Category: Auto refinance

Posted on by Jeff Hutcheson
Home » Auto refinance

Auto Loan Finance Rates

Car ownership has become one of the largest household expenses in the United States. With the rising cost of both new and used vehicles, few buyers have the means to pay cash at the dealership. Instead, most rely on financing to make car buying possible. For many households, a vehicle loan is the only way to make ownership realistic and affordable.

The true affordability of a purchase is shaped not only by the sticker price but by the finance terms attached to it. Auto loan finance rates determine how much a car buyer pays each month and, ultimately, how much the vehicle costs over the life of the loan. Borrowers who secure low rates save thousands, while those who accept unfavorable terms may spend years paying more than necessary. Understanding how auto loan rates work and how to secure competitive terms is essential for anyone considering a vehicle purchase.

What Auto Loan Finance Rates Represent

Auto loan finance rates reflect the cost of borrowing money to fund a vehicle purchase. Expressed as an annual percentage rate (APR), the figure includes the base interest rate charged by the lender as well as certain origination fees. For borrowers, APR is the most reliable way to compare loan options, since it standardizes costs across different lenders.

For example, financing a car with a $28,000 purchase price at 4.5% APR over 60 months results in roughly $3,300 in total interest charges. The same amount at 7% APR adds more than $5,300 in interest. These differences show why loan rates matter as much as negotiating the price of the car itself.

The Role of Credit Score and Credit History

A borrower’s credit score and credit history are the most important factors in determining auto loan interest rates. Lenders view them as shorthand for reliability. Those with excellent credit often qualify for the lowest rates, while borrowers with poor or limited credit histories face higher costs.

A track record of on-time payments, low balances on credit cards, and minimal derogatory marks all strengthen eligibility. Missed payments or heavy debt loads, by contrast, can lead to higher APRs or even denial of credit approval. During the auto loan application process, lenders pull a full credit report and request supporting loan documentation such as proof of income, employment verification, and residency. These details allow the lender to determine whether the borrower presents high or low risk.

Improving credit before applying for a loan is one of the most effective ways to secure low rates. Paying down revolving debt, correcting errors on a credit report, and avoiding new inquiries can all raise scores and unlock better financing.

Loan Terms, Payments, and Affordability

Loan terms significantly influence borrowing costs. A shorter term, such as 36 or 48 months, usually comes with a lower rate but requires higher monthly loan payments. Longer terms, stretching to 72 or 84 months, reduce the monthly burden but often carry higher APRs and result in more total interest.

Borrowers should weigh affordability against long-term cost. A smaller payment today may seem attractive, but it often means paying thousands more over time. Lenders sometimes provide flexible payment options, such as biweekly schedules or the ability to make extra payments toward principal. Many also allow borrowers to set up automatic withdrawals from a checking account or savings account. In some cases, lenders even provide small discounts for linking accounts or using direct deposit. Check out our refi calculator here.

Vehicle Type, Model Year, and Warranties

The type of vehicle being financed also shapes finance rates. A new car loan often comes with promotional offers from manufacturers or dealerships, sometimes including 0% APR for highly qualified borrowers. These incentives are designed to drive sales of specific models and are typically available only to buyers with excellent credit.

By contrast, a used car loan or other used auto loans generally carry higher rates. Lenders see more risk in financing a used vehicle because it depreciates faster and may require repairs. However, the model year of the car makes a difference. A recent model with low mileage may qualify for better rates than an older one. The presence of a manufacturer warranty can also improve terms, since cars covered against major repairs pose less risk to the lender.

The Influence of Dealerships and Financial Institutions

Auto loans can be arranged either directly or indirectly. With direct financing, the borrower applies through a financial institution such as a bank, federal credit union, or online lender. Indirect financing happens at the dealership, where the finance office arranges a loan on the buyer’s behalf.

Dealership financing is convenient, but it often comes at a cost. Dealers sometimes mark up the lender’s base rate before presenting it to the customer, resulting in higher APRs. Borrowers who arrive at the dealership with pre-approval from a bank or credit union are in a stronger position to negotiate, since the dealer must match or beat those terms.

Online marketplaces such as AutoPay.com make comparison easier by allowing borrowers to submit a single online application and receive multiple offers. This approach improves transparency and helps ensure the borrower secures truly competitive rates.

Down Payments, Trade-Ins, and Loan Amounts

The size of the down payment plays a major role in determining finance rates. A larger upfront contribution reduces the loan amount, lowers monthly payments, and demonstrates financial responsibility, all of which increase the chances of securing favorable terms.

