What credit score do I need to refinance my auto loan?

It’s one of the most common questions among car owners who are thinking of refinancing. What credit score do I need to refinance my auto loan these days? In truth, there is no single cutoff point for credit scores. It will depend on the lender you’re using, the amount you currently owe on the auto loan, and other factors.

With that being said, a higher credit score will help you in two ways. First, it will help you get approved for an auto refinance loan. Secondly, it will help you get a good interest rate on the new loan — and this is the key to refinancing success. If you can get a lower rate without changing the other terms of the loan, you’ll lower your monthly payments. Depending on your current rate, you might save $100 per month, or more. That’s why it’s so important to have a good credit score when you refinance your auto loan.

Credit Score Requirements for Refinancing a Car Loan

It’s just not possible for me to throw out some arbitrary number and say, “This is the credit score you need if you want to refinance your car.” There are too many variables. Lenders have different standards when it comes to approving loans, and also when it comes to assigning the interest rate. But here’s some food for thought:

• The credit score you need to refinance your auto loan will vary, based on several factors. Getting approved is only one side of the whole picture. You also need to get a low enough interest rate to make refinancing worthwhile.
• You can quotes online these days, which is a quick and easy way to comparison shop. It’s also the only true way to find out if your credit score is good enough for a refi. In other words, you should go straight to the source to find out where you stand.
• You might want to use a credit union when refinancing. Generally speaking, they offer better interest rates and more flexible terms than a traditional “bank” lender. You might have a better chance of getting approved, as well.
• According to Kathleen Pender, business writer for the San Francisco Chronicle, you’ll need a higher credit score to do a cash-out refi (where the lender gives you more money than the car is worth). In September 2010, the average FICO score for cash-out auto refinance loans was 697. (”Car-loan refinance can save money,” October 24, 2010)
• It’s easier to refinance an auto loan than a home mortgage loan. The credit requirements are lower as well. So keep this in mind when you continue your research. If you see an article that talks about the credit score needed to refinance a mortgage, it doesn’t really apply to your situation. They’re apples and oranges.

You’ll Pay a Higher Interest Rate

Scenario A: Here’s a real-world scenario based on data reported by Informa Research Services. Let’s say that I take out a 3-year / 36-month car loan for $20,000. I have a FICO credit score of 740, so the financing company gives me a pretty good rate on the loan. They assign an interest rate of 5.19 percent. Based on this, my monthly payments would be about $600 a month.

Scenario B: Now let’s assume I got the same car loan, but with a lower credit score of 595. This time around, the lender assigns a higher interest rate of 18.13 percent. My monthly payment would now be $724 per month. The loan amount hasn’t changed — but the higher rate has increased my payment by $124 a month. These are realistic numbers, by the way.

This article was born from a reader’s question: “What credit score do I need to refinance my auto loan in the current economy?” Please note that this article contains general information for educational purposes only. We cannot tell you whether or not you’re qualified for a refi loan. You’ll need to speak to a lender about that. They all have different standards and limits.