Car Refinancing: 4 Things To Know

Refinancing might help you pay off a car loan. Refinancing your auto loan might save you money by lowering your interest rate or changing your payment terms.

However, don’t hurry. Do your research and discover how refinancing works before applying.

Yes, automobile loans may be refinanced. If interest rates have reduced or your credit score has improved, you can refinance to a cheaper rate. This lowers your monthly auto payment and interest throughout the loan’s term.

What Is Car Refinancing?

When you refinance your auto loan, you get a new loan with new terms. Then you’ll make monthly loan installments.

You can refinance with your current lender or a new one after comparing fees, rates, and special offers.

The lender you pick will evaluate your credit, income, and car insurance. You may need to show recent pay stubs or W-2s for the previous two years to a lender.

4 Refinancing Tips

Refinancing might make automobile ownership more affordable, but you may spend more over time. Before refinancing, know these four things:

1. Comparing Lenders

You should compare vehicle loan businesses, internet lenders, banks, and credit unions with your existing lender. This ensures a good rate.

Refinancing your car loan qualifies as a hard inquiry on your credit report, which might lower your score. If you submit all the applications within a specified time, they’ll count as one.

14-45 days is usual. This reduces the damage to your credit and lets you examine possibilities.

2. Possible Fees

Some automobile loan agreements carry a prepayment penalty. Prepayment penalties might erase any savings from refinancing.

Depending on the lender, you may additionally pay an application, registration, or title transfer charge. Some states require you to re-register your vehicle upon refinancing; the cost varies.

3. Vehicle Worth

Before approaching lenders, investigate your car’s value.

Once you know how much your car is worth, you may decide whether to refinance or exchange it. Before authorizing your refinancing, the lender will analyze the car’s worth. Insufficient value disqualifies.

4. Refinancing Criteria

Each lender has different refinancing criteria, so ask as many questions as can before applying. Most lenders need:

Payoff And Car History

How much you owe on your auto loan, and the vehicle’s age and mileage will affect your ability to refinance. Some lenders won’t refinance older or high-mileage automobiles, and most won’t refinance a salvage-titled car.


Your credit record and score affect your ability to refinance and your borrowing expenses. Higher credit scores make you a safer borrower and can decrease your interest rate.

Should You Refinance?

Refinancing your auto loan depends on your position and your short- and long-term budget. Here are several situations when refinancing makes sense—and some that don’t.

Why Refinance?

  • Your Credit Is Better. If your credit has improved since you took out the loan, you may qualify for a higher rate. If your credit score is low, you can refinance with a good co-signer to get a better rate.
  • Lower Monthly Payments. If you’re struggling to make debt payments and need extra budget room, refinancing can help. If you choose a longer term to get a lower payment, you’ll end up paying more in interest.
  • Lower Rates. Refinance if your car loan’s interest rate is high and rates are now lower.

When Refinancing Isn’t Smart

  • Your Debt Is Underwater. If you owe more than your automobile is worth, you have negative equity and shouldn’t refinance.
  • Prepayment Penalties Apply. If your present lender has a prepayment penalty that exceeds any savings, don’t do it.
  • You Need Another Loan. Refinancing your auto loan while applying for a mortgage isn’t recommended. Your credit score would drop, making it harder to secure a loan or giving you a higher interest rate.
  • Your Loan Is Modest. If your auto loan debt is modest, refinancing isn’t worthwhile. Pay it off to free up budget space or keep paying to build your credit.

If you wait longer to return your debt, you’ll pay extra interest. Use our auto refinance calculator to determine if refinancing will save you money.