A trade-in functions much like a down payment. By lowering the effective purchase price, it reduces the principal that must be financed and improves the borrower’s equity position from the start. Lenders view loans with strong equity more favorably, often offering better rates in response.

Borrowers should avoid financing more than the car is worth. Overborrowing increases the risk of negative equity, where the loan balance exceeds the car’s value. This situation makes it difficult to sell, refinance, or trade the vehicle later.

Broader Economic Conditions

Auto loan rates are influenced by more than just borrower profiles. Market conditions and Federal Reserve policy also shape borrowing costs. When the Fed raises benchmark rates, lenders increase pricing across mortgages, personal loans, and auto loans. Inflation, credit supply, and consumer demand all contribute to how financial institutions set rates.

This means timing matters. Borrowers who secure loans when interest rates are low may save significantly compared to those financing in a high-rate environment. Those who financed under poor conditions may later benefit from an auto refinance, replacing their original contract with a refinance loan at a lower rate.

Refinancing, Lease Buyouts, and Cash-Out Options

Refinancing allows borrowers to replace an existing auto loan with a new one at better terms. For those who initially accepted high dealership financing or whose credit has since improved, refinancing can reduce monthly payments or total interest costs. Online platforms like AutoPay.com make the process easier by streamlining applications and showing multiple refinance offers.

Some borrowers pursue cash-out refinancing, where they refinance for more than the current balance and pocket the difference. While this can provide short-term liquidity, it increases the loan amount and overall borrowing costs, so it must be approached cautiously.

Another financing need arises at the end of leases. A lease buyout occurs when a driver chooses to purchase their leased car rather than return it. Lenders offer specialized buyout loans for this purpose, structured similarly to new vehicle loans. The residual value of the car and the borrower’s credit profile both affect the terms.

piggy bank on a car seat
Green piggy bank money box in car interior, vehicle purchase, insurance or driving and motoring cost

Prequalification, Pre-Approval, and the Application Process

Before shopping for a car, borrowers benefit from securing prequalification or pre-approval. Prequalification uses a soft credit check to provide an estimated rate range, while pre-approval involves full underwriting and results in a firm offer. Both improve bargaining power at the dealership.

The modern application process has become more streamlined thanks to digital tools. Many lenders now offer an online application, where borrowers can upload loan documentation, verify income, and receive conditional credit approval within hours. Mobile apps and online banking platforms also provide ongoing account management, including tracking payments and setting up autopay.

Comparing Loan Options and Competitive Rates

With so many lenders offering auto loans, comparing loan options is essential. Banks, credit unions, dealerships, and online marketplaces each bring different advantages. Federal credit unions often advertise some of the lowest rates, while banks emphasize reliability and bundled account services. Dealerships provide convenience but may add hidden costs. Online platforms highlight transparency and speed.

Using an auto loan calculator can help borrowers test scenarios. By entering the purchase price, loan amount, interest rate, and term length, they can see how small changes affect monthly car payments and overall costs. This modeling illustrates why competitive rates matter as much as negotiating the price of the vehicle.

Worked Example: How Rates Shape Costs

Imagine two borrowers each purchasing a $26,000 vehicle.

  • Borrower A has excellent credit and secures a new auto loan at 4.2% APR for 60 months. Their monthly payment is around $480, and they pay about $2,600 in interest.
  • Borrower B has fair credit and accepts a used car loan at 8% APR for 72 months. Their payment is about $455, but they end up paying more than $6,300 in interest.

Borrower B enjoys a lower monthly car payment, but the loan costs nearly $3,700 more over time. This example shows how stretching terms and accepting higher rates can mask long-term expense.

Alternatives and Special Situations

While auto loans are the standard for financing, alternatives exist. Some buyers use personal loans to fund a purchase, though these are unsecured and usually carry higher rates. Others may attempt to finance a car using credit cards, but the high interest charges make this impractical for most. Specialized loans also exist for private party purchases, where the vehicle is bought from an individual rather than a dealership. These loans tend to carry higher rates but remain useful in specific situations.

Risks of Ignoring Finance Rates

Borrowers who focus solely on monthly affordability risk overlooking the bigger picture. A long-term loan with a high APR can result in paying more in interest than the car is worth, especially when depreciation is considered. This risk is heightened with used auto loans, where value declines quickly.

