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Can a Car Loan Be Transferred to Another Bank?

If you are hoping to secure a lower interest rate, or you are simply unhappy with your lending institution for one reason or another, you may have wondered if you could simply transfer your auto loan to a new bank. Unfortunately, a loan like this cannot be simply transferred. You will have to refinance the vehicle with a new lender, and refinancing your car may or may not be in your best interest. The only good reason to refinance a car is to get a lower interest rate, and you can only get a better rate if your credit score has gone up since your first financed the vehicle.

Auto-Specific Credit Scoring

Auto lenders utilize what’s known as an “Auto-Enhanced” or “Auto Industry Option” Credit Score, such as the FICO 8 Auto Score or Beacon 09 Auto Industry Option. Such industry-specific scores are meant to be more predictive of consumer behavior with regards to automotive credit, and they are not typically available to consumers directly. Since no one sells their auto specific credit score, you need to be aware of what goes into the building of a credit score. The most commonly used credit score comes from the Fair Issac Corporation (FICO). While they do not sell their auto-enhanced credit score to the average consumer, you can get a rough idea of what yours is by knowing how a basic score is built.

How Your Credit is Scored

FICO bases its basic scores on five categories: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), new credit (10 percent), types of credit used (10 percent). To gauge whether your credit score has improved since getting your original loan look at what is going on in your life. Have you paid down your credit card debt? Carrying a balance that is less than thirty percent of your credit limit boosts your score. Over thirty percent and your score is lowered. Have you recently opened a new credit account? If so, your score is going to drop a little and the dip may last 90 days or more.

Are You Ready for a Refi?

When you are looking for a car loan, the biggest issue affecting your auto-enhanced credit score is your past usage of car loans. FICO weights its score based on that past usage. If you have had at least one recent vehicle loan and have made twelve on-time payments, then your auto-enhanced score is going to be quite a bit higher than your basic score. If you have had a single late payment, even if it was only a ”couple of days” late, your auto-enhanced score is going to be well below your basic score. With that in mind, have a look at the loan you are wanting to refinance. How responsibly have you made your payments?

If you answered “very responsibly,” then you have a good chance of refinancing through a different bank, at a lower rate.


About the Author

The author has many years of experience in automotive finance and insurance. However, each consumer's situation is unique. It is best to contact a finance specialist for further assistance.
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