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Title loans are a form of funding in which you use your vehicle title as collateral in exchange for cash. These are typically short-term, high-interest loans used by borrowers who have bad credit and don’t qualify for other types of personal loans. (In business, title financing is typically used to borrow funds for purchasing equipment.)

Because title loans are secured, there’s a large amount of risk involved for the borrower, who could lose the vehicle if they default. If you’re considering this kind of loan, it’s important to understand how they work and other alternatives you might consider before you apply.

How Do Title Loans Work?

Typically, a title loan is a short-term loan that needs to be paid back within a small window of time, often around 15 to 30 days. The application and approval process are easy and may not require a credit check — which should be your first red flag. With a title loan, you have to hand over the title to your vehicle in order to get the cash. You can still drive your car, but it’s in danger of being seized by the title lender if you don’t pay back your loan on time.

Title loans can be found both online and from brick-and-mortar lenders. In order to potentially qualify for title financing, you either need to have substantial equity in the vehicle (as in a very small auto loan balance) or, in some cases, you may need to own the car completely. You can typically apply to borrow up to 25% to 50% of your car’s current value.

Title loans typically include high finance charges that can translate into an annual percentage rate (APR) of 300%, according to the Federal Trade Commission.

Recommended: Guide to Car Loan Interest Rates

Title Loans Vs Personal Loans

A title loan is quite different from online personal loans.

One of the biggest differences is that a title loan is secured, while a personal loan is typically unsecured (in which case it’s also called a “signature loan”). If you default on a signature loan, you may be held liable for the money you owe, but you usually can’t have your assets seized by the lender to repay the balance.

Title financing is also typically much more expensive than a personal loan, with car title loan interest rates reaching triple digits. Plus, you usually have to repay a title loan within 30 days. It’s easy to get trapped in a debt cycle if you can’t make the full payment by that time. You may be able to roll over the loan balance, but you’ll usually incur hefty fees on top of an APR that can already be sky-high.

An unsecured personal loan, on the other hand, typically has a fixed rate and a longer repayment period. Your payments may be more affordable because they’re spread out over time. You may incur late fees if you miss a payment, but you don’t have to worry about rolling over your balance — most unsecured personal loans don’t permit the practice.

When to Consider a Title Loan

Title loans are typically used by people with bad credit who can’t get financial assistance anywhere else. The funds are often used to cover an emergency.

Generally, a title loan is considered only as a last resort. You should also explore all of your other options before seriously considering title financing for personal use. And it’s certainly not a good idea to take one out for anything that’s not absolutely necessary.

Recommended: Types of Car Loans

Using Title Loans for a Business

Title loans for business work differently than standard personal title financing. Also called equipment financing, this kind of loan allows companies to borrow funds to purchase equipment. Many commercial industries use equipment, from the bulldozers a construction company may need to the kitchen equipment a restaurant might use to the computers an accounting firm might rely upon. Any of these businesses might take out an equipment loan to purchase these necessities. The equipment is then used as collateral for the loan.

Equipment financing rates are typically available with more favorable terms than title loans. Lenders may view these loans as less risky since there’s collateral. Plus, the business generally has to undergo an application process and financial review to make sure the payments are affordable. You may have anywhere from months to years to pay the loan back, depending on the lender.

It is possible to get business equipment financing with bad credit, but rates are typically higher than borrowers with good credit. Lenders may also review how long a company has been in business when determining whether or not to extend the loan offer.

You can usually see the minimum application requirements on a lender’s website so that you can compare equipment financing companies and apply for the business loans most suitable for your needs.

Pros and Cons of Title Lending

Here’s a closer look at the pros and cons of title lending. The negative aspects of title lending can outweigh the positives.

Pros of Title Loans

•   Typically no credit check is required, meaning those with bad credit can secure funding

•   Quick access to money

Cons of Title Loans

•   High interest rates and fees

•   Must be repaid in a short timeframe

•   Requires that you own your car in full or at least have significant equity in order to qualify

•   The lender may also require a GPS device to be installed in your car. In the event that you don’t repay the balance, this lets the lender track your vehicle’s location in order to seize it.

•   While you might be able to roll over your loan into another repayment cycle, you’ll then continually accrue fees on top of the original principal and interest, adding to the debt burden.

•   Your vehicle can be seized if you can’t make loan payments.

