt that your spouse is obligated to pay.

Cosigning can also negatively impact your relationship with your spouse. Defaulting on your car loan or refinancing could leave your spouse feeling betrayed. 

Alternatives to Cosigners

An alternative to getting a cosigner is to try to improve your credit score. And if your household has more than one automobile, or your current car is still drivable, you could use a refinance car loan calculator to determine whether refinancing could free up some cash that could be used to pay down debt or increase savings. A GAP waiver can also minimize liability for the difference between your car’s value and your current debt obligation.

Whatever you choose, it is worth it to explore all of your options, which could include delaying a purchase or refinance, improving your credit or working with specialists, who will work to help you get good terms on a loan that you can afford.

How Long Does It Take to Refinance a Car?

The time it takes to refinance a car loan depends on a few factors, including the completeness of your loan application and your lender’s policy. The process can happen quickly, often within a few days of your application. Preparing for refinancing, including checking your credit reports and making sure that you can document the information in your application, can help prevent delays.

Finger about to press a red button on a conceptual refinance calculator

Refinancing an Auto Loan

Refinancing an auto loan allows you to secure more favorable terms for your car loan. If you are approved for refinancing, your old loan is rolled into your new, refinanced loan. If you’ve applied for auto loan financing in the past, you’ll find many similarities between the two processes.

Why Refinance?

People refinance their vehicle loans because they want — or need — a change in their current loan agreement. Refinancing allows them to take out a new loan with terms that better meet their needs. Here are some common scenarios:

Interest Rate Change

If interest rates drop during your loan repayment period, you might be able to save some money by refinancing at a lower rate.

Improved Credit

If you financed your original car loan while you had no or damaged credit, check your current credit score. If it has improved since you purchased your car, you may qualify for a lower interest rate if you refinance.

Need to Lower Monthly Payments

Even if you don’t qualify for a lower interest rate, you might be able to reduce monthly payments by refinancing for a longer loan term. You’ll pay more money over time, but the smaller payments each month might be easier on your budget.

Credit report with magnifying glass

Preparing to Refinance

If you are considering a refi on your auto loan, there are several things that you can do before applying that can help ensure a speedy acceptance and, hopefully, approval:

  1. Use a refinance car loan calculator to see what you can expect to save if you decide to refinance. 
  2. Order your free credit reports from all three major credit bureaus, TransUnion, Experian and Equifax. Check your report for errors and, if you find them, get them corrected before applying to refinance.
  3. Refrain from applying for new credit, making major purchases or closing credit card accounts. All of these actions can negatively impact your credit score, reducing your chances of approval or getting approved for favorable refinancing terms.
  4. Gather the documents you may need to apply for your loan. Your lender will tell you what documents you need, but be prepared to provide proof of identity, income and assets. For example, you may need to include pay stubs, W-2s or bank statements with your loan application.

Waiting for a Decision

If your loan application is complete and there aren’t any red flags during the application process, you can expect a decision within a few days. If you are approved for refinancing, the lender may handle paying off your old loan for you, or you may receive the funds yourself so that you can pay off your old balance. Receiving the funds, or the forwarding of the funds, can take a few weeks, so be sure to continue to make payments on your old loan until you can confirm that it has been paid in full.

Once your old loan is paid, you’ll continue to make payments on your new, refinanced contract.

Refinancing can be an effective way to make owning a car more affordable, so it is definitely worth taking the time to research this option with AUTOPAY. Get in touch with us today and one of our knowledgeable team members will answer your questions and help you get the process started.

Should I Pay Off My Car Loan Early: Advantages and Disadvantages

If you’re looking to improve your financial standing and lower your debt, you might want to consider paying off your car loan before the obligatory pay-off date. While doing so can certainly bring some benefits — more money in your pocket and the freedom of owning your car outright — there are a couple of important downsides to consider as well.

close-up of a pen on a desk with a calculator on top of a paper reading "Debts" with a pie chart near it

The Pros and Cons of Paying Off Your Car Loan Early

When you take out a car loan, you agree to pay for the cost of the vehicle (the principal) as well as interest. Your annual percentage rate (APR) is the percentage of interest you pay each month. When you pay more than the minimum, that extra money goes towards the principal, lowering how much you owe in interest. That’s just one of the pros of early pay-off, but there’s more to know.

Pro: Paying the loan off early could save you cash in the long run.

Making an extra payment here and there, rather than making a single lump-sum payment speeds up the repayment process without draining your savings. Just make sure your overage payments go toward the principal of your car loan rather than the interest. These are called “principal-only” payments.

Con: Some loans include precomputed interest, so early payoff may not save you money in the long-run.

It is important to note that some car loans include precomputed interest, or interest that is calculated upfront. In these cases, you may not be able to save money on interest if you pay off your loan early. 

Make sure you determine the amount of interest pay-off will save you in the long run. To find out if your interest was calculated up-front, look at your statement. If your interest is precomputed, it will be lumped together with the principal rather than a separate fee. You should speak to your lender if you aren’t sure.

Pro: More money in your pocket each month.

Another advantage to paying off your car loan before the end of the term is that you will have less money tied up in bills each month. That means, in theory, you’ll have more money to spend in other areas of your life. 

