Refinancing a car loan requires you to apply to a new lender to transfer your existing loan balance. Financing a loan allows you to start a new loan if you're a first-time car buyer or have paid off a previous loan. If your vehicle has been recently repossessed, pursuing either option is likely to prove difficult. Without a co-signer, expect to put money down and pay a higher interest rate.
Finance Application
To apply for a refinance or a new finance account, decide which lender to apply to. Because of your repossession history, it may prove worthwhile to apply to a bank you have a good payment history with, even if the loan has been satisfied. Otherwise, you can call local banks to find out more about the approval and application process. Talk to a loan representative to discuss your credit concerns and financing options. If your repossession was years prior, it may not significantly affect your current loan application.
Down Payment
If your repossession was recent or you have not yet reestablished your credit, a down payment will probably be required for a loan approval. Banks decide the lending amount of a vehicle's value based on credit history. If you have poor credit, this amount can be as low as 60 percent of the vehicle's value. Unless you can purchase a vehicle for 60 percent of its market value, which is highly unlikely, you can expect to put down 40 percent of the car's price in addition to taxes and/or fees.
Interest Rates and Term
If you have poor credit, a bank may restrict the term of your loan. A shorter loan term increases and maintains equity in the vehicle, which is beneficial for the lender. Your interest rate will also be higher than average; some states cap the interest rate at 29 percent. A shorter term and higher rate can significantly raise your payment by hundreds of dollars every month. A refinance may not be worthwhile because of the repossession, unless you have successfully reestablished your credit.
Other Options
Work with a dealer if you want to initiate a new loan. Rather than send in your application for approval or denial, the dealer can send in the application for a "payment call," which allows banks to make an offer based on the down payment, vehicle value requirements and loan term. This allows you to shop for a car within bank guidelines and your budget. A co-signer can also help. If you can find a good co-signer, you can refinance or start a new loan with a lower rate, longer term and less money down.
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