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Car title loans and auto loans sound deceptively similar, but they actually are entirely different types of loans. An auto title loan requires that you already own a car outright or have significant equity in it, and it then allows you to borrow money by using that car as collateral. With an auto loan, on the other hand, you’re securing funds to help you purchase a vehicle.

There are also critical differences between a title loan vs. auto loan when it comes to interest rates, typical loan terms, and consequences of non-payment. Here’s a closer look at how these two loans compare.

What Is a Title Loan?

When someone owns their vehicle outright or doesn’t owe much money on the vehicle, some lenders will let them borrow funds by using the car as collateral. This is known as a title loan. In general, people can borrow 25% to 50% of the vehicle’s value, with loan amounts ranging from $100 to $10,000.

This is a short-term type of financing with repayment often due within 15 to 30 days. If a borrower can’t meet this timeframe, the lender may allow them to take out a new loan with additional interest and fees. If you’re unable to repay the loan, the lender can seize your vehicle in order to recoup their losses.

A loan on car titles is allowed in some states but not all, due to their high interest rates.

Recommended: Guide to Precomputed Interest Car Loans

Title Loan Pros

It can be simple to apply and qualify for a loan on car titles. Lenders typically don’t check your credit, and even if they do, they’ll often approve those with poor credit. In fact, lenders will usually approve the loan if you have the title to your vehicle (or enough equity in it) and sufficient income to meet the lender’s requirements.

Additionally, title loans are an option to meet a need for fast cash. You can often walk out with cash on the same day you apply.

Title Loan Cons

Although title loans can be convenient to get, they come with much higher costs than a typical car loan. This is the case even if you pay back your loan on time — and studies suggest that most people who take out this type of loan need to take out a new one on the original loan’s due date.

Why? Because they can’t afford to pay for the first one. This cycle can continue to repeat itself as further fees and interest are added with each additional loan. And even worse, the borrower’s car could end up getting repossessed if they’re unable to pay.

Recommended: No Income Verification Car Loans

Title Loan Payment Plan

Individual lenders can decide how to structure their payment plans. But according to the Federal Trade Commission (FTC), this is what a typical title loan looks like:

The average monthly finance fee is 25%, which equals an annual percentage rate (APR) of about 300%. There may also be fees involved, including loan origination, processing, and document fees. Some lenders will also require that you buy roadside service plans or other add-ons.

The FTC provides this example of a title loan payment plan:

•  Loan amount: $1,000

•  Term: 30 days

•  Finance fee: 25%

When the loan is approved and papers signed, the borrower hands over the car title and receives $1,000. In 30 days, the amount due is $1,250, plus any fees the lender charges.

If that payback is not possible, the lender may allow a rollover loan. Here’s an example from the FTC of what that would look like:

•  The original $1,000 is rolled over for another 30 days.

•  Another $250 in finance fees, plus any other fees, is added to the balance.

•  30 days after the rollover, the borrower owes $1,500 ($1,000 borrowed, plus two sets of $250 finance charges), as well as any other fees.

The FTC notes that a borrower can have their vehicle repossessed even after making partial payments. The lender may even install a GPS system and a starter interrupt device to make it easier for them to disable the ignition remotely, locate the car, and repossess it. The lender can then resell the vehicle. In some states, the lender can keep all the money from the sale, even if they sell the vehicle for more than what the borrower owes.

What Is an Auto Loan?

When you’d like to buy a vehicle, either new or used, you can seek financing from the dealer or from a bank, credit union, or online lender to help pay for the vehicle. You’ll then pay back the amount borrowed in a series of installments. The amount of these installment payments is based on the original loan amount as well as the interest rate and loan term.

Each payment will contain both principal (a key piece of terminology for car loans to know) and interest. The principal portion of the payment will lower the amount owed, while the interest will go to the lender. In other words, interest is effectively how the borrower “pays” the lender for lending them the money upfront.

Recommended: Paying Off a Loan Early

Auto Loan Pros

If you’re in need of a vehicle and can’t purchase it with cash, then an auto loan is the typical next step. Interest rates are relatively low — much lower than the rate for car title loans — and as long as you can comfortably include the car payment in your budget, a car loan is a reasonable way to pay for the transportation you need.