Failing to shop for competitive rates also leaves money on the table. Even a one- or two-point difference in APR can add thousands of dollars to the total repayment. Treating financing with the same seriousness as the car buying process itself is essential to long-term financial health.

Auto loan finance rates shape the true cost of ownership. They determine the size of monthly payments, the overall cost of borrowing, and whether a car becomes a financial asset or a burden. From credit score and down payment size to dealership practices, model year, and warranty coverage, countless factors influence the terms borrowers receive.

Securing favorable financing requires preparation. Reviewing credit history, providing thorough loan documentation, getting prequalified, and comparing offers are all crucial. Platforms like AutoPay.com make it easier by consolidating applications and presenting multiple lenders’ offers in one place. Combined with digital tools such as online banking and calculators, these resources empower car buyers to identify and secure the lowest possible rates.

Whether financing a new auto loan, managing a used car loan, refinancing an existing loan, or arranging a buyout loan, the goal is the same: to secure competitive rates that keep car ownership affordable. By approaching financing strategically, borrowers can transform auto loans from a heavy obligation into a smart financial tool.

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Posted on by Seth Meyer
Home » Auto refinance

How to Refinance a Car Loan to Remove a Cosigner

When a borrower takes out a car loan with a cosigner, it often makes the difference between approval and denial. A cosigned loan provides lenders with extra reassurance because the cosigner agrees to share responsibility for repayment if the primary borrower falls behind. This arrangement is especially common with younger borrowers financing their first new car or used car, or with people rebuilding after bad credit. While cosigning helps at the beginning, many borrowers eventually want or need to remove that second name. The most reliable way to do so is through a loan refinance.

Refinancing a car loan to remove a cosigner allows the primary borrower to assume full financial responsibility for the debt. It can also create an opportunity to secure a better interest rate, improve repayment terms, or simplify personal finance management. However, it requires careful preparation, an understanding of what lenders expect, and awareness of both benefits and risks.

Why Removing a Cosigner Matters

A cosigner takes on significant liability when they attach their name to an auto financing agreement. If loan payments are missed, their credit is damaged alongside the primary borrower’s. This shared risk can cause tension, particularly in family situations where a parent or sibling cosigns out of goodwill. Refinancing to remove them not only relieves that pressure but also strengthens the borrower’s independence.

From the borrower’s perspective, removing a cosigner demonstrates growth. It shows the ability to qualify for a loan on one’s own and to maintain loan payments without additional support. It can also improve the functionality of one’s credit profile. For example, if the cosigner wants to purchase a home or take out a personal loan, having the cosigned auto loan removed from their record frees up their debt-to-income ratio.

How Loan Refinance Works

A loan refinance replaces the current loan with a new one. The borrower submits a loan application in their own name, undergoes a credit check, and provides documents such as proof of income and payment history. If approved, the new lender pays off the cosigned loan, and the primary borrower begins repayment under the new terms. The cosigner is released entirely because they are not included in the new contract.

Some lenders and auto loan providers offer a cosigner release option instead of a refinance, but these are rare in auto financing compared to student loans. In most cases, a full refinance is the only way to officially remove a cosigner’s responsibility.

Preparing to Qualify on Your Own

Qualifying for a refinance without a cosigner requires stronger financial standing than the original loan did. Lenders want to see evidence that the borrower can handle the car payment independently. This means reviewing credit reports from Experian and the other bureaus to ensure accuracy, paying down revolving debt such as credit cards, and demonstrating a history of consistent on-time loan payments.

Good credit makes the process far easier, but even borrowers with bad credit can sometimes qualify. Credit unions may be more flexible than big banks or dealerships because they often take a more holistic view of a borrower’s personal finance situation. Improving DTI ratios, reducing credit utilization, and maintaining stable employment can offset the challenges of a low score.

Opportunities for Better Terms

While the primary motivation for refinancing may be to remove a cosigner, it can also lead to better loan terms. If the borrower’s credit has improved, refinancing could mean a lower interest rate or a shorter repayment period. This not only reduces long-term costs but can also ease month-to-month budgeting.

Even small changes matter. Moving from a high-rate cosigned loan to a better loan with a lower interest rate can save hundreds or even thousands of dollars over the life of the agreement. For borrowers who originally financed through a dealership, where rates can be steep, a refinance with a credit union or online provider often unlocks a more competitive structure.

weighing different aspects when considering an auto loan refinance
Money and business concept car

Considering the Risks

Refinancing is not always the best path. Borrowers with persistent bad credit may qualify, but the terms might not be favorable. Extending the loan term to secure a smaller car payment may provide relief in the short run, but it often increases total interest paid. Fees associated with refinancing—such as application costs, title transfer fees, or prepayment penalties on the current loan—should also be calculated carefully.