Recommended: How to Finance a Salvage Title

Alternatives to Title Financing

When you’re stuck in a financial pinch, you may want to consider all of your other options before taking out a title loan. Here are a few to consider:

Cash-Out Auto Refinancing

If you have an active car loan, cash-out auto refinancing can be a way to borrow money by using the equity you have in your vehicle. You could also potentially get a lower interest rate on your auto loan as well.

Contact Creditors

If you’re undergoing financial hardship and having trouble making payments on your normal bills, reach out to those creditors. You may be able to work out a temporary reprieve in payments or modify loan terms to pay off your debt.

Consider a Credit Card Cash Advance

If you have a credit card that’s not maxed out, you could potentially take out a cash advance. This is not often advised, however. Compare the fees and terms to your other options because you’ll generally be charged a higher APR (annual percentage rate) than your standard credit card interest rate.

Explore Local Bank or Credit Union Loans

Another option is to look for small, short-term loans at local or regional banks and credit unions. You’ll probably be more likely to be approved if you’re already an account holder at the financial institution.

Recommended: How Does PreApproval Work?

The Takeaway

A title loan uses your vehicle’s title to secure a loan. You receive a portion of your car’s equity, usually at a high rate of interest for a short period of time. If you default, the lender can take your car, which serves as collateral. Because of the risk of losing your car’s title and the challenge of paying a high interest rate, it may be best to avoid a title loan and look for alternatives. For instance, if you have an active car loan, cash-out auto refinancing may be an option to explore.

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 a title loan ever a good idea?

Car title loans can seem like a convenient option for getting fast cash, but they come with high interest rates, short terms, and the risk of losing your vehicle. For this reason, exploring your options can be a smart move.

What are title loan disadvantages?

There are several key disadvantages to title loans including the high interest rates (up to 300% per year), short repayment terms (often, a month or less), and the risk of repossession if you default on your loan.

What is the most you can get for a title loan?

Typically, title loans will pay out 25% to 50% of the vehicle’s value. The average amount loaned in this way is approximately $1,000, but the range can be from $100 to $10,000.

Photo credit: iStock/Dmytro Skrypnykov

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-Q325-040

Car registration is one of the documents you’ll need to legally drive a vehicle. All U.S. states require registration in order to know who owns the car.

You’ll likely be asked to show this document many times — to law enforcement, to officials when you’re having emissions testing done, and to dealers or buyers when trading in, selling, or refinancing the vehicle.

The registration process can vary significantly by state. To help guide you through what’s needed to get your car registered, we’ll walk you through questions from “What is a car registration?” to “What are car registration fees?”

Car Registration Definition

Vehicle registration is one of two key pieces of documentation that people who own a car must have. The registration document is proof that you’ve signed up (“registered”) with the state you live in and are legally allowed to drive that vehicle on public roads. Note: Car registration documents need to be regularly renewed with a registration fee paid each time.

This differs from the second key piece of documentation, the car title, which indicates you own the vehicle. Car titles don’t need to be renewed; it only changes when you pay off a vehicle (and the title is now 100% yours) or when the car is sold to another person.

Recommended: How to Sell a Car You Still Have a Loan On

Why Do You Have to Register Your Car?

Registration documents are used by state governments to establish who owns a vehicle, information they then use for more than one purpose, including when assessing taxes and searching for criminals.

After you register your vehicle, you’ll be provided with license plates and, in some states, you’ll receive an updated sticker to place on your license plates each time you renew your registration paperwork.

What Happens if You Don’t Register Your Car?

It’s illegal to drive an unregistered vehicle or one with an expired registration. Drivers are required to have their registration documentation in their vehicle and may be asked for it by law enforcement professionals if they’re stopped.

If you cannot produce your car registration when asked to by the police, you face steep fines. Different states have different fines. In some states, the worst-case scenario is they will impound your car, you’ll be charged with a misdemeanor, and you could even face time in jail.

Recommended: Can You Register Your Car Without a License?

How to Get a Car Registered

Specifics on how to get a car registered can vary by state. In general, though, you’ll register your vehicle with your state’s Department of Motor Vehicles (DMV) or their transportation department.

Here’s how the typical process works:

•   You’ll show the registration office the title of your car to prove ownership. With a leased car, the lease agreement will be used. If this car is new to you (whether literally new or used), you’ll also provide a certificate of origin for a vehicle bought from a dealership or a bill of sale if you bought it from an individual. Be prepared to provide the odometer reading (the vehicle’s mileage), if asked. Although the car’s title should have the necessary information about your vehicle, it can help to know information about it, anyhow, such as the make, model, and year, as well as its vehicle identification number (VIN).