Car loans allow you to cover the cost of a vehicle over a longer period of time, with the average loan term in mid-2025 being 69.8 months for a new car, according to Edmunds. Plus, taking out a car loan and making payments on time can help you to build your credit.

Auto Loan Cons

You will pay interest on the money borrowed through an auto loan, and the longer the term of the auto loan, the more interest you’ll pay over the life of the loan. Credit scores will matter when applying, and those with lower scores may pay higher interest rates. Plus, if you can’t make payments on time, this can damage your credit score.

Another downside of auto loans is that the vehicle is usually used as collateral on the loan, which means that the lender could repossess the vehicle if you default on the loan. Defaulting on an auto loan will also further damage your credit score. That being said, there are different types of auto loans, and some lenders may offer unsecured auto loans where the vehicle is not used as collateral.

As another consideration, cars generally depreciate in value. If a down payment isn’t made or it’s small, you may end up owing more on the vehicle than what it’s worth. This can be a challenge if you try to refinance your auto loan down the road.

Recommended: What Is the Average Credit Score to Buy a Car?

Auto Loan Payment Plan

With an auto loan, payments are based on a few factors, including:

•  The loan amount: This is the cost of the vehicle and any fees, minus the down payment made and any fees paid upfront.

•  The loan term: This is the length of the auto loan.

•  The loan’s interest rate: This is the cost of borrowing funds.

By using a loan calculator online or talking to a lender, this information will allow you to determine the total principal and interest payment you’d make each month on an auto loan.

As mentioned, some of each payment will go toward the principal and toward the interest. Payments toward the principal reduce the auto loan’s remaining balance, while interest payments will go to the lender. As the balance goes down, less money goes to interest.

As an example, say you purchase a vehicle that costs $30,000. You put down $3,000 as a down payment, and then take out an auto loan to cover the remaining $27,000. Your interest rate on this loan is 5%, with a term of 60 months and monthly payments of $509.52. If all payments are made on time with no early payments, the interest over the life of the loan would total $3,571, for a total payback amount of $30,571.

Using August 2025 as a start date, here’s how the balance and monthly interest amounts would go down after each year:

•  August 2025:

•  Interest payment: $113

•  Principal payment: $397

•  Balance: $26,603

•  August 2026:

•  Interest payment: $92

•  Principal payment: $417

•  Balance: $21,708

•  August 2027:

•  Interest payment: $71

•  Principal payment: $439

•  Balance: $16,562

•  August 2028:

•  Interest payment: $48

•  Principal payment: $461

•  Balance: $11,153

•  August 2029:

•  Interest payment: $25

•  Principal payment: $485

•  Balance: $5,467

•  July 2030:

•  Interest payment: $2

•  Principal payment: $507

•  Balance: $0 (loan is paid in full)

Title Loans vs. Auto Loans

Here’s a side-by-side look at how a title loan vs. auto loan compare:

The Takeaway

Title loans and auto loans are used for different purposes. Title loans more closely resemble a payday loan, with a lender providing quick cash in exchange for the vehicle’s title and high interest rates. Auto loans typically have a lower interest rate compared to loans on a car title. With auto loans, a borrower will typically make payments over a longer term (usually years) on a loan taken out to help purchase a vehicle or refinance an existing auto loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is the difference between title loans vs auto loans?

Title loans are short-term, high-interest loans using a vehicle title as collateral, often aimed at borrowers with urgent financial needs. Auto loans are long-term loans designed for purchasing vehicles, typically offering lower interest rates and monthly payments. Title loans risk repossession faster, while auto loans prioritize financing ownership over time.

What are the pros of a title loan and auto loan?

A title loan is a way to get quick cash without needing a good credit score (although at a high interest rate and with a short term). An auto loan, on the other hand, allows a borrower to purchase a car without having to pay for it entirely out of pocket.

What are the similarities between title loans vs auto loans?

Both title loans and auto loans are ways to get cash. With a title loan, the borrower could use the vehicle as collateral to get funds for a variety of purposes. With an auto loan, the borrower is getting financing specifically to buy a vehicle.