More money in your pocket each month may allow you to save up some extra cash faster for a new car, build an emergency fund, chip away at your student loans, or free up money for a down payment on a house. In many cases, it will help improve your financial situation. But remember that paying off your loan balance can be costly, so while it may lower your monthly budget, it may also put a significant dent in your savings account. 

Pro: Improved debt-to-income ratio.

Simply put, your debt-to-income ratio, or DTI,  is the percentage of credit you use each month divided by your gross monthly income. Your DTI is one of many factors lenders and other creditors use to determine whether you will be able to pay back a loan. If your debt-to-income ratio is too high, a lender might be hesitant to offer you credit since it could indicate that you’ve taken on more debt than you can pay back. 

If you have a debt-to-income ratio above 50% and plan to apply for a new loan or line of credit soon, lowering your DTI can help improve your odds of getting approved. 

So how do you lower it? By reducing your monthly debt obligations. Paying off a loan and eliminating a monthly payment, like a car loan, will improve your DTI. However, if paying off a loan in one lump sum is not possible, you can also try to refinance it to lower the monthly payment. In 2021, borrowers who refinanced their auto loans saved an average of $1,158 per year.

Con: You may have to pay a prepayment fee.

It’s critical you understand the terms of your loan since, although it’s rare, it may include a prepayment or pay-off penalty to your lender. Car loan companies impose these fees to make up for the potential interest lost over the life of your loan. These are more common if you have poor credit and a subprime auto loan (meaning you have a high interest rate on your loan due to bad credit).

Fees vary depending on the company and the terms of your loan, but you can expect to pay a maximum of 2 percent of your remaining balance in prepayment costs. Not all car loan terms include this penalty, so be sure to check yours before you decide what to do.

Con: less ‘positive’ activity on your credit score.

Man using his mobile phone to see his credit report and credit score

Consider All the Factors

Ultimately, deciding whether to pay off your car loan early is a big financial decision that comes down to a few key factors. The amount you owe, your interest rate, and the terms of your loan will have a major impact on whether or not prepayment is the best move for you.

What Is a Good Interest Rate for a Car Loan?

If you’re considering buying a car, there’s a good chance you’ll wind up taking out an auto loan. The majority of drivers rely on car loans to cover all or a portion of their automotive purchase. In fact, Americans have about $1.18 trillion in car loans in total.

The interest rate on your car loan has a big impact on how much you pay over the life of your loan. It’s a percentage of your total balance charged by the lender or financial institution in exchange for the loan. The higher the rate, the more money you’re paying in interest  each month until your loan is paid off. 

That’s why it’s so important to make sure you get a good rate on your loan when buying a car. It raises or lowers the price you pay for the vehicle in total.

Whether you’re buying a new car or hoping to lower how much you’re paying for your current one, here’s how to determine whether you have a good interest rate on your loan.

Why Interest Rate Matters

The interest rate on your car loan is the fee you pay to the auto loan company for loaning you the cash up front. Lenders calculate monthly interest based on the principal or the total amount owed.

Note that interest rate and annual percentage rate (APR) are not the same. While interest rate is the annual cost of borrowing money and is calculated based on the principal, APR reflects the total cost of the car loan and includes the principal, interest, fees, and other things you rolled into the loan.

As you pay down the principal and your total amount owed lowers, so the amount you pay in interest lowers as well.

One of the simplest ways to determine how much you will pay in interest is to use an auto loan calculator online. Simply plugging in a few of the basics — the price of the car, your down payment, the length of the loan, the APR, and sales tax — will tell you the total amount of interest you will pay over time.

credit score report with reading glasses

How Credit Affects Interest Rate

To get the lowest rates possible, you need to make sure you have great credit and are in good financial standing with your current lenders. Credit is rated by tiers, with tier 1 being the highest and tier 3 being the lowest. The higher the tier, the less information you may have to provide when applying for a loan.

Your credit score is determined by payment history, current account balances, length of your credit history, types of credit accounts, and other factors.

Every lender has their own underwriting guidelines, so it’s important to find a lender who will work with your credit profile and offer the most competitive loan terms.

It also helps if you use a cosigner who  has good credit, choose a shorter loan period, or pay a bigger down payment to lower the overall loan amount.

You also want to check with multiple lenders, including online lenders, to “shop around” for the best rate. You may also consider heading into the car shopping process with pre-approval and multiple loan offers so you don’t risk winding up with a higher rate financing at the dealership.

What Criteria Financial Institutions Use to Determine Interest Rate

Financial institutions — such as banks and credit unions — determine loan rates based on a borrower’s credit. Lenders give borrowers with better credit ratings a lower interest rate because they are considered lower risk and they’re much more likely to pay back the loan in full. Every financial institution uses different criteria to determine whether someone is creditworthy.

Although every lender is different, they typically evaluate a borrower’s creditworthiness based on their credit report, which takes into account things like total debt in loans, credit cards, mortgages, and more as well as payment history, credit usage, and other factors. The average loan rates vary widely depending on where a borrower’s credit score falls.

Every financial institution evaluates credit differently and may provide you with a rate that’s higher or lower depending on many unique factors.