•   In some states (usually with a used car), you’ll have to show that your vehicle meets the state’s exhaust emission standards and is otherwise sound before renewing your registration.

•   Be ready to provide the registration office with proof of auto insurance. Again, state requirements vary. Have your driver’s license handy and, if newly moved to the state, proof of your address. Plus, you’ll pay registration fees each time.

Contact your state’s transportation department for specifics on what you need to register your vehicle.

Recommended: What Is a Car Appraisal?

When to Register a Car

The three main times you’ll register a vehicle are:

•   When you’re buying it

•   If you’re moving to another state

•   When you’re renewing your registration according to your state’s schedule

According to the National Conference of State Legislatures, individual states require registration renewal either annually or every other year.

Recommended: 9 Tips for Buying a Used Car

Does Registration Transfer to a New Owner?

You only transfer a car registration if you move states or want to use the license plate from your previous car. If you buy a car without selling or trading in an old car, you would register that car with your state and receive a new license plate.

Do You Pay Registration on a Leased Vehicle?

When you sign a lease, you will also have to register the car with your state’s department of motor vehicles. Sometimes the dealership will register the car for you and pay the fee, but it’s important to make sure this is done by someone.

When Are Car Registration Documents Needed?

Car registration documents are needed if law enforcement asks to see a copy. If your state requires an emissions test, they may want to see this paperwork, so check yours for specifics. In some states, the inspector may ask for either the title or registration, although there are ways to get the vehicle tested without them.

Other times you’ll need your car registration documents are when you want to:

Trade in a Car

If you’re ready to trade in your vehicle to a dealership, most states require that you, at a minimum, present the title. They may require more information, including the registration form, so ask the dealer what they’ll need.

Refinance a Car

If you want to refinance an automobile, you’ll need to provide both your car title and the registration documents to the lender. Having all of your documentation in order will help to make the car refinance process run more smoothly.

You may also want to consider ahead of time what questions to ask when refinancing a car, such as the interest rates and terms available.

Buy a Car

When you buy a car, you’ll need to register it with your state’s DMV or transportation department; the specifics of the process will vary by state. Take the title or lien agreement and the certificate of origin or bill of sale with you when you do so.

Sell Your Vehicle

In most states, the sale of a vehicle requires the title and may also require that you provide your registration documentation. Check your state for specifics on what’s needed.

What Are Car Registration Fees?

Usually, you’ll pay a one-time title fee when you buy the vehicle and then an annual car registration fee (although some states charge this fee every other year). The amount of the car registration fee can vary significantly by state and can increase in price if you choose to buy vanity plates. Some states charge a flat fee while others use the vehicle’s age, gross weight, or fuel efficiency to calculate the amount charged.

Most Expensive States to Register a Vehicle

The most expensive states to register a vehicle include Oregon at $312 for four years, and Hawaii and Connecticut at $250, according to AutoInsurance.org.

Recommended: What Is a Lease Disposition?

The Takeaway

There’s no doubt that vehicle registration is an essential document for a car owner. It’s the document that proves you’re legally allowed to drive on public roads. You’ll need to keep it in your vehicle when you drive and make sure it gets regularly renewed. Car registration is needed not only if you’re buying or reselling your car, but also if you want to refinance.

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

How much does registering a vehicle cost?

The cost of registering a vehicle varies by state and can depend on factors like the vehicle’s make, model, year, and weight. Fees typically range from $20 to $200.

Do you have to pay to register your car every year?

Your vehicle registration will need to be renewed once a year or every few years, depending on what your state mandates. You may need to pay a fee each time.

Are title and registration the same thing for a car?

No. A title is a physical document that proves that you own your vehicle, which has been legally registered. Your regional DMV gives you the document. Vehicle registration proves that your vehicle is safe to drive on the road and that you’ve paid the necessary fees and taxes.

Does every state require vehicle registration?

Yes, every state in the U.S. requires vehicle registration to legally operate a vehicle on public roads.

Photo credit: iStock/anyaberkut

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-Q325-039

When you’re financing a car, you can choose either a fixed-rate or a variable-rate loan. With fixed-rate loans, the interest rate remains the same over the life of the loan. Adjustable-rate car loans, on the other hand, have an interest rate that may change.