Photo credit: iStock/mohd izzuan

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-075

There are some potential pros and cons to paying off your car loan early. Paying off a car loan early, in some cases, may minimize your interest costs. The average amount financed for new car loans at was $39,800 in 2025, according to the United States Federal Reserve. Depending on your personal circumstances, it might be right for you to pay that loan off early.

There are other cases, however, where it might not be right for you to pay off a car loan early. Paying off your car loan early may lead to penalties if your auto loan contract includes a prepayment penalty clause. A prepayment penalty is a fee that lenders may demand when you make early or extra payments on a loan.

Not all lenders penalize you for prepaying, but some will. Below we highlight how prepayment penalties work and explain the potential benefits and disadvantages of paying off your car loan early.

Pros and Cons of Prepayment at a Glance

Here’s a quick summary of some of the pros and cons of paying off your car loan early:

Recommended: 9 Tips for Buying a Used Car

When to Consider Paying Off an Auto Loan Early

If you have the cash available, you may want to consider paying off your auto loan early if:

•  You don’t have any high interest debts to tackle first.

•  You already have an emergency fund saved.

•  You know you’ll be seeking additional credit in the near future, such as applying for a mortgage, so you want to improve your DTI.

•  The money you save on interest is more than the penalty (if there is one).

Potential Benefits of Paying Off a Car Loan Early

If you find that you have room in your budget to pay off your car loan faster, there can be a number of possible benefits.

Saving on Interest

Auto loan payments are amortized over the term of your loan. Amortization refers to your schedule of loan payments and what exactly each part of each payment pays for. A portion of your payment is used to pay off your loan interest and fees, and the rest goes to paying off your principal. If you add money to your monthly payment, that money will go directly to paying off your principal.

If your interest payments are calculated using a simple interest formula — meaning they’re calculated based on the balance of your loan — you will reduce your interest payments. If your interest payments are precomputed, they won’t change. Lenders may determine your finance charges by calculating APR on a car loan as specified in your auto financing contract.

Recommended: Auto Loan Refinance Calculator

Improving Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is a measure of how much money you owe compared to how much money you have coming in. Lenders use it to help them determine how much risk they’d be taking on if they offered you a loan. If you’re seeking new credit, paying off your car loan early can lower your DTI, which demonstrates that you likely have enough income to pay back a new loan.

Freeing Up Cash

Paying your loan off early can free up that cash to be used for other financial goals, from saving for an emergency fund to socking away cash for retirement. The average monthly payment on a new car loan stood at $745 in the first quarter of 2025, according to Experian. Those expenses can add up over the course of a year.

Avoiding Going Upside Down

Cars depreciate over time, and often faster than your loan term. That can mean that at some point you may end up owing more on your auto loan than the car is actually worth. That’s especially likely if your term is long or if you have a particularly high interest rate. Prepayment can help you avoid an upside down loan.

Recommended: Guide to Writing Off a Car for Business

Potential Disadvantages to Paying Off a Car Loan Early

While there are potential advantages to paying off your loan, there are also some disadvantages — in addition to prepayment penalties — that may make you think twice.

Your Credit Score May Take a Hit

It’s strange to consider, but paying off your debt early may actually hurt your credit score. Your credit mix and payment history make up a portion of your score. When you pay off your loan early, your track record of on-time payments gets cut short.

Also, a mix of different kinds of credit is a plus, and paying off your auto loan will remove one type of loan from that mix.

On the bright side, the dip in your credit score is usually temporary as long as you continue to manage your other debts responsibly. Lenders typically report loan account information to the credit bureaus every month.

Recommended: Does Paying Off a Car Loan Help Your Credit?

Opportunity Costs

If you’re using extra cash to pay off your car loan early, that means you’re not using it for other potentially more beneficial purposes. For example, if you have high interest credit card debt, you may save more money tackling that first than you would paying off your car early.

Prepayment Penalties

Lenders may work prepayment penalties into your contract in a couple of different ways. These include:

Percentage Penalties

You may be charged a certain percentage of your remaining balance if you pay your loan off early. The longer you’ve had the loan, the lower the penalty will be. This type of penalty is not legal in every state or for every loan, and it must be disclosed in the loan documents.

