Requirements to Refinance a Car

To refinance an auto loan, you must apply to an auto loan provider. The application process and loan requirements are the same as you experienced for your initial vehicle loan. Your approval is based on the vehicle's value and your credit history. Depending on your lender, you may be required to provide additional documents or information.

Employment or Income

You must have an income to obtain an approval for your refinance. If you are employed, expect to provide a recent paystub to your lender so that it can verify your gross annual income. You'll also have to provide your employer's address, phone number and how long you've been with the company you work for. If you are self-employed, expect to provide proof of tax returns for several years; your lender will tell you which documents it needs. Discuss required documents with your lender if your income comes from a pension, social security payments, rental properties or investments.

Acceptable Ratio

Auto loan providers determine approvals and loan amount depending on a vehicle's loan-to-value ratio. Based on your credit history and the bank-determined value of the vehicle, you may obtain an approval of 60 to 120 percent of the vehicle's value. You may be asked to provide a down payment for your loan if you ask to borrow more than the car is worth.

If you recently purchased a new car without providing a down payment or also financed extra purchases with your loan, such as an extended warranty, you may not obtain an approval for your requested loan amount. New cars become used once driven off the dealer's lot, which decreases the car's value by thousands of dollars.

Current Loan Accounts

If you're having trouble making your current car payments, are experiencing financial hardship or your credit has suffered since your current loan was initiated, you may also find it difficult to obtain an approval for refinancing.

All of the accounts on your credit report should be current, as past due payments are viewed by lenders. If you car loan is currently past due, bring the account current by catching up on your payments. If you can't make the required payments for accounts on your credit history, you may need a co-signer to obtain a refinance.

Insurance

Most lenders require that borrower's maintain a consistent full-coverage policy during the loan's term. You likely already have collision coverage with acceptable limits for an auto loan provider, which includes a reduced deductible and higher property damage and bodily injury limits than your state requires. Once you obtain an approval for your refinance, you must provide proof of insurance to your new lien holder before it pays off your old loan. Call your insurance company to change your policy's loss-payee to reflect your new auto loan provider. Once you submit proof of insurance, you may initiate your new loan.