Advertised rates for car loans, mortgages and even some credit cards are tantalizingly low, promising big savings for borrowers who can refinance. But just because you see that rate advertised doesn't mean you'll qualify.
Here are three loans that can be difficult to refinance, as well as strategies for lowering your rate if you are stuck with one of them.
Used Auto Loan
If you bought a new vehicle with little or no money down, or if you're driving a clunker, refinancing it may be tough. That's because you may be upside down on your loan -- you owe more than the vehicle is worth; or the value of your vehicle is so low that the lender may not want to be saddled with it if you default.
Lenders who finance car loans are typically looking at the borrower's credit and income, as well as the value of the car as collateral for the loan. "If you have strong credit then you may be able to refinance," says Phillip Reed, Edmunds.com Senior Consumer Advice Editor. "But if your credit is weak then the collateral may not be a factor in helping (you) get a loan."
However, that doesn't mean you are completely out of luck. You may be able to refinance a three-year loan to a five-year one, for example, thereby lowering your monthly payment, says Reed. Another option: "You may be able to roll your negative equity into a new auto loan," he says. "It's a terrible thing, but people do it all the time. They keep getting in deeper and deeper (debt)." He adds that in some cases the dealer may be offering a rebate on the new car that can help offset some of the negative equity.
How to refinance: Check with three lenders -- such as a local bank or credit union, or online lenders -- to find out what's available. Restrict your loan shopping to a two-week period. If you stretch out the process you may wind up with multiple inquiries on your credit reports, which can hurt your scores.
The alternative: Sell the vehicle yourself and find a way to come up with the cash -- or line up a personal loan -- to pay off any remaining balance. Then buy an economical used car that won't lose as much value.
Despite some recovery in the housing market, an estimated 10 million - 14 million or so homeowners are in negative equity -- meaning their home is worth less than they owe. And an estimated 2.3 million have less than 5% equity in their homes. That lack of equity makes it very hard to refinance, and makes the news about historically low rates a painful tease for millions who would like to be able to take advantage of them.
There aren't a lot of truly great options for the majority of homeowners in this situation. The Home Affordable Refinance Program (HARP) was expected to make it much easier for these homeowners whose loans are owned by Fannie Mae or Freddie Mac to refinance into a lower rate and smaller payment, but the program has been hampered by a lack of interest from the lending community. And if you are successful in refinancing under HARP or another program, you may wind up in another trap: paying for mortgage insurance for many more years to come. Finally, if your loan is not owned by Freddie or Fannie, or if you have a large second mortgage that's also underwater, you may be stuck.
[Related article: Another Good Mortgage Refinance Program Gets Its Wings Clipped]