Rule of 78

Lenders may also try to disguise prepayment penalties. For example, in some states, lenders may use the Rule of 78, in which your payments go toward paying off the full interest amount calculated on the loan before they are applied to the principal. This ensures interest payments are made in full, even if you pay the loan off ahead of schedule.

Precomputed Loans

Precomputed loans calculate the full price of a vehicle and interest rates on the loan, and the borrower agrees to pay off both. This is another way lenders ensure they receive as much interest payments as possible if you decide to pay the loan off early. When comparing different types of car loans, precomputed interest auto loans may not be as consumer-friendly as simple interest car loans.

While precomputed interest car loans and the Rule of 78s are technically not penalties, borrowers typically don’t see great savings when paying these loans off early. Watch out for these contingencies in loan contracts as you shop for an auto loan, and don’t be afraid to negotiate to have them removed or look for a lender that doesn’t impose them.

Recommended: Can You Roll Over a Car Loan?

Options for Paying Off a Car Loan Early

You have a handful of options when it comes to paying off your auto loan. If you’ve recently had a financial windfall, such as a bonus at work or an inheritance, you may pay your loan off in full in one lump sum.

Here are other prepayment options you may consider:

•  With a bonus or inheritance, you may be able to make smaller lump sum payments to pay off chunks of your loan at a time. You won’t eliminate interest payments in this case, but you will potentially make them smaller.

•  You may increase the amount you pay each month to pay down principal, again potentially lowering the amount of interest you pay.

•  Finally, if you’re seeking to lower your interest rate or make your monthly payments more manageable, you may consider refinancing your car loan. When you refinance, you take out a new loan, which may offer better terms and rates, to pay off your old one.

Recommended: What Are Car Loan Charge-Offs?

The Takeaway

While it’s almost always a good idea to reduce your debt load, it’s important to look at your loan documents to check for prepayment penalties before paying off your car loan early. If your lender does charge prepayment penalties, it may be worth considering other options rather than paying off the loan. These options may include paying off smaller chunks at a time, putting extra towards the principal each month, or refinancing your auto loan with a new lender.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What are the advantages of paying off a car loan early?

Advantages of paying off a car loan early include saving money on interest, freeing up cash each month, and improving your debt-to-income ratio.

Are there any drawbacks to paying a car loan off early?

The main drawback to paying off a car loan early is having to pay prepayment penalties, if your original loan has one. Make sure to check the loan carefully before deciding to pay off your car in full.

How can I calculate the savings of paying my car loan off early?

You can use an auto loan payoff calculator to see how much you’ll save by paying your loan off early. Likewise, if you decide to refinance, you can use an auto loan refinancing calculator to view your savings.

Photo credit: iStock/necati bahadir bermek

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-074

In many states, you’re theoretically in danger of losing your vehicle after just one missed car payment. But in reality, repossession usually takes longer, with the exact process depending on your lender and your state’s repossession laws.

Your lender has the right to repossess your car as a way to recoup some of their losses should you fail to pay back your loan. When you take out a car loan, you make a promise that you’ll repay the loan in regular installments with interest. Because your lender is taking a risk by extending credit to you, they use your car as collateral.

Here’s a look at how the repossession process works, how long before a car is repossessed, and whether you can head it off by making your missed payments.

What Is Repossession?

A repossession is the seizure of property that is used as collateral for a debt, usually due to nonpayment. The lender can seize anything of value used to secure a debt. Your car is one such item that a lender can take to pay down a delinquent auto loan. Another example is a house going into foreclosure if an individual fails to pay their mortgage.

Recommended: No Income Verification Car Loans

How Does Car Repossession Work?

In an ideal world, you would make your auto loan payments on time and in full every month.

This not only helps you avoid car repossession, but it helps your credit score, which can make securing future credit easier and cheaper.

However, if you do miss a payment, you first may owe late fees, and your missed payment may get reported to the credit reporting bureaus. This can have a negative impact on your credit score.

It’s cheaper and easier for lenders if you continue making auto payments yourself, so they’ll likely try everything they can to get you to pay. They may give you up to three months to put your finances in order and make up missed payments, though the length of this period will vary by lender.