The Real Cost of Interest

The Real Cost of Interest

Here is a simple example to help you see exactly how much interest rate affects your monthly payments and total interest paid.

Let’s say you want to buy a used car that costs $20,000 and you put $5,000 down as a down payment. That means your total loan amount is $15,000 plus the cost of taxes and fees, taking it to around $16,000.

If you have excellent credit and are able to secure a low interest rate of 3%, you will pay $354 a month and $999 in interest over the life of the loan.

If you have bad credit or no credit history, you’ll have a higher interest rate on your used car loan. In this example, let’s say your interest rate is 9%. In this case, you will pay $398 per month and over $3,000 in interest over the life of the loan.

As you can see, having good credit and securing a lower auto loan interest rate can save you thousands of dollars over the life of your loan. This means more money in your pocket for savings, monthly bills, and more.

How to Get a Good Interest Rate for a Car

So how do you get the best interest rate on your car purchase or refinance? Before you submit a single loan application, you want to make sure you follow the tips below.

How to Get a Good Interest Rate

Work on Your Credit

Boosting your credit score goes a really long way in securing the best auto loan rates.

So, how do you do that, exactly?

Pay Your Bills on Time

Always pay at least the minimum balance on time on your current loans each month. You may also consider paying debts down more aggressively to lower your overall credit use, which could boost your score.

Keep Accounts Open

As tempting as it may be to close old credit cards you’re not using, especially if they have high annual fees, don’t. Keep them open to help lengthen your average credit age.

Avoid taking out new loans

It’s also a good idea to avoid taking out any new personal loans or credit cards during this time since these can put hard inquiries on your credit and cause it to drop. If approved, it will also shorten your average credit age, which doesn’t look good to the bank.

Build Your Credit History

If you don’t have much credit history, consider putting utility bills in your name, signing up for a secured credit card, or asking a loved one you trust — and who trusts you! — to add you as an authorized user on one of their accounts.

Try Credit Raising Services

Many companies offer services to help you raise your credit score fast. For example, Experian offers an option that claims to raise your FICO score instantly.

stack of money

Put More Money Down

Increasing your down payment is another great way to get a lower interest rate and smaller monthly loan payments. Not only will a higher down payment help convince the bank of your creditworthiness, but it will also lower the amount of interest you pay in total and each month since your interest payment is based on the principal loan amount.

Consider a Cosigner or Co-Borrower

To get a better rate, you may want to consider partnering with a cosigner or co-borrower. Though similar, a cosigner and co-borrower are not the same.

A cosigner is a person who signs the car loan alongside you, agreeing to pay the loan if you fail to do so. A co-borrower is similar, but will share ownership of the car as well as responsibility for the payments. Co-borrowers should both have access to the money used to buy the car.

Note that lenders may not allow a cosigner, only a co-borrower. This is because, in general, lenders don’t like when someone else’s credit is used to secure a loan for someone else. They expect the person on the loan to be the one who will own the collateral.

Often a parent, friend, aunt, or uncle, the cosigner signals to the automotive finance company that you are worthy of a lower interest rate. This is a huge thing to ask because you’re effectively asking someone else to put their credit on the line for you, so make sure to only use this option if you’re sure you can pay it back.

This is a great route to take for anyone without a strong credit history or those with poor credit who have improved their financial standing and are now able to pay loans on time each month.

Take a Shorter Loan Term

Auto loans are generally offered in different term lengths ranging from 24 months (two years) to 84 months (seven years). When you stretch your loan across a longer time period, it lowers your monthly payment, which means more cash in your pocket.

But there is a downside — If you take too long to pay off your loan, you may end up with a loan that exceeds the value of your car. That puts you and the lender at risk should your car be totaled and you owe more on the loan than the car is worth. If you have a guaranteed asset protection (GAP) waiver, you’ll be protected if your car is totaled and you still owe money on it.

Opting for a shorter loan period may be a great way to get the best interest rate based on your credit. When looking at your loan options, play with different terms to help determine how the rates vary depending on the loan term length you choose.

Sign and Refinance Later

If you aren’t able to secure the lowest interest rate possible that doesn’t mean you shouldn’t take out a car loan at all.

One great strategy is to take your less-than-ideal loan rate and refinance later. Having an auto loan can help you build good credit and ensure that you get a better rate later. After a few months of timely payments, you may see your credit score improve, and you may qualify for better rates than when you first bought your car.

You can refinance your new car loan in two or three months from the time you sign on, but it may be more beneficial to wait until you’ve boosted your credit history and score so you secure a lower rate.

Plus, if the interest rate savings are large enough, you may even end up paying less for the car by the time you’ve paid off the loan, just by getting a lower rate Use an auto refinance calculator to see how much you can save with a better interest rate.

Find a Rate You’re Comfortable with

Find a Rate You’re Comfortable with 

If you’re a new borrower or are working on your credit score, taking a higher rate isn’t always a bad thing since it can help you boost your credit standing and helps get you on the road faster. Ultimately, there’s no magic number when it comes to the ideal APR. A good interest rate is one you’re comfortable with and one that fits into your budget.