For many borrowers, it may be better to go with a fixed-rate car loan. An interest rate that remains the same is easier to budget for. Plus, you avoid the risk that the rate could rise, causing your loan to become more expensive. However, there are situations in which an adjustable-rate car loan can make sense.

Here’s what you need to know to help make the choice between a fixed vs. variable interest rate on a car loan.

Are Car Loans Fixed or Variable?

Most car loans are fixed-rate loans, meaning your rate and monthly payment remain the same over the life of the loan. Variable- or adjustable-rate car loans are less common but do exist, typically tied to an index like the prime rate — causing your payments to rise or fall with market changes.

How Do Fixed-Rate Car Loans Work?

Fixed-rate auto loans typically have a loan term between 36 and 84 months. During that period, the interest rate on the loan remains the same.

The average auto loan interest rate is 6.73% for new cars and 11.87% for used cars. The rate you pay may be lower or higher, depending on your credit score. Lenders largely calculate interest rates on your credit history. A high credit score indicates to a lender that you’ve responsibly managed and paid back debts. As a result, they may give you a lower interest rate.

Borrowers with poor credit scores are considered more of a risk. Lenders compensate for that risk by offering higher interest rates.

The interest rate on a car loan is often listed as an annual percentage rate (APR), which also includes loan fees. Because the fees are included, an APR on a car loan tends to be slightly higher than the interest rate, but it’s a more accurate representation of what a loan will cost you.

Recommended: Average Car Loan Interest Rate by Credit Score

Benefits of Fixed-Rate Loans

Advantages of fixed-rate loans include:

•   Availability: Fixed-rate loans are easy to come by and can be found through car dealerships, banks, credit unions, and online lenders. The more loan options you have to choose from, the better the chance that you’ll find one with a lower interest rate and favorable loan terms.

•   Stability: With a fixed interest rate, you know exactly how much you’ll pay over the life of a loan. Fixed-rate loans may be ideal for car loans with long terms, since the longer the term of a loan, the greater the risk that interest rates might rise.

Cons of Fixed-Rate Loans

There are also drawbacks to fixed-rate loans, such as:

•   Opportunity cost: A fixed-rate loan doesn’t allow you to take advantage of falling interest rates. However, if rates drop, you could explore the idea of car loan refinancing, which might help you get a lower interest rate on a new loan.

•   The fixed rate might be higher: A lender might charge a higher interest rate for a fixed-rate loan.

Recommended: Smarter Ways to Get a Car Loan

How Do Variable-Rate Car Loans Work?

Interest rates on variable loans can fluctuate. They’re often pegged to the lender’s prime rate, which is the rate lenders use to set interest rates for loans. If the prime rate changes, the interest rate on a variable loan may change as well.

What could cause the prime rate to change? Banks often use the federal funds rate to help set their prime rate. The Federal Reserve may raise or lower the federal funds rate in an effort to influence the economy. For example, the Fed might raise interest rates to help combat inflation, or lower interest rates to stimulate the economy.

Benefits of Variable-Rate Car Loans

These loans have some pros to consider, including:

•   Potentially lower rates: If the interest rates are lower when you take out a variable-rate loan, they might stay that way for a while. Repay your loan within that period, and you may never have to pay higher rates. And if interest rates fall, once your variable-rate loan readjusts, you may get a lower interest rate.

•   Capped rates: Some variable-rate loans have an interest rate cap. That means your interest rate can’t continue to rise without limit. If this cap is similar to the rate you’d get with a fixed-rate loan, a variable rate may be worth considering.

Cons of Variable-Rate Car Loans

Variable-rate loans also have disadvantages, such as:

•   Volatility: Interest rates are usually based on a lender’s prime rate. If that rate rises, you may end up paying more on your loan. Changing rates can be hard to plan for in your budget.

•   Initial rates may be fleeting: A lender may offer low introductory rates on a variable-rate loan to entice you, but those rates might not last for long. Once the introductory period is over, your interest rate may make a big jump up.

How to Choose the Right Car Loan for You

In addition to weighing the pros and cons outlined above for fixed vs. variable interest rate loans, you should also consider the following factors when choosing a car loan.

Loan Term

The longer the term of your loan, the greater the chance there is that interest rates could rise. A fixed-rate loan may be a better option for a loan with a longer repayment period.

Risk Tolerance

If you appreciate predictability and have a low tolerance for risk, a fixed-rate loan might be right for you. However, if you believe interest rates may fall, and you can live with the possible risk that they could rise, a variable-rate loan may be your choice. Just be sure to include some room in your budget in case rates go up.