Once you’ve missed a certain number of payments, your lender will declare that you’ve defaulted on the car loan. They may use a third-party company, known as an auto recovery service, to help them track down the vehicle. When the company finds your car, they’ll send a repossession agent, who will tow the car away when it’s unattended. The lender can take the car at any time and without notice once it is in default. They can even go on to private property to take it.

At this point, your lender will likely decide to sell the vehicle, usually at public auction. If they do, they have to let you know when that will happen, so that you can attend the sale and bid on the car if you’d like.

You may have the option to reinstate the loan after repossession. You also may be entitled to buy back the vehicle, either by purchasing it at the repossession sale or by paying off the entire amount you owe, including back payments and costs related to the repossession of the car, like towing and storing the vehicle.

Once your lender sells the car, you may not be off the hook just yet. Often lenders are unable to sell the vehicle for enough money to pay off the loan. Say you owed $12,000 on your vehicle, and your lender was only able to sell it for $8,000. The difference between these amounts — $4,000 — is known as the deficiency. You may have to pay that amount before you can close the book on the repossession, regardless of whether it’s an involuntary or voluntary repossession.

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Are Missed Car Payments the Only Reason for Repossessions?

Missed auto loan payments aren’t the only reason your car may get repossessed. Missed car insurance payments, for example, may be another reason. Pay careful attention to your loan contract to ensure you know what steps will trigger a repossession.

How Long Before Your Car Gets Repossessed?

The amount of time you have before the repossession process starts is typically up to the lender. The best place to find how long before a car is repossessed is in your loan documents. In these documents, you’ll find the length of your grace period, which is the amount of time you have to make a loan payment without triggering late fees or going into default.

Laws on when you’ve entered default vary from state to state. But in many states, the law allows repossession proceedings to start just one day after you miss a payment. However, most lenders will give you 90 days before they start repossession.

Recommended: How Car Loan Refinancing Works

Does Your Car Get Repossessed After Making the Missed Payments?

Lenders typically don’t have to warn you that they’re going to repossess your car. You may not know it’s coming, and as a result, you may not have time to plan for it.

Your best bet if you want to avoid repossession is to make your missed payments as quickly as possible. If you know you’re going to have trouble making your payments, contact your lender as soon as you can to explain your situation. As we’ve mentioned, they likely see repossession as a last resort on their part, so they may do what they can to help you pay off your loan.

Go into the conversation knowing how much you can afford to pay and when you’re likely able to pay it. Your lender may work with you to offer solutions, such as loan deferment, which allows you to put off payment until you’re financially stable again.

You also may talk to your lender about refinancing your loan to make it more manageable. When you refinance, you take out a new loan to pay off your old one. The new loan will hopefully have a lower interest rate or a longer term that should help lower your monthly payments.

Just keep in mind that while a lower monthly payment may be easier to budget for and make on time, a longer term means you’ll end up making interest payments for longer. This can ultimately increase the cost of your loan in the long run.

The Takeaway

Car repossession can leave you without vital transportation, and it can harm your credit score. You can avoid repossession by always making payments on time. And if you find yourself unable to pay, work with your lender to see how they can help. It’s better to be proactive than to sit around worrying about how many car payments you can miss before repo.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How many car payments can you miss before your car is repossessed?

The number of car payments you can miss before repo will vary by lender. In some cases, it may be only one. However, lenders will often allow you 90 days — or three months’ worth of missed payments — before they start repossession proceedings.

If you repay missed payments, will your car be repossessed?

If you repay missed payments, your car is less likely to be repossessed, but it depends on your lender’s policies. Communicate with the lender to negotiate repayment terms and confirm your account is current. Timely action can prevent repossession and protect your credit score from further damage

How long does it take a repossession to be processed?

The repossession process timeline varies but typically starts after 30 to 90 days of missed payments, depending on the lender and state laws. Once initiated, repossession can occur within a few days to weeks. Lenders usually notify you, but in some states, they can repossess the vehicle without warning.

Photo credit: iStock/onuma Inthapong

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOALR-Q325-073

Traveling in an RV (recreational vehicle) is a great way to see the country. It allows you to stop wherever and whenever you like, and you never have to search for a hotel room or a restaurant.

