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Your credit score has a major impact on what kind of loan auto lenders will offer you. Equifax®, Experian®, and TransUnion® are the three major credit reporting bureaus that sell credit report data to auto lenders and dealers.

Auto lenders may rely more on Equifax and Experian for credit report insights, but TransUnion also sells consumer data to a number of automotive lenders. Credit scoring models — such as FICO® Auto Score 9 — generate a credit score based on the debt and payment information in a consumer’s credit report.

Some lenders may offer subprime auto loans based on a borrower’s FICO Score or VantageScore® 4.0. Below, we highlight the most common credit scoring models used in auto lending.

What Is a Credit Bureau?

At the most basic level, credit bureaus are companies that collect data from financial lenders and creditors. They compile this data into your credit history and provide that information to potential lenders in the form of a credit report. This information typically includes factors like how much debt you currently owe and whether or not you have a history of making on-time payments.

Which credit bureau is most used for auto loans? There are three nationwide credit reporting bureaus in the United States: Equifax, Experian, and TransUnion. Despite a common misconception, the credit bureaus, also known as credit reporting agencies, do not make lending decisions themselves. Rather, lenders use the reports provided by the credit bureaus to determine your creditworthiness, and each may have its own criteria for deciding when to approve or deny a loan.

The bureaus also give you the chance to look at your own report so you can understand your credit and correct any errors. You can request a free credit report from each bureau at least once per year.

Recommended: How to Check Your Credit Score for Free

Do Credit Scores Differ Between Credit Bureaus?

Your credit score may differ from bureau to bureau. That’s because it’s up to lenders and creditors to decide which information they report and who they report it to. While most lenders will report to all three credit bureaus, they aren’t required to and not everyone will.

When you apply for a new loan or new revolving credit, your lender may perform a credit check, usually with just one of the main credit bureaus. Credit inquiries like these are recorded in your credit report and can lower your credit score in the short term. However, they may only show up with the bureau the lender used for the hard credit check. This can be another source of discrepancy between different credit scores.

Your score is based on your credit history as compiled by the three major credit reporting bureaus. Each credit bureau will also have a slightly different credit scoring system, and those methodologies change over time as the bureaus try to make their scores more accurate. Multiple credit scoring models exist, but the credit scores auto lenders use most when making lending decisions are base or industry-specific FICO Scores.

Which Credit Bureaus Are Used Most for Auto Loans?

Equifax and Experian are the most commonly used credit bureaus by auto lenders. They offer services that are directed specifically at the auto industry, and each gets a portion of their revenue from the industry.

Though perhaps not as popular, TransUnion may also be used by auto lenders when they’re making their loan decisions.

Ultimately, it may not matter much which score your auto lender uses. Generally speaking, your credit report and score will be very similar no matter which bureau you go to.

However, if one of your credit reports is frozen — perhaps you’ve experienced identity theft recently and wish to prevent fraudsters from opening accounts in your name — it can be useful to find out which report your dealer uses. That way, you can unfreeze your report if the dealer needs to see it.

Why Is Your FICO Score Important?

Auto lenders may use your FICO Score, which is generated by the Fair Isaac Corporation, when making loan decisions. FICO gathers data from each of the major credit reporting bureaus to create a base FICO Score from 300 to 850, which is widely used by many lenders. Auto lenders may also rely on industry-specific FICO Auto Scores ranging from 250 to 900 or VantageScore credit scores ranging from 300 to 850 when making loan decisions.

No matter which credit scoring model is used, your credit score is generally a numerical representation of your credit history. The higher your score, the more likely creditors are to offer you a new loan or auto loan refinance with favorable terms, interest rate, and costs.

A lower interest rate can save you thousands of dollars over the life of the loan. A ‘good’ base FICO Score or industry-specific FICO Auto Score is generally considered to be in the 670–739 range (740 to 799 is ‘very good,’ and above that is ‘exceptional’). A poor score is anything less than 580.