Interest Rates

If you expect interest rates to climb in the near future, you’ll likely want to avoid a variable-rate auto loan and opt for a fixed-rate loan instead. However, if you think interest rates will soon fall, a variable-rate loan could save you money.

Recommended: Is Car Interest Tax Deductible?

The Takeaway

The choice between a fixed vs. variable interest rate auto loan is a personal one. Consider the benefits and drawbacks of each type of loan, along with your risk tolerance, to help decide which loan option is best for you.

The good news is that you typically don’t have to stick with the same car loan, especially if it’s costing you money. If you think you might qualify for a loan with a lower interest rate or you need to lower your monthly payment, you might consider refinancing your loan.

With car loan refinancing, you replace your old loan with a new loan that ideally has a lower interest rate or a different loan term that’s more favorable.

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’s the difference between fixed and variable rate loans?

Fixed-rate loans have an interest rate that stays the same over the life of the loan. Variable-rate loans have interest rates that may change periodically during the term of the loan, usually depending on whether the prime rate rises or falls.

How do I know if my loan is fixed or variable?

When you apply for a loan, the lender should tell you whether the interest rate is fixed or variable. If they don’t tell you, be sure to ask. This information will also be spelled out in your loan contract.

Are car loans fixed or variable rate?

Most car loans are fixed-rate loans. However, it is possible to find lenders that offer variable-rate loans.

Photo credit: iStock/Valerii Apetroaiei

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.

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-Q325-038

The true cost of auto loan refinancing can include transaction fees and other potential charges. While you may save money in the long run if you refinance at a lower interest rate, there may still be some hidden costs involved in refinancing your car loan. Read the fine print before signing any loan agreement so you’re fully aware of what those fees are.

What Is Car Refinancing?

When you take out a loan to purchase a car with, you can refinance that loan at any time. Refinancing simply means that you take out a new loan to pay the remaining balance on the existing one, ideally at a lower interest rate.

Here’s an example with more detail. Let’s say you currently owe $10,000 with Star Car Loan Company and have decided to refinance with Moon Auto Lenders. Moon Auto will send $10,000 to Star Car to pay off your loan balance. Moon Auto will then take over the lien on your car. That means that if you can’t pay your new refinanced loan, Moon Auto can seize your car to cover what you owe. You’ll then start making monthly payments to Moon Auto until your loan is paid off (with interest).

The True Cost of Refinancing a Car

Although you may save money if you refinance your car loan, you need to find out first whether refinancing your car will cost money. Some lenders charge transfer, exit, and/or upfront fees that can reduce the money you might save with that lower interest rate.

Here are some potential charges to look for as you’re trying to figure out how much it may cost to refinance your car:

•   Early termination fee. Some lenders may charge you this fee if you pay your loan off early. See if your current lender has such a policy and, if so, how much it will cost you.

•   Transaction fee. Both your current and new lender may charge a processing or application fee. (Some new lenders may be willing to waive this fee, so ask.)

•   Late payment fee. If you make a late payment on your refinanced loan (or the current one, for that matter), your lender may charge a late payment fee.

•   Registration fee. Some states may require you to re-register your car when you refinance.

•   Title transfer fee. Some states may charge a title transfer fee as the title moves from your old lender to the new one.

If you owe more than your car is worth, it may be challenging to find a lender who will refinance your loan. Some lenders may be willing to do so with an upfront cash payment to make up for the difference between what your car is worth and the amount you’re borrowing.

While these various fees and costs may not be large, they can add up, so read the fine print so that you know what added expenses your car refinance could involve.

Pros and Cons of Car Refinancing

There are many pros and cons to refinancing a car. The biggest benefit is the potential cost savings you could get if you refinance at a lower interest rate, but there’s no guarantee you’ll get a lower rate.

Another benefit is that if you’re struggling to pay your monthly loan payments, you may be able to lower what you pay each month if you refinance for a longer period. The drawback here, however, is that you may not save in interest, since most car loans have higher interest rates for loan periods of 60 months or longer.

Another potential drawback is the fees. Some refinancing lenders charge fees, and that can add to the cost of refinancing your car loan.

Recommended: Can You Refinance a Car Loan With the Same Lender?

When to Consider Refinancing Your Car

Now let’s first talk about when to refinance a car.