While there are many advantages to owning an RV, it can be expensive. If you bought your RV with a loan and you want to save on the interest you’re paying or lower your monthly payment, RV refinancing may be a great option for you.

Here’s everything to know about RV refinancing — including terms, interest rates, costs, and how to find the best deal.

How Does RV Refinancing Work?

Just like there are various types of car loans, there are different types of RV loans, including RV auto loan refinancing.

When you refinance an RV loan, you’re taking out a second loan to pay off the first loan. Ideally, the second loan will have lower interest so you can save money over the term of the new loan. Alternatively, you could extend the repayment period of the new loan to lower your monthly payments. Keep in mind, though, that extending your term increases the amount you’ll pay in interest over the life of the loan.

You make monthly payments on the refinanced loan until it’s paid off. However, if you are unable to make the payments, your RV could be taken by the lender since it is collateral for the loan.

RV Refinancing Terms

If you’re interested in an RV loan refinance because you want to lower your monthly payment, you can look for a loan with extended terms. Some RV refinancing terms can be as long as 20 years, especially if you’re refinancing a loan of $50,000 or more.

You can find RV refinance loans for as little as $5,000 and as much as $100,000 with low rates. Be aware you may be required to pay a processing fee for the RV loan.

Recommended: How to Shop for Car Loans

RV Refinancing Interest Rates

RV loan refinance interest rates depend on several things, including the lender you use and your creditworthiness. If you have great credit, you’ll likely be able to get a lower interest rate. If you have bad credit, your rate may be higher.

Check out this guide to auto loan terms explained to learn more about loan terms and interest rates for vehicles.

RV Refinancing Credit Score

Similar to car loan requirements, there are criteria to qualify for RV refinancing, including your credit score. Some lenders may require credit scores as high as 680. Others might not lend to you if you have a bankruptcy on your record or bad credit. Still, other lenders may lend to you with bad credit, but you’ll pay a higher interest rate.

RV Refinancing Costs

In addition to the interest you’ll pay on a refinancing loan, there may be other fees involved. These include administration fees and origination fees. There may also be a flat rate or a percentage of the loan value fee, too.

Recommended: Average Car Loan Interest Rate by Credit Score

RV Refinancing Tips

Financing an RV, or refinancing one, is a lot like applying for an auto loan. Here are tips for finding a deal that can save you money.

Weighing Your Options

Start by shopping around for the best rate you can qualify for. Often, you can get preapproved with many lenders and your credit score will only take one hit.

You can start with your bank to refinance your RV loan and look into online lenders, which may be more flexible in their criteria to qualify for refinancing. Also, check with the company you have your current RV loan with to see what refinancing options they offer.

If you want a lower monthly payment, shop for a loan that offers a longer repayment period. Just be aware that you may pay more in interest over the life of the loan with a longer term.

Recommended: Guide to Car Depreciation

Knowing Your Budget

Just like with auto loan shopping, you need to understand your budget when refinancing an RV. Start your loan search by knowing what you’re paying for your existing RV loan, including interest rate and monthly payment. If you want a lower interest rate, only consider loans that offer less than what you’re paying. If you prefer to lower your monthly payment, look for a longer loan term than the one you currently have.

Getting a Deal

RV loans may vary wildly in their interest rate and terms, so spend plenty of time exploring the options. If you have questions, call and speak to the lender. In addition to saving money, you also want to work with a lender who is responsive, available, and demonstrates excellent customer service.

Recommended: How Soon Can You Refinance After Purchase?

RV Refinancing Benefits

Refinancing RV vehicles offers perks. The first is that you may be able to refinance the loan at a lower rate than you are currently paying. Interest rates fluctuate over time, as can your financial situation. For instance, your credit score may be higher now than it was when you got your first RV loan, and you may qualify for a lower interest rate.

A second benefit is reducing your monthly payment. If your first RV loan payment is weighing you down, refinancing could let you extend the number of years you have to repay the loan, which will lower your monthly payment. Keep in mind, though, that you’ll pay more in interest over the life of the loan if you extend it.

Recommended: Direct vs Indirect Financing for Car Loans

Explore Refinancing Options

Refinancing an RV will take a little time and research as you investigate your options, but it can be well worth it by saving you money on interest or lowering your monthly payment.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Is there financing available for RVs?

