Who should do an auto loan refinance?

For many consumers auto loan refinance is an option

Overview
Based on our experience at HSBC Auto Finance, we have some thoughts about who are the best candidates to refinance their auto loan. We will address 4 primary areas:

current interest rate
where did you finance your car
credit type
vehicle specifications

Consumers paying 8% or more on their loan should consider auto refinance.
Interest rates are at historic lows and the Federal Reserve is keeping their Fed Funds rate near 0% in order to stave off the effects of the 2010 recession. The cost of money is cheap for banks. Consequently, banks can make loans to consumers at relatively low rates. Low as rates for Up2Drive (4.29%), MyAutoLoan (4.75%), RateGenius (3.99%), BankofAmerica (3.8%), NationWide (4.24%) are quite low*. If your credit is quite good, then you could qualify for these rates. If your credit is good, then you still could get a rate that is below 7% or better.

Consumers who financed with a franchised dealer are likely paying too much interest.
This statement is particularly true for those consumers who chose to finance their car with a franchised dealer (this your local Ford, Chrysler, GM dealer, etc…). Unbeknownst to most consumers, franchised dealers do not actually assume the obligation to finance and service the loan on your car. Instead the dealerships shop around the opportunity to finance your car to multiple lenders. The lenders provide quotes for the rate. Often times, the dealership will select the best rate (but not always), and then apply a markup to the interest rate. In fact, many dealerships make most of their money by selling the rights to finance cars and marking up the loans rather than selling cars.

Excellent (“prime”) credit customers.
Yes – this segment will qualify for an auto refinance, but may not benefit as much because they likely have a good rate already. Compared to “non-prime” customers, “prime” customers will not realize savings, but still the case to refinance could be made. But if a prime customer (with FICO 690+) can lower their rate, given the unprecedented low interest rate environment that exists, then they should apply to see if they can get a better rate. Plus, if the “prime” customer is interested in lowering the payment by extending their term, then this option should be quite doable. Plus, there isn’t much downside to trying to refinance, other than taking about 10 minutes to apply and a very slight hit to your credit report.

Good (“non-prime”) and poor (“sub-prime”) credit customers
Yes - these segments are excellent candidates. Auto refinance for poor credit customers is doable and these people can absolutely benefit from this type of loan. If your credit is average or below average, then you could substantially decrease your car payments. At the time when these customers got their first loan, their credit was not perfect. Thusly the rate that they received was high. However, if you’ve made steady payments on your auto (and your mortgage) over the past 6-12 months, then you could be an excellent candidate for a refinance. Essentially the bank can infer that these customers deserve a better rate given their recent strong payment history on their liabilities.

Bankruptcy auto refinance customers.
This segment can get a refinance, but it is tricky. You must have a discharged chapter 7 or chapter 13 bankruptcies. If your credit has improved after a bankruptcy, over 4-8 months, then you might qualify. Usually when a consumer has multiple bankruptcies it will automatically disqualify them for an auto refinance.

Customers with newer vehicles with relatively low mileage.
Most auto refinance companies will have guidelines for vehicles that they will refinance. Because the loan involves a piece of collateral (your car), the bank wants to ensure that the collateral is valuable.

As such, the bank will stipulate the maximum age of your vehicle and mileage. For age restraints, most banks will refinance cars 7 years or newer. Rarely will auto refinancing for older cars be granted by the bank. For mileage, most banks will refinance autos with fewer than 80K miles.

Banks will also have refinance guidelines around the types of vehicles, including make/model exclusions. Most banks will not refinance commercial vehicles, recreational vehicles, conversion vans, motorcycles, large transport trucks, salvage titled vehicles, auto leases, and some Japanese makes like Isuzu and Suzuki because they do not retain their value very well (and can’t fetch much at an auction should the loan go into default and the car is repossessed).

Note: if you have good credit, then some of these stipulations like age and mileage could be waived, but not always.