Interest rates go up and down with the economy. If current car interest rates are lower than they were when you got your car loan, refinancing could save you money because you can likely get a lower rate now. Also, if your credit scores are now better than they were when you applied for your original loan, you may also qualify for lower rates.

These are both great opportunities to refinance your car loan.

Beyond those situations, you might dislike the lender on your current auto loan and might want to switch to a brand with better customer service. Or maybe you want to have a shorter repayment period with a lower interest rate so you can pay your car off faster without paying too much in interest.

All of these situations may make it worth considering a car loan refinance. Auto loan refinancing may be right for you if you can secure a lower annual percentage rate (APR). Lenders calculating APR on a car loan may determine your finance charges.

Recommended: Can You Refinance a Car Loan With Bad Credit?

When Not to Consider Refinancing Your Car

That being said, it’s not always a good idea to refinance your car.

If you owe more on your current loan than your car is worth, you may not even qualify for a refinancing loan. Even if you do qualify, refinancing an upside down car loan may not be right for you.

Or if you want to refinance $4,000 or less, some lenders won’t loan such a small amount to you.
If your car is more than 10 years old, you probably won’t be able to refinance either. Refinancing a car with high mileage can be challenging at best.

If you want to refinance, have a good reason and a plan to either save money by doing so or lower your monthly payments so you can afford them.

Will Refinancing Affect Your Credit?

You may also be wondering, does refinancing hurt your credit?

The answer is that it can impact your credit, but there should be no long-lasting harm. Whenever you apply for an auto refinancing loan, there is a hard inquiry on your credit report as the lender does a credit check to see what your financial situation is.

The good news is that if you apply or check to see if you prequalify with multiple lenders, credit bureaus see these as one inquiry rather than many. In other words: they understand that you’re shopping around for a good deal and they don’t penalize you for it.

These hard inquiries may affect your credit score temporarily but will stop impacting it within a year.

Recommended: What Credit Score Do You Need to Refinance a Car?

The Takeaway

Refinancing your car loan can unlock significant savings if you secure a lower interest rate or better terms, but it’s important to factor in potential costs — like early termination fees from your current lender, transaction or application fees, and any late‐payment charges. Always read the fine print and request fee waivers when possible.

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

Does it cost money to refinance a car?

Some lenders may charge fees for a refinance loan, including early payment fees, transaction fees, and transfer fees. Additionally, your state may require you to transfer your car title, which may also involve fees.

How much does it cost to refinance a car?

Fees may vary from one lender to another. Read your contract to find out details on specific fees. Your state may also require registration and/or title transfer fees.

Are there closing costs to refinance a car loan?

There may be closing costs, depending on your loan and lender. Check with your lender before signing your new loan agreement.

How do I renegotiate my car loan interest rate?

If you’re looking for a better car loan interest rate, you may want to check out what rates would be available to you with a refinance loan. If you feel you can get a better deal, you can refinance, either with your original lender or with a new one, ideally for a lower rate.

Photo credit: iStock/andreswd

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.

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

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If your credit is less than stellar and you’re in the market for an auto loan refinance, you may be intrigued by ads for guaranteed auto refinancing. To clarify: All borrowers can’t get approved for guaranteed auto refinancing. What this typically means is refinancing is offered from a lender that often may not be concerned with your credit score. Therefore, these loans, also called no credit check loans, can be useful for people with poor credit histories.

But, of course, these loans typically have disadvantages, too, like high interest rates. With auto refinancing, stay focused on your financial goals. Your bottom line shouldn’t be just getting approved, it should be either saving money on interest or lowering your monthly payment during a period of hardship. Read on to learn more about how to proceed.

What Is Guaranteed Auto Financing?

Guaranteed auto financing refers to new car loans or used car loans you can get regardless of your credit history. Borrowers who are seeking an auto loan with a low credit score or a limited credit history may want to apply for guaranteed car financing so they won’t have to worry about getting denied due to a credit check.

In some ways this may seem practical. A hard inquiry on your credit report may cause your credit score to go down several points. And too many inquiries may raise a red flag to lenders that you’re having cash flow issues.

If you are car loan shopping and undergo multiple hard inquiries within a 14-day window, a credit scoring model may calculate this activity as a single event.

That being said, there’s no guarantee that all borrowers will qualify for auto financing. You may qualify for subprime auto loans with bad credit, but chances are that the interest rate you’ll be offered will be higher than the rate of a conventional auto loan.

Is There Such a Thing As Guaranteed Auto Loan Refinancing?