Yes, there are loans specifically designed for people who are buying RVs. Just be aware that the RV serves as the collateral for the loan. If you can’t pay off the loan, the lender can repossess the RV.

What credit score is required for RV financing?

The credit score needed for RV refinancing varies by lender. Some lenders require scores as high as 680. Others will work with you if you have bad credit, but they may charge you a higher interest rate for the loan.

How long should I wait to refinance my RV?

Generally, you should wait 6-12 months to refinance your RV, giving time for improved credit, interest rate changes, or increased equity. Refinancing sooner may not yield significant savings and could involve additional fees. Waiting also allows for a payment history that makes you a stronger refinancing candidate.

Photo credit: iStock/GoodLifeStudio

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-072

When applying for an auto loan, understanding the requirements can streamline the process and improve your chances of approval. Lenders typically consider several factors, including your credit score, income, and employment history, to assess your ability to repay the loan.

Lenders also may require proof of insurance and a down payment. Meeting these requirements not only helps in obtaining the loan but also in getting better interest rates, making your car purchase more affordable in the long run.

Keep reading for an overview of car loan requirements needed when shopping for an auto loan, along with tips on getting approved.

Credit Score Requirements for Auto Loans

The credit score needed for car loan financing can be any score on the scale of 300 to 850. Some lenders may offer subprime auto loans, but these risky products are more commonly associated with independent finance companies and buy here, pay here (BHPH) dealerships.

The below table compares which types of lenders may approve auto loans for different credit risk categories:

What Documents May Be Required for a Car Loan?

In general, expect lenders to require the following documents:

•  Proof of identity

•  Proof of income

•  Proof of residence

•  Vehicle documentation

•  Proof of insurance

Lenders will also likely have credit score parameters, as well as standards for what’s required in a down payment. While there’s no set credit score you’ll need to get an auto loan, borrowers with good or excellent scores (in the mid 600s and up) tend to have an easier time obtaining a loan and securing better rates.

Auto Loan Requirements: Proof of Identity

A requirement for a car loan you’ll need to meet is providing proof of identity. These are the types of documentation lenders will likely accept to confirm that you are who you say you are:

•  Government-issued IDs

•  Passport

•  Birth certificate

Auto Loan Income Requirements: Proof of Income

As part of the requirements for getting a car loan, a lender will typically require you to prove how much income you earn to ensure that you make enough to qualify for the loan. While there’s no required income to get a car loan, a pretax monthly income of at least $1,500 to $2,500 can serve as a general guideline.

Ways to prove your income include providing the following:

•  Pay stubs

•  Bank statements

•  Wages and tax statements

Note that no income verification auto loans do exist, but you’ll typically be required to have a cosigner or put up collateral to secure the loan.

Requirements for Getting a Car Loan: Credit History

Credit score requirements for auto loans can vary by lender — and it’s generally true that the higher the score, the better the chance that you’ll get a good interest rate with favorable terms. Overall, a lender wants to see that you’ve handled your debt well in the past because that’s a good predictor of how you’ll manage it going forward.

If your credit score isn’t quite where you’d like it to be, be prepared to share with the lender how and why it happened, along with your plan for making your car payments on time in the future. Sometimes, a lender will require you to get a cosigner with good credit before approving the loan.

Recommended: Guide to Finance Charges on Car Loans

Auto Loan Requirements: Proof of Residence

Lenders will want to verify where you live, and there are numerous methods they might find acceptable, including:

•  Utility bills

•  Government-issued IDs

•  Property tax bills

Vehicle Information

When buying a car, your lender of choice will need information about the vehicle, including the purchase agreement from a dealer or person. Key pieces of information within the document will include the price; the make, model, and year of the vehicle; and its vehicle identification information (VIN), among other things.

Current Vehicle Registration

A vehicle must be registered in the name of the current owner for it to be legally driven on public roads. If you buy a car from a dealer, new or used, they usually provide you with at least a temporary registration; other times, they’ll handle the whole process. If not, you’ll need to check with your local Department of Motor Vehicles (DMV) to see how to transfer the registration into your name.