Here are some factors to consider:

•   You can get auto loan financing with a good or bad credit score

•   Borrowers with bad credit may qualify for subprime auto loans

•   You may refinance a car loan with bad credit

•   Borrowers with prime credit may qualify for good interest rates

•   Your credit score may plunge if you lose your vehicle to car repossession

•   Surrendering your car via voluntary repossession can also damage your credit

•   It’s possible to reinstate your car loan after repossession

•   Getting a car loan after bankruptcy can be difficult at best

Recommended: Pros and Cons of Car Refinancing

What Is the Difference Between Your FICO Score and Other Credit Scores?

Theoretically, your FICO Score and your other credit scores could be the same, but they aren’t always.

Your FICO Score is based on a credit scoring model developed by the Fair Isaac Corporation, whereas your VantageScore is based on a credit scoring model developed by VantageScore Solutions, LLC. Multiple credit scoring models exist under the FICO and VantageScore brand names, and each model uses unique algorithms for generating credit scores.

The three major credit bureaus founded VantageScore in 2006 and have their own proprietary scoring systems predating VantageScore. As mentioned earlier, your credit score is generally a numerical representation of your credit history. FICO offers many different scores, including score models that work with each reporting bureau’s database.

Equifax provides generic credit scores ranging from 280 to 850 for educational purposes, not for creditors to assess a consumer’s creditworthiness. Lenders generally rely on FICO or VantageScore when making credit decisions, and lenders are free to choose which score they want to use.

Recommended: Register a Car Without a License

How Can You Build Your Credit History?

You may build your credit history by applying for consumer loans and making payments as necessary. When you get an auto loan, for example, the lender may report the status of your auto loan to at least one of the major credit bureaus each month.

Lenders are not required to report a customer’s loan account details to any of the credit bureaus, but many of them do so voluntarily. Getting approved for credit and maintaining open credit accounts over time can build your credit history.

Any active loan accounts in your name may appear on your credit report. A closed credit account may eventually be removed from your credit report within 10 years.

Recommended: What Is a Finance Charge?

The Takeaway

Equifax and Experian are the credit bureaus most commonly used by auto lenders. Yet, it ultimately may not make that much difference which bureau your auto lender uses.

As a consumer, it may be more important for you to make sure your credit is as healthy as possible by paying off debt and making payments on time. That way, no matter what bureau a lender uses, you’ll have the best chance to get an auto loan or a refinance car loan that works for you.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is a credit bureau?

Credit bureaus are companies that collect data from lenders and creditors. There are three nationwide credit reporting bureaus: Equifax, Experian, and TransUnion. Each compiles your credit history by gathering data from lenders and creditors.

What is the difference between credit bureaus?

Each credit reporting bureau may gather slightly different data from different lenders, and each may have a different algorithm for calculating your credit score. Multiple credit scoring models exist, but base or industry-specific FICO Scores are the credit scores auto lenders use most when making lending decisions. Credit scores are based on information contained within your credit report as compiled by the credit bureaus.

Why are there multiple credit bureaus?

There are multiple credit bureaus because different companies collect, update, and analyze credit information independently. Each bureau may gather data from different lenders, leading to slight variations in credit reports and scores. Having multiple bureaus promotes competition, encourages accuracy, and provides lenders with a broader view of a borrower’s creditworthiness.

Which credit bureaus are used the most for car loans?

Auto lenders most frequently use Equifax and Experian, but TransUnion also sells credit report data to auto lenders.

Photo credit: iStock/ljubaphoto

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q225-015

You might think of a car loan as one that uses the vehicle as collateral — in other words, a secured loan. Another option exists: an unsecured loan when the vehicle isn’t put up as collateral. This is a significantly different type of loan structure.

A car loan can either be secured with collateral or unsecured without collateral, and both options can provide you with financing to buy a car. So, what exactly are the differences between an auto loan that’s secured or unsecured, and which is better? Below, we highlight the pros and cons of a secured vs. unsecured auto loan to help you determine which one is right for you.

What Is a Secured Auto Loan?

