Refinance a vehicle with negative equity

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If you’re ready to consider refinancing to save money on your car loan each month, there are some requirements you need to know. Your vehicle’s equity position is one of them, and refinancing with negative equity may not be possible.

What is refinancing? When you refinance a car, you replace your current loan with a new one, sometimes through a new lender. This is usually done to make room in your monthly budget by reducing your car loan payment. This can be done either by qualifying for a lower interest rate or by extending the term of your loan, sometimes both. However, if you are upside down with negative equity, refinancing your car is not an option.

Why doesn’t a lender work with negative equity? You generally can’t refinance a vehicle that’s worth less than you owe on its loan, because there’s nothing left for the lender. If you default, the lender cannot recoup its costs by auctioning off. One of the strictest rules of refinancing is that there must be equity in your vehicle. This means that your car must be worth more than what you owe on its loan.

Refinancing requirements to know. Other refinance requirements include having had your loan for at least one to two years, having a good or improved credit rating, and having a vehicle and loan amount that meets the lender’s parameters – generally cars must have less 10 years old and have less than 100,000 miles on them.

Improve your equity before refinancing. If all your ducks are lined up, but you still have negative equity, there are a few steps you can take to speed up the process so you can grab the refinance opportunity you’ve been looking for.

To put your vehicle in a net position, you need to make sure that you owe less than the value of the vehicle. You can get an estimate of your car’s value by visiting a website such as Kelley Blue Book or NADAguides online and answering a few simple questions. Right now, with a shortage of supply, your vehicle may be worth more than you think.

Once you know the value of your car, you can work to pay off your loan faster and save on interest charges. This will help get you into equity faster than following your natural loan repayment schedule, especially if you have a higher interest rate due to bad credit.

  • Split your payments in half. By paying half of your car loan payment every two weeks, you end up making 13 full payments instead of 12. Plus, since interest accrues based on your loan balance, it helps keep your costs down a bit. of interest every few weeks.
  • Round up your payment. If you want to save on your loan and get a faster refinance, round up your auto loan payments to the greater of $50 or $100. This may be a little more difficult if your budget is already tight, but rounding up will get you to the refi range quickly. Let’s say your loan payment is $317.64; you can round up and pay $350 each month, or really bite the bullet and put $400 on your loan each month.
  • Use a lump sum payment. If you come with a windfall or have tax refunds coming up, you can take advantage of this to help get you into an equity position. Most car loans don’t have prepayment penalties, so anytime you get some extra cash and want to pay, you can.

Once you’ve used one or all of these methods to put your vehicle in a position where its value is equal to or greater than the loan balance, you’ll be in a better position to refinance your car.

If you’re ready to refinance, we want to help. Simply fill out our fast and free car loan refinance application form and we’ll get to work connecting you with a refinance specialist to help you.

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