Another risk lies in vehicle value. If the car is worth less than the loan balance, lenders may be hesitant to approve refinancing. This is especially relevant for used cars, which depreciate quickly. Borrowers in this position should weigh whether waiting to build more equity or paying down the balance makes more sense.

Alternatives to Refinancing

While loan refinance is the primary strategy, it’s worth checking whether the current lender offers a cosigner release option. Some providers allow this after a set number of on-time payments, though it’s less common than in the mortgage or student loan markets. If no release option exists and refinancing terms are unattractive, accelerating repayment on the current loan may be the next-best solution. Paying off the balance eliminates the cosigner’s liability entirely and avoids a new application process.

The Role of Different Lenders

Choosing where to refinance matters. Credit unions are often praised for offering lower rates and more borrower-friendly policies. Banks may have stricter qualifying criteria but can be competitive for those with good credit. Online lenders and auto refinancing providers sometimes cater specifically to borrowers with limited credit histories, though their rates vary. Comparing offers side by side ensures that the new loan delivers the intended benefits.

Dealerships sometimes offer refinancing, but this option should be approached with caution. Many dealerships mark up rates, meaning that even if the cosigner is removed, the borrower may not secure a better interest rate. Independent lenders or credit unions typically provide clearer terms.

Refinancing a car loan to remove a cosigner is about more than paperwork—it’s about taking ownership of one’s financial journey. By moving the loan into their name alone, the borrower proves they can handle repayment and manage the car payment responsibly. It also frees the cosigner from the burden of shared liability, which can improve both parties’ credit flexibility and reduce stress.

For many, the decision also creates an opportunity to secure a better loan. Whether through a lower interest rate, a more manageable repayment schedule, or simply a cleaner structure, the outcome can improve personal finance stability. As with any financial decision, the key is preparation: strengthen credit, maintain reliable payment history, and compare offers across multiple providers before submitting a loan application.

In the end, loan refinance is often the cleanest, most effective way to remove a cosigner from an auto financing agreement. With thoughtful planning, borrowers can achieve independence, improve their loan terms, and ensure their car remains an asset that supports—not hinders—their financial future.

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Posted on by Seth Meyer
Home » Auto refinance

Refinancing an Auto Loan with Bad Credit

Refinancing a loan is often associated with mortgages, where homeowners take advantage of lower mortgage rates to secure reduced mortgage payments or better terms. But refinancing is not limited to the housing market. For many drivers, an auto loan refinance can provide similar benefits — a chance to replace a current loan with a new loan that improves monthly affordability or reduces long-term costs. The challenge arises when borrowers carry a bad credit score. Lenders rely heavily on credit history to assess risk, and a low credit score often makes approval more difficult. Despite these obstacles, refinancing options for auto loans are available, and with the right strategy, borrowers can use them to improve their overall financial situation.

The Role of Credit in Auto Refinancing

A borrower’s credit score is central to any refinancing decision. Lenders run a credit check to determine how risky it will be to issue a new loan, and this process involves more than just looking at a number. Credit reports from Experian and the other major bureaus reveal late payments, outstanding debts, and overall credit utilization. These details feed into a FICO score, which remains one of the most important benchmarks for underwriting.

Borrowers with perfect credit or good credit typically qualify for the most favorable loan options, often securing lower interest rates and flexible repayment structures. By contrast, those with poor credit or a low credit score face stricter credit score requirements, higher interest rates, and fewer refinance programs to choose from. Even so, a bad credit score does not make refinancing impossible. Lenders also weigh factors such as debt-to-income ratio (DTI), employment history, and vehicle value.

Why Refinancing May Still Make Sense

For borrowers carrying auto loans that feel unmanageable, a refi can act as a financial reset. One of the most common motivations is to secure a lower monthly payment by extending the loan term. While this often increases the overall interest paid, it can ease pressure in the short term and improve household personal finance. Others refinance in search of better terms if their credit has improved since the original loan was issued. Even small changes in a FICO score or a stronger recent payment record can open the door to more favorable loan options.

Some borrowers pursue refinancing to escape the impact of predatory dealership financing. An auto loan signed quickly at the point of purchase often comes with high rates. A refinance program from a credit union, online lender, or even the current lender may offer more sustainable repayment terms. In other cases, refinancing is pursued for consolidation purposes. Someone juggling credit card debt, a personal loan, and car payments may benefit from restructuring, even if the main advantage is simply streamlining due dates and budgeting.