When wondering is auto loan secured or unsecured, there are basic differences to know. First, a secured auto loan is financing that helps a borrower buy a new or used car while giving the lender a security interest in the financed vehicle. Lenders may repossess the vehicle as collateral if the borrower fails to make required payments on the secured car loan.

The security interest is a lien that holds the vehicle as collateral until the car loan is paid off in full. Lenders — or the lienholder of your secured auto loan — may hold the car title until you pay off the debt.

What Is an Unsecured Auto Loan?

An unsecured auto loan is financing that helps you buy a car without giving the lender a security interest in the vehicle. Borrowers can use this type of loan — usually a personal loan — to buy a new or used car without pledging any assets as collateral.

Lenders may offer a higher annual percentage rate (APR) for unsecured car loans because the loan is not secured with collateral, which means the lender may not seize your car in the event of default.

Are Auto Loans Secured or Unsecured?

Most auto loans are secured by the financed vehicle, but lenders may also offer unsecured auto loans, though they are much less common.

As mentioned, with a secured auto loan, if you fail to make your payments, the lender has the right to repossess the car to recover their losses. This setup reduces the lender’s risk, which often results in lower interest rates compared to unsecured loans. Because the vehicle backs the loan, lenders are generally more willing to approve financing, even for borrowers with less-than-perfect credit.

Secured vs Unsecured Car Loans

When deciding between secured vs. unsecured loans, it’s important to consider the pros and cons of each:

When deciding between secured vs. unsecured loans, it’s important to consider the pros and cons of each:Here are some of the factors that a lender may consider when deciding whether to approve or deny your secured or unsecured car loan application:

•   Proof of identity

•   Annual income

•   Credit history

•   Credit check results

•   Debt-to-income ratio

Here’s a rundown on some of the car loan requirements:

Income

Lenders may check to make sure you have enough income to afford a car loan, and what “enough” means can vary by financial institution. Ways that lenders may verify your annual income include asking for pay stubs, bank statements, or tax returns.

Recommended: No Income Verification Loans

Credit History

Because past payment history can predict a person’s future actions, lenders may want to see that borrowers have a pattern of meeting their financial obligations. As such, a review of your credit history is typically part of the loan approval process for a vehicle.

Credit Check Results

Results of your credit check can play a key role in determining what interest rate you’re offered. Borrowers with excellent credit may qualify for a 0% APR car loan secured by the financed vehicle.

Debt-to-Income Ratio

Your debt-to-income ratio (DTI) calculates the percentage of your pretax income that goes toward your monthly debt payments. Lenders like to see low DTIs — generally below 36% — because a low DTI reduces their levels of risk, while a higher one can indicate that a borrower is carrying too much debt for their gross income.

How Can I Get an Unsecured Auto Loan?

Here are the steps you may take to get an unsecured car loan:

1. Shop Around for Unsecured Car Loans

With an unsecured loan, seek out lenders that will loan on a car without requiring collateral. Lenders may offer this type of financing as a signature loan or unsecured personal loan.

2. Fill Out and Submit Your Loan Application

You can fill out and submit your unsecured loan application with the lender of your choice. Good credit scores are especially important for unsecured loans because the lender generally makes approval decisions based on the applicant’s financial record and situation. The interest rate may also depend on the individual’s credit score.

3. Receive Your Loan

Loan approval is never guaranteed, but lenders may approve your unsecured car loan if you meet the lender’s underwriting standards. Just like with secured loans, a lender may want to assess whether you have enough income to make the payments. You may get approved for tens of thousands of dollars in financing if you have excellent credit and a DTI below 36%.

4. Find and Buy a Car

You can find and buy a car using an unsecured loan. The loan can help you buy a new or used car from a dealership or private seller.

Recommended: What Happens to a Car Loan When Someone Dies?

Car Financing Options

When shopping for an auto loan, it’s important to assess your options. You’ll want to set your budget before you head out shopping, and it’s also a good idea to check your credit in advance so you have a good sense of where you stand and what your odds of qualification are. This could give you a sense of whether you may need a cosigner.

