Banks, credit unions and car dealerships will loan you money to purchase a new car if your credit is good. Financing is available for up to six or seven years with little or no down payment. Your credit and your down payment determine the maximum term of the loan and your interest rate. Once you pay your loan off, it is possible to refinance your car if you need cash or need to re-establish credit. Lenders consider refinancing a paid-off loan to be a higher credit risk than a purchase loan, so terms are usually shorter and interest rates are higher.
Refinance
If you have an established relationship with a credit union, there is a chance that it will refinance your vehicle. Banks rarely refinance automobiles, but finance companies will usually be able to help you. The interest rate will be considerably higher than your purchase-money interest rate, but it should be lower than a personal loan. Refinance rates vary considerably. Shop for the best loan.
Loan Requirements
When you buy a new vehicle, the dealer is primarily interested in your credit history. When you refinance, the lender will require your employment history, a current pay stub or tax return (if you are self-employed) and he will inspect your vehicle. Since you are financing a used vehicle, the maximum he will loan you will be a percentage of the car's current value. The actual percentage will depend on your credit history and your financial situation.
Loan Sources
Talk to several lenders to get the best deal. The Internet can be a good source for auto refinance loans. Most lenders will not refinance their own loans if there is a loan balance. If you recently paid off your loan, ask your previous lender. It has a history with you. If you have excellent credit, ask your bank whether they will give you an unsecured loan.
Considerations
If you are on a tight budget and are ready to buy a new vehicle, consider financing it for the longest term available. You will have a lower minimum payment, and the interest rate will usually be the same or slightly higher than a shorter-term loan. If you currently have a balance on your auto loan, you may be able to refinance the balance at a lower rate than you are paying. An interest rate that is one percentage point lower can substantially reduce your payment. Lenders will usually require that you have a minimum balance of $7,000 to $10,000.
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