You may not qualify for a lender’s “guaranteed” auto refinancing if you don’t meet the lender’s minimum standards of approval. In other words, auto loan refinancing is not guaranteed for everyone.

Usually, lenders that advertise guaranteed car refinancing focus on assessing factors like a potential borrower’s income and assets rather than credit. In fact, they may not even perform a credit check. Instead, the application process will likely include income and employment verification, as well as a down payment. When refinancing, you may need equity in your car, meaning that the loan amount will be lower than the total value of the vehicle.

Pros and Cons of Guaranteed Auto Loan Refinancing

There are both pros and cons to refinancing your car loan.

One of the pros of guaranteed auto loan refinancing is that a credit check will probably not be required. That can make it easier for people with poor credit to get an auto loan refinance. Another pro is that you may secure a lower monthly payment with guaranteed auto loan refinancing.

One of the auto refinancing downsides is that you may pay more interest over the life of your auto refinance loan if you’ve extended your term.

Below are some steps you may take if you’re considering a guaranteed refinance auto loan:

•   Ask questions about rates

•   Find out how much it costs to refinance

•   Explore whether the application process involves a hard pull credit check

What Affects Your Chances of Approval?

How does car loan refinancing work? There are three primary factors that affect your odds of getting approved:

Employment. If you’re opting for a guaranteed car loan refinance, your credit score may not be reviewed. Instead, a lender may look at factors like your income and employment.

Debt-to-income ratio. Lenders typically want to know you can afford your monthly loan payment in addition to all of your other debts. Using your debt-to-income ratio, they’ll analyze your monthly income (before taxes are taken out) to your monthly debt payments. Think about how your income and debt have changed before you apply to refinance your car loan.

Vehicle. Most lenders have restrictions on what types of vehicles are eligible to refinance. For instance, they may have maximum age and maximum mileage standards. Some lenders may not want to lend if you have a high-mileage car. Finally, your loan balance may need to meet a certain threshold; a lender may not want to make a loan that’s too small or too big.

How to Offset a Bad Credit Score

First, check with your existing lender to see if they’re willing to change any of your loan terms without refinancing the loan. They may prefer to negotiate rather than lose your business.

If you want to refinance your car loan with bad credit, you may refinance with a cosigner. The cosigner shares responsibility for the car loan with you. This reduces risk to the lender and may therefore help you get approved for auto refinancing.

Recommended: Can You Refinance a Car Loan With the Same Lender?

Checking Auto Loan Refinance Rates

Instead of looking solely at guaranteed refinance auto loans, make sure you review multiple lenders to find the right auto refinancing for you.

Car loan interest rates can vary greatly from lender to lender. Look at both the base interest rate and the annual percentage rate (APR), which helps you compare any finance charges associated with the loan.

This is the time it’s especially important to stay focused on your refinancing goals. You may be trying to lower your monthly payments regardless of the long-term costs involved. Or you may want to save money on interest, regardless of how that affects your monthly payments. Keeping your goal in mind helps you compare loan rates and other terms in a way that serves your best interests. You can use an auto loan refinance calculator to better understand your options, if you like.

Checking auto loan refinance rates, however, may not be right for you if you currently have a 0% APR car loan.

Recommended: Cash Out Auto Loan Refinance

The Takeaway

Guaranteed car refinances may be one way to get a car refinance loan if you don’t have great credit. But you don’t necessarily need a guaranteed car refinance to find a lender that’s willing to work with you. Think carefully about your options to make sure you understand the monthly costs and overall interest due, as well as other loan features, before making a decision.

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 disqualifies you from refinancing a car loan?

Factors that can disqualify you from refinancing include a poor credit score, high debt-to-income ratio, negative equity, and restrictions related to type of vehicle, its age, mileage, and condition. Additionally, some lenders may reject applicants who’ve had a history of late or missed payments or have what’s considered insufficient income.

What credit score is needed for an auto refinance?

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, a FICO® score of 660 or higher usually means you’ll likely get standard offers, and a score over 700 will open up more favorable rates and terms.

Do I need a down payment to refinance my car?

Generally, you do not need a down payment to refinance a car loan. However, you will need to have equity in the vehicle, meaning the car’s value is higher than the remaining loan amount. When your car has negative equity (meaning you owe more than its value), you might be required to make a down payment to achieve positive equity before refinancing.

Photo credit: iStock/Jinda Noipho

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.

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