You may shop for car loans from multiple sources. Getting prequalified or preapproved can help you compare rates. Once you have an auto loan offer in hand, it is critical to read the fine print before you commit. Specifically, keep an eye out for your interest rate, the length of a car loan, any fees and penalties, and other key aspects of the agreement before moving forward.

If you already have a car loan and are looking to reduce your monthly payments, consider auto refinancing. If you’ve got a more challenging situation, such as an upside-down auto loan where the loan amount is higher than the value of the car, it can take more research to find the right lender.

Recommended: Can Car Loan Companies Garnish Your Wages?

The Takeaway

Auto loans can be divided into two broad types: secured, where the vehicle is put up as collateral, and unsecured, where a borrower’s credit history and financial situation are primarily considered when a lender makes an approval decision. Although the borrowing processes are similar in many ways, there are key differences between secured vs. unsecured auto loans.

If you want to change your current loan, an auto loan refinance may allow you to lower your interest rate, shorten or lengthen your term, or switch from an unsecured loan to a secured loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is a secured car loan?

A secured car loan is a type of financing that helps a borrower buy a new or used car while giving the lender a security interest in the financed vehicle. The security interest is a lien that holds the vehicle as collateral until the car loan is paid off in full. Lenders or the lienholder of your secured auto loan may hold the car title until you pay off the debt. Lenders may seize the vehicle as collateral if the borrower defaults on the secured car loan.

What is an unsecured car loan?

An unsecured car loan is financing that helps you buy a car without giving the lender a security interest in the vehicle. Borrowers can use this type of loan to buy a new or used car without pledging any assets as collateral. Lenders may not seize your vehicle if you default on an unsecured car loan.

Are secured car loans better than unsecured car loans?

Your personal preferences may dictate whether a secured car loan or unsecured car loan is right for you. You may qualify for a lower interest rate on a secured car loan, but the lender may repossess your vehicle if you default. An unsecured car loan gives the lender no right to repossess the vehicle if the borrower defaults on the loan.

Photo credit: iStock/Halfpoint

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q225-036

While you can refinance your car with the same lender, there’s more to the decision-making process than just picking the lender that currently has all of your account information.

If your lender does offer auto refinance loans, you shouldn’t just assume they are necessarily the best option out there. Different lenders offer different rates, loan terms, and fees, so it’s important to shop around. Below, learn more about how refinancing works with the same lender and when it makes sense to explore elsewhere.

What Does It Mean to Refinance a Car?

Refinancing a car means replacing your current auto loan with a new one, ideally with a more favorable interest rate or better terms. Rather than making payments on your old loan, you’ll pay it off with the new loan and start making payments on that.

Why Would You Want to Refinance?

There are many reasons to refinance your car, including:

•   Lowering your interest rate. This is one of the best reasons to refinance. A lower interest rate can both lower your monthly payments and reduce the amount you pay in interest overall, assuming you keep your loan term the same or shorter.

•   Paying off your loan faster. This involves shortening your loan term. If you secure a lower interest rate and shorten your loan term, you’ll not only pay off your loan faster, but you’ll also save money in interest in the long run. However, your monthly payment might go up.

•   Reducing your monthly payments. If you refinance your car and choose a longer loan term, your monthly payments most likely will decrease. While this typically means you’ll pay more in interest over the life of the loan, sometimes reducing payments is necessary to keep you afloat during hard financial times.

•   Removing a cosigner. If you took out your original auto loan with a cosigner, you can choose to remove them by refinancing, assuming you can qualify for the new loan on your own.

Is It Possible to Refinance With the Same Lender?

If you’re thinking of refinancing, you may be wondering if you can do so with the same lender. In most cases, the answer is yes — but that doesn’t mean it’s automatically the right decision for you.

When you first start thinking about refinancing your auto loan, it’s natural to consider your current lender, especially if you’ve had a positive experience. Not all auto lenders offer refinancing, though. Most do, but it’s a good idea to double-check that this option is available before you do more digging.

Can you refinance your auto loan with the same bank? Absolutely. Is it always the best loan offer available? Not necessarily. And you won’t know for sure unless you shop around.