Requirements for Auto Loan: Proof of Insurance

Your lender will want to see that you’re able to get insurance coverage on the vehicle you’re buying. What’s required can vary, based on the state in which you live and the specific requirements of the financial institution. In general, however, you’ll need to have car insurance on your new ride before you can drive it out of the dealership lot.

Proof of insurance can include:

•  Insurance ID cards

•  Coverage letters

•  SR-22 form

Method of Down Payment

As part of a lender’s car loan requirements, you may need to make a minimum down payment. This can include a combination of cash that you’ll put down and the trade-in value of a vehicle that you’ll turn over to the dealership.

How much of a car down payment should you make? The traditional answer has been 20%, but not everyone puts down that much. To answer this question for yourself, find out what a lender requires and also consider your finances and how they may change over the next several years (meaning, over the term of the car loan).

Recommended: Grace Period for Car Payments

Auto Loan Refinance: Documents Required

With an auto loan refinance, a lender will typically want the same information that was needed for the original loan, along with information about your current loan, including the lender and outstanding balance. That said, check with your lender of choice to make sure that you have all of the documentation required.

Keep in mind that refinancing for a lower monthly payment may extend your term, and extending your term can saddle you with more interest charges over the life of your loan. An auto loan refinance calculator can help you see whether a refinanced loan offer may increase or decrease your total interest costs.

Lenders can implement their own requirements for auto loan refinancing, too, and some lenders may even offer low credit score car loan refinancing.

4 Tips for Auto Loan Approval

Getting approved for a car loan can be challenging, particularly if you have bad credit. There’s no guaranteed path for how to get approved for a car loan, but these four tips may help:

1. Choose a Budget

You may choose a budget that works for you when seeking auto loan financing. This can include identifying a target purchase price for a new or used car and sticking to the budget.

2. Have Steady Income

Having steady income from salaries, wages, or any other source can help you get approved for a car loan. Lenders may assess your debt-to-income ratio when deciding whether to approve or deny your loan application.

3. Buy a Newer Car

Buying a newer car may help you get approved for financing as opposed to buying an older vehicle. Some lenders, for example, may deny financing a 10-year-old car or a vehicle with more than 100,000 miles on the odometer.

4. Make a Larger Down Payment

A larger down payment may prevent you from getting an upside down auto loan in which your loan balance is greater than your car’s resale value. It’s generally better to have positive equity in your car rather than negative equity that leaves you underwater. A larger down payment can minimize your borrowing expenses and monthly car loan payment, which lenders may take into account when making financing decisions.

Recommended: Guide to Financing a Car Out of State

More Auto Loan Refinancing Tips

Auto loan requirements can vary by lender, but most will want to see verification of your identity, income, residence, and auto insurance, along with additional information about your financial situation, your credit history, and the vehicle being purchased.

When refinancing a car, similar information is typically needed, along with details about the outstanding loan on the vehicle. It can be wise to pull these documents together as you start the process to make things move ahead more quickly and smoothly.

The Takeaway

Applying for and getting approved for an auto loan can involve several steps, including knowing your credit score and other financial details and being able to provide such documents as proof of identity, proof of income, proof of residence, vehicle documentation, and proof of insurance. As you gather these materials, you’ll also want to shop around for the most favorable rates and terms you can secure.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is required to get approved for a car loan?

Requirements for car loans may vary from lender to lender, but borrowers generally need to provide proof of identity and proof of income to get approved for a car loan. Lenders may also require borrowers to provide proof of residence, proof of auto insurance, and basic information about the vehicle being financed.

What credit score do you need to qualify for a car loan?

Getting approved for a car loan may not require good credit. Consumers with bad credit may also qualify for auto loan financing, including deep subprime borrowers with credit scores between 300 and 500. Borrowers with bad credit can get approved for auto loan financing, but typically will be charged a high interest rate since they appear risky to lenders.

Can you get an auto loan with a credit score of 500 or less?

Yes, you may qualify for auto loan financing with a credit score of 500 or less. Keep in mind, though, that you likely will be offered less favorable interest rates or terms than if your credit score were higher.

Photo credit: iStock/Tero Vesalainen

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOALR-Q325-071