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We would like to refinance our car because my husband lost his job and his unemployment benefit is not enough for everything. I work only part time. We pay $450.66 a month for the car loan and the amount that is left to pay is $16.00. Do you have any suggestion what we can do in this situation? How can we lower our monthly payments for the car?
In theory, it is possible to refinance a current vehicle loan at a lower rate, which would potentially saving thousands of dollars over the life of the loan. However, a consumer must qualify for the new loan first.
Qualifying for a Vehicle Loan
Whether you seek a new loan or a refinance, lenders want three things in a borrower: 1) Positive credit history, 2) Stable income, 3) Debt-to-income ratio of 35% or less. Some used car dealers, the "buy here pay here" dealers selling older cars, will ignore a borrower's credit history and instead rely on quick repossession if the borrower falls behind on their monthly payments.
Borrowers with stellar credit scores, stable income, and a low DTI will find 0% APR deals for vehicle loans. People with less than perfect credit will pay the market rate, which is about 12% today. People with low credit scores (FICO 500-600s), or an unstable income, or a high DTI are considered high-risk borrowers and will pay 20% APR or more for a vehicle loan.
Some lenders will also consider the vehicle's resale value when underwriting a loan for obvious reasons. Some will consider the Loan-to-Value (LTV) of the deal. LTV refers to the percentage that results when the amount owed on the loan is divided by the vehicle's value. In other words, LTV reflects the amount of the down payment the borrower is contributing to the deal. A borrower making a large down payment is viewed positively because the lender is risking less on the deal, and will usually result in a lower interest rate.
Qualifying for a Vehicle Loan Refinance
Almost everything I just wrote about qualifying for a vehicle loan is true for refinancing a vehicle loan. Borrowers with excellent credit scores, a stable income, and a low DTI will pay the lowest rates because they are seen to offer lenders the lowest risk. A deal with a low LTV is more attractive than one with a high LTV.
On the other end of the spectrum are people with low credit scores, or an unstable income, or a high DTI, or a deal with a high LTV.
Recommendation
As suggested above, shop around for a vehicle refinance. You did not mention the LTV on your existing financing, or your credit score so it is impossible for me to offer a specific observation. Your spouse's unemployment will pose a serious obstacle to finding an attractive refinance rate. Try to avoid a repossession.