Recommended: Business Auto Loans: How to Get Financing

When Does It Make Sense to Refinance?

There are many pros and cons to auto refinancing. Here are some of the most common situations in which it makes sense to refinance:

You Now Qualify for a Lower Interest Rate

If interest rates go down or you have built your credit score, you could save money with a lower rate. Refinancing may be right for you if you qualify for an interest rate that’s lower than your current auto loan rate.

You Have a Helpful Cosigner

If your credit score isn’t very high, refinancing with a cosigner could also help you pay less in interest. Refinancing may be right for you if you have a creditworthy cosigner who can help you qualify for an auto refi loan that’s more favorable than what you currently have.

Likewise, you may have signed your original auto loan with a cosigner and now you want to remove them from the loan. If you can qualify on your own, refinancing your car will allow you to do so.

You Want to Lower Your Monthly Payment

You might be able to get a longer loan term by refinancing. This means you’ll be making payments longer, but your monthly payment will be less. Keep in mind that by extending your term, you may end up paying more in interest over the life of the loan. However, if you need a lower payment, refinancing may be right for you in order to make ends meet.

Your Car Is Aging or Has High Mileage

Many lenders restrict your ability to refinance a car loan once the vehicle reaches a certain age or mileage mark. If your car is close to 10 years old or is approaching 100,000 miles, then it might be time to crunch the numbers to see if one last refinance makes sense. Refinancing a car with high mileage is possible and may be right for you depending on your personal circumstances.

Recommended: Tips for Buying a High Mileage Car

Is It Easier To Refinance With Your Current Lender?

When you apply to refinance your auto loan, you’ll need to submit documents related to your current loan, including the loan agreement.

If you’re applying to refinance through your current lender, it will probably already have that paperwork on hand. But while it may seem easier to let your current lender handle this step on its own, you should still find and review that information yourself before you apply to refinance. That way you can check the contract for prepayment penalties and your exact payoff amount.

It’s also important to check your current interest rate to figure out whether or not you’re getting a better offer with a refinance.

Even if it does seem easier to refinance with a lender you’re already working with, it’s crucial to rate-shop and make sure you’re meeting your financial goals. If you find a better deal elsewhere, it may not be that much harder to switch. Most lenders create an easy, streamlined application process.

In summary, it can be easier to get a refinancing loan from the lender you already know. But “easier” doesn’t automatically mean it’s better.

How to Refinance With the Same Lender

How exactly to refinance an auto loan may differ slightly when you’re applying with the same lender. Here are the steps for how you may refinance with the same lender:

•   Gather the required documentation. Even if you have a history of making your car payments on time, you’ll still probably need to provide proof of income. This could be recent paystubs or a tax return.

•   Confirm and update your personal information, including your address and how much you spend on housing each month. The lender likely has other details about your current loan and vehicle. Nonetheless, it will probably pull a credit report to see where you stand today. Your credit score may drop by a few points temporarily if the lender conducts a hard pull inquiry into your credit report.

•   Receive a loan offer based on your personal information and your vehicle information. The offer may include an interest rate, any fees, and the length of the loan term. Review all of these details and compare this offer to offers from other lenders to see which is the best option for you.

Why You May Want To Refinance With a Different Lender

Lenders all vary when it comes to rates, loan terms, and fees, so it’s always best to shop around in order to find the best auto refinance deal for your situation. While refinancing with the same lender may be easier, if you can save hundreds or thousands by going elsewhere, that may be worth your time and effort in the short term.

How To Refinance With a Different Lender

Even if you were interested in refinancing with your current car loan provider, you might find a better deal elsewhere and decide to change lenders. Here are the steps on how you may refinance with a different lender:

•   Submit the required documentation. In addition to the financial and income verification you need to apply with your existing lender, a new lender will likely need information about your vehicle and current loan.

•   Submit details about your vehicle. This includes the make, model, and year. You must also disclose the vehicle’s mileage and supply the lender with the vehicle identification number (VIN).

•   Provide the current loan balance and lender’s contact information. The application may also require you to submit proof of auto insurance.

