What Lenders Look for When You Apply to Refinance Your Car
Refinancing your auto loan can potentially save you hundreds of dollars over the life of your loan, but approval isn’t automatic.
Knowing what lenders look for during the refinancing process can help you prepare, improve your chances of approval, and make sure the new terms actually benefit your finances. Before a lender agrees to refinance your vehicle, they’ll review several key factors to determine whether it’s a good fit for both sides.
Here’s what lenders typically evaluate so you can approach the refinancing process with confidence and a clear understanding of what to expect.
Your Credit Score and Credit History
Your credit score is one of the most important factors in the refinancing process. Lenders use it to decide how reliable you are when it comes to repaying a loan. In most cases, you’ll need a score of at least 650 to qualify, though some lenders may consider applicants with scores as low as 600. If you want to land the best rates, aim for a score in the 700s or higher.
Before applying to refinance, check your credit report. You can get a free copy once a year at annualcreditreport.com. Go through it carefully and look for any mistakes, since around half of all credit reports have errors.
You might find an old collection account that’s been paid but still shows as unpaid. If you spot anything incorrect, contact the credit bureaus to get it fixed. Cleaning up your report can give your score a small boost, and even a few extra points can help improve your approval odds and loan terms.
Loan-to-Value Ratio (LTV)
LTV often doesn’t cross people’s minds until they try to refinance. It measures how much you owe on your car compared to what the car is actually worth.
To figure it out, divide your current loan balance by the car’s current market value, then multiply by 100. For example, if you owe $15,000 on a car worth $20,000, your LTV is 75%.
Cars lose value fast, dropping about 20% of their worth the moment you drive them off the lot. Most lenders prefer to see an LTV under 125%, and many want it below 100%.
If you owe more than your car is worth, you’re considered “upside down” on the loan, which makes refinancing harder. Some lenders won’t approve a refinance in that situation.
Making extra payments or paying down a portion of your balance can improve your LTV. The more equity you build in your car, the stronger your position will be when applying for a refinance.
Vehicle Age and Mileage
Your car’s age and mileage are important. Lenders usually set limits on how old a vehicle can be or how many miles it can have before they’ll approve a refinance.
Common guidelines include vehicles under 10 years old or with fewer than 125,000 miles. Some lenders are more flexible, while others stick closely to these limits.
The main concern is resale value. If you default on the loan, the lender needs to sell the car to recover their money. Older, high-mileage vehicles are harder to sell and worth less, which makes refinancing riskier for the lender. If your 2010 sedan has around 150,000 miles, you may have a tough time finding a lender willing to refinance it.
Read also: Thinking About Refinancing Your Car? Here’s What You Should Know
Current Loan Details
Lenders will review your current loan balance, the time left on your term, and the interest rate you’re paying now. Refinancing is usually worthwhile if you can lower your interest rate by at least one or two percentage points, or if it reduces your monthly payment enough to ease your budget.
If you’re close to the end of your loan term, refinancing might not be worth it. At that point, most of the interest on your original loan has already been paid, so starting over could end up costing more in the long run. And if you owe significantly more than your car is worth, things get complicated. Many lenders won’t refinance in that situation at all.
Your Income and Debt-to-Income Ratio (DTI)
Your debt-to-income ratio is an important factor lenders consider. It shows how much of your monthly income goes toward paying debts.
To calculate it, add up all your monthly debt payments (rent or mortgage, credit cards, car loans, student loans, everything) and divide that total by your gross monthly income, which is what you earn before taxes.
Most lenders prefer a lower DTI, but many allow up to 50% depending on your overall financial picture. If more than half of your income goes toward debt, it signals that taking on another loan payment could be difficult, even with refinancing.
Read also: Should You Lease or Buy a Car? Here's What to Consider
Putting It All Together
When you apply to refinance your auto loan, lenders look at the full picture. They review your credit score and history, the loan-to-value ratio, your vehicle’s age and condition, your current loan details, and your income and debt situation. The stronger you are across these factors, the better your chances of getting approved.
Credit unions can be a big advantage in this process. They tend to be more flexible than traditional banks and may approve loans that larger institutions won’t.
First Pioneers FCU, with branches in Lafayette and New Iberia and serving members across Lafayette, Iberia, Vermilion, St. Martin, and Acadia parishes, works closely with members to find refinancing options that fit their needs.
Right now, we’re offering a refinancing special from November 17 through December 19, 2025. You’ll save at least 1% on your current rate. If you’ve been considering refinancing and weren’t sure about moving forward, this could be a good time to find out. Call to speak with one of our auto loan specialists or stop by a branch to learn more about how refinancing could work for you.