•   Check your credit. The lender may check your credit report. This can result in a small, temporary drop in your credit score. But if there are multiple credit inquiries for the same kind of loan within a short period of time on your record, they’ll typically be counted as just one, since the credit score agencies understand that you’ve been shopping to find the best rates.

•   Get prequalified, if possible. Some lenders may allow you to prequalify for a loan, which won’t typically result in a credit drop. But note that the offers you see that way aren’t guaranteed, especially if your financial situation changes before you actually apply for the loan.

•   Apply for and accept the loan. Once you’ve selected the loan you want to apply for, the process will be similar to that when you apply with the same lender, except that when you’ve received and accepted the loan terms, your new lender will transfer the funds to pay off your old loan and your new payments will begin.

The Takeaway

It is generally possible to refinance your auto loan with your current lender. It may even be a bit easier than filling out an application with a new lender. However, it doesn’t mean that it’s financially the best option for you. In order to find the best auto refinance loan, it’s best to shop around to find the best rates and terms for your particular situation.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Is it better to refinance with the current lender?

No, it’s not necessarily better to refinance with your current lender, even if the process is easier. In addition to considering refinancing with your current lender, compare online auto loan refinancing rates with multiple lenders. Once you look at a few different offers side by side, you can likely see which one best helps you meet your goals, whether it’s saving on your interest rate or lowering your monthly payments.

When does it make sense to refinance with the same lender?

It makes sense to refinance with the same lender when that lender extends the best offer among multiple lenders. That may be the case — and maybe your current lender can even offer you a loyalty rate discount on top of expediting the application process. But if you get a better offer from another lender, you may be better off switching.

When does it make sense to refinance with a different lender?

Depending on your financial situation and goals, if another lender offers you a lower interest rate or lower monthly payments, then it may make sense to accept that refinance offer. There are some pitfalls to watch out for, however. Make sure there are no hefty upfront fees that could reduce your potential savings. Also confirm that there’s no prepayment penalty in case you want to pay off your loan early.

Photo credit: iStock/Altayb

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOALR-Q225-034

Refinancing a car loan can be a smart financial move, especially if you’re looking to lower your interest rate, reduce your monthly payments, or adjust your loan term. But before signing on the dotted line, it’s important to ask the right questions to ensure you’re making the best decision for your situation.

From understanding the total cost of refinancing to evaluating potential savings, asking the right questions can help you avoid surprises and maximize your benefits. Here’s what to ask when you’re considering refinancing your auto loan.

1. Do I Qualify for Car Loan Refinancing?

There’s no guarantee that you’ll be approved for auto refinancing. It can be difficult to qualify for an auto refi loan if you have bad credit or a high-mileage car. Even if you have excellent credit, a lender may be unwilling to refinance your car loan if you owe less than $5,000 on your loan.

Each lender has its own eligibility requirements and underwriting standards. Prequalifying for an auto refinance loan doesn’t guarantee loan approval, but it may help you determine whether refinancing is right for you.

2. Will Refinancing Impact My Credit Score?

Yes, refinancing affects your credit score because it requires a hard credit inquiry. This means that when you apply for a refinancing loan, your credit score may for a time drop by as much as 10 points.

And while you’ll likely want to shop around for the best loan terms, submitting multiple applications over several months can ding your credit score. However, timing is everything. If you submit all of your applications within a short window, the impact on your credit score should be the same as if you’d only submitted one application.

Keep in mind that the age of the debt is a factor in your credit score. Taking on the refinancing debt increases your amount of newer debt, which may also temporarily ding your credit score.

In the aftermath of acquiring your loan, much of what happens to your credit score depends on you. For example, if you use the savings from your lower monthly payments to pay off higher interest debt, reduce your credit utilization ratio on your credit cards, or pay off old collections accounts that drag down your score, these actions may help rebuild your credit record. And of course, if you pay your loan back in a timely fashion, that can work toward building a positive credit history, too.

Recommended: Refinancing With Same Lender

3. Is Cash-Out Auto Refinancing Worth It?

Cash-out auto refinancing allows you to borrow against the available equity in your financed car. This can provide you with a lump sum of cash for covering personal expenses, but there are some potential downsides to cash-out refinancing. For one, it can increase your overall debt in terms of outstanding principal and total interest costs. Your personal preferences and circumstances may dictate whether cash-out auto refinancing is right for you.

4. What Will My New Payment Be?

There are several factors that may determine what your new monthly payment will be after refinancing your auto loan. These include your interest rate, the length of the loan term, and the total loan amount. Each potential refi lender should let you know exactly what the payment would be so that you can compare it with your current monthly obligations and other refi loan offers.

Recommended: What Should Your Average Car Payment Be?

5. What Will My New Interest Rate Be?

Ideally, your new interest rate will be lower than the one you’re paying now. If you can’t get a lower interest rate, refinancing will likely lose much of its appeal.

The odds are in your favor if you’ve built your credit score since you got your first loan. If interest rates have generally dropped, too, you may also qualify for a better deal for you.

On the flip side, if your credit score has dropped, you’re likely to face the consequences, meaning you won’t necessarily qualify for the best interest rates — or even the same ones you got before. Also, if your car’s appraisal value has declined significantly, you’re likely to receive a higher interest rate.

6. How Long Will My New Loan Term Be?

Some borrowers may qualify for auto refinance loan terms up to 84 months. Creditworthy applicants may have the option to choose either a short or long term. A longer term may provide you with a lower monthly payment, but it could also increase your total interest costs over the life of the loan.

Refinancing may not be right for you if it leads to an upside-down car loan. This describes a situation in which the outstanding balance on your auto refi loan is greater than the resale value of your refinanced car. Being underwater on a car loan is generally not an ideal situation.

However, if you’re unable to afford your monthly payments, refinancing for a longer term may provide you with a much-needed lower monthly payment.

Recommended: 144-Month Auto Loan

7. How Soon Can I Refinance a Car Loan?

You can technically refinance a car loan at any time, but most lenders prefer you to wait at least 60 to 90 days after the original loan begins. This gives the initial lender time to finalize the title transfer and for your payment history to start building. Lenders also want to see that you’ve made at least a couple of on-time payments, which shows you’re a responsible borrower. Some lenders may have their minimum time frames, so it’s worth checking their policies before applying.

That said, there are certain particular times when you might consider refinancing. These may include when interest rates are significantly lower than what you’re currently paying or when your credit score is now higher than when you got your current loan (since you will likely be offered a more favorable interest rate this time).

8. What Fees Are Associated With Auto Refinancing?

There are usually fees involved in refinancing, which may vary by lender, your state of residence, or the state where your refinancing lender is based.

Some fees are relatively standardized, including the transfer of lien holder fees and state re-registration fees (which can cost more than $200 in some cases).

However, other fees may depend on your old and new lenders. They can include the following:

•   Prepayment penalties. Your existing lender might have prepayment fees. Many lenders don’t charge these, but if yours does, calculate whether those fees will cost you more than you’d save with a new loan.

•   Application fees. Your new lender might charge you an application fee for filing the papers. Don’t be shy about asking the lender to waive the application fee, though.

•   Transaction fees. There could also be a transaction fee, an administrative fee, or a processing fee charged when you terminate your loan.

9. What Should I Be Aware of in the Fine Print?

You have to be a bit of a sleuth when you’re thinking about signing any sort of contract. You want to be on the lookout for disclosures and details about any and all fees. Do ascertain whether there are prepayment penalties for early payoff of the loan, for example.

Also, be aware that your loan could include items you might have no interest in, like gap insurance, which could add more costs to your refinance. Take your time and review the fine print; it could save you money and costly misunderstandings.

The Takeaway

Refinancing your car loan can mean a positive difference to your finances if you get a lower interest rate and lower monthly payments. Asking questions can help you be sure you’re making your decision based on solid information.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Do I qualify for refinancing?

You may qualify for auto refinancing if you have a steady income, you’ve built your credit score, and your car is newer with sufficient value. Lenders also consider your current loan balance, payment history, and whether your vehicle meets mileage and age requirements. Each lender’s criteria may vary.

What will my new loan payment be after refinancing?

Your exact new loan payment depends on your individual situation. But typically, when you refinance, it’s most often so that you can get a lower monthly payment. Potential refi lenders should tell you what your monthly payment would be if you refinanced with them so that you can compare your options.

What will my new interest rate be after refinancing?

Ideally, when you refinance you’ll be getting a lower interest rate than you have on your current loan. What that rate is may depend on factors such as your credit score, the value of your car, and prevailing market rates, among other things.

How long will my new loan term be after refinancing?

How long your new loan term will be depends on what you work out with your new lender. Ideally, you’ll be aiming for the shortest term that you can afford, that way you can minimize the amount of interest you end up paying over the life of the loan.

Photo credit: iStock/Jinda Noipho

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This content is provided for informational and educational purposes only and should not be construed as financial advice.

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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 strong credit profile. But having bad credit may not automatically exclude you from getting approved, either. You will, however, likely pay more to borrow than a person with a score of 600 or higher.

Here, learn the ideal credit score when refinancing an auto loan, how your credit score will impact your new loan, current auto refinancing rates, and more.

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

There’s no specific credit score that’s needed to refinance your car. Loans are available for people with a wide range of scores. However, typically, a FICO® score of 700 or above will give you access to the most favorable loan offers, while a score of 600 or higher means you’ll likely get standard offers.

As you start shopping for a new loan, it’s important to consider 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 you have built your credit score. A lower interest rate could reduce how much you dole out in interest over the life of the loan.

•   Another common reason for refinancing is to simply lower your monthly payments and take some stress off your budget. You might do this by extending your loan term. However, this means you’ll be making car payments for a longer period of time and may pay more in interest over the life of the loan.

How Different Credit Levels Affect Auto Loan Refinancing

Refinancing a car is usually most difficult when you have a bad credit score, meaning between 300 and 579. However, 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 refinance with a loan 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. 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. (Worth noting: The cosigner has no legal claim to the vehicle unless you add them to the title.)

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.

Recommended: What Should Your Average Car Payment Be?

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, so that is something to keep in mind. When you apply, 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 amounts build your credit score, it may also 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), but many lenders prefer no more than 36%.

For example, 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 25% ($2,000 divided by $8,000), leaving you comfortably below the usual requirement.

How Does an Auto Loan Refi Affect Your Credit?

When you take out a new loan, your credit will be impacted in a few different ways. However, that doesn’t mean that refinancing your car is a bad idea, as long as it helps you meet your primary financial goals. A few ways auto loan refinancing affects your credit score includes:

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 to 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.

Recommended: Loan After Rebuilt Title

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 third quarter of 2024. This gives you a jumping off point about what you might expect when it’s time to refinance.

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 online tools that allow you to gather options. Dig into the details, however, to be sure you understand the annual percentage rate (APR), fees, and terms, and know the true cost of the loan, both in terms of your monthly payment and the overall cost of borrowing.

Once you find the best refinance quote, you can finish the application with your lender of choice.

Recommended: Refinancing After Repossession

The Takeaway

You can qualify for 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 rates and 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, of course, comparison shopping (within a short window of time) can also help you find the loan that is best suited to your needs.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is a good credit score for refinancing a car?

You will typically need a credit score of at least 600 in order to qualify for a refinance car loan. Those with higher scores are likely to access more favorable (or lower) rates and terms.

Can I refinance my car loan with a 500 credit score?

It can be challenging to refinance an auto loan with a credit score of 500. If you do find a lender, you will likely face very high interest rates and fees, as well as less favorable terms. Make sure you fully understand the total cost of the loan and your options before signing on.

Can refinancing hurt your credit?

When you refinance a loan, the lender typically does a hard credit pull to review your credit file. This causes a small (perhaps several points) drop in your credit score, which is temporary. Your score should be positively impacted as you make on-time payments and follow other credit-building habits.

Photo credit: iStock/MicroStockHub

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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