Exploring Refinance Options with Bad Credit

Borrowers with poor credit are often limited in their choices, but multiple refinancing options exist. Conventional loan products offered by banks and credit unions remain the most common. These lenders generally require a minimum credit score in the mid-600s, but credit unions in particular may be more flexible during underwriting, looking at a borrower’s overall financial situation rather than relying only on a number.

Subprime lenders represent another category. These companies specialize in working with borrowers who have bad credit scores, offering new loans even after late payments. The trade-off, however, is higher interest rates and less favorable terms. For some, the benefit lies less in overall cost savings and more in achieving immediate relief through lower monthly payments.

A small number of lenders also permit a cash-out refinance on auto loans. This works much like a home loan refinance where a borrower taps into home equity, but instead, it is tied to vehicle value. The borrower replaces the current loan with a larger one and takes the difference in cash. While this can help cover urgent expenses, such as paying down a credit card or managing personal finance emergencies, it carries risk because cars depreciate quickly and may not hold value for long.

two people talking about the pros and cons of auto refi

Auto Refinancing and Mortgage Comparisons

Many homeowners are familiar with mortgage refinancing, and some expect auto refinancing to operate in the same way. While the goals are similar — achieving better terms or reducing monthly payments — the structures differ. For mortgages, government-backed programs such as the FHA loan, USDA loans, VA loan, FHA streamline refinance, and the Interest Rate Reduction Refinance Loan (IRRRL) offer structured support for borrowers with poor credit. Homeowners can also rely on guidance from Freddie Mac and the NMLS when navigating mortgage rates and products. These programs exist because housing is viewed as a wealth-building tool, and lowering mortgage payments can have long-term financial stability benefits.

By contrast, auto refinancing is less standardized. Cars depreciate rather than appreciate, so lenders are cautious. This makes credit score requirements and DTI ratios more important in the decision-making process. Still, the parallel helps explain the logic: whether dealing with mortgage payments or car payments, refinancing offers a chance to adapt a loan to changing financial realities.

Factors that Influence Eligibility

Eligibility for auto loan refinancing hinges on more than just credit scores. Underwriting takes a comprehensive view of a borrower’s profile. Vehicle value compared to the outstanding loan amount is crucial — lenders are hesitant to refinance if the car is worth significantly less than what is owed. Payment history on the current loan also plays a significant role. A borrower who has struggled in the past may still be approved if they have demonstrated recent stability through consistent on-time payments.

Income is another factor. Lenders often require proof of employment and may request pay stubs or tax returns. Stable income can offset concerns about a low credit score. Similarly, DTI ratios and credit utilization are important. High revolving debt on credit cards can be a red flag, while paying down balances before applying can strengthen a borrower’s case. Finally, borrowers should be mindful that each credit check creates a hard inquiry, temporarily lowering a FICO score. Applying strategically and limiting applications to a short timeframe reduces the negative impact.

Improving the Odds of Success

Even with a bad credit score, there are ways to improve the likelihood of approval. Reviewing credit reports from Experian and disputing errors can raise scores quickly. Making several months of on-time payments on the current loan before applying shows reliability. Reducing credit card balances lowers utilization and strengthens DTI. Some borrowers consider adding a co-signer with good credit, which can shift underwriting in their favor. Perhaps most importantly, comparing multiple refinancing options allows borrowers to see how different lenders weigh their financial situation. What one lender views as too risky, another may see as acceptable.

When Refinancing May Not Be the Right Move

Not every borrower benefits from refinancing. A new loan with higher rates, extended terms, or steep fees may cost more over time than sticking with the current loan. Borrowers with vehicles deeply underwater or in poor condition may find approval difficult or the offers unattractive. In such cases, focusing on credit repair, debt reduction, or alternative personal finance strategies may be more beneficial.

Refinancing an auto loan with bad credit is ultimately about balancing immediate needs with future financial health. For some, lowering a monthly payment is worth the higher overall cost, especially during periods of financial strain. For others, waiting until their FICO score improves may unlock better loan options with more favorable terms.

Although auto loans lack the comprehensive government-backed refinance programs available to homeowners — such as FHA streamline refinance or the VA IRRRL — drivers still have pathways to restructure debt. By understanding credit score requirements, weighing different refinance programs, and approaching underwriting with preparation, borrowers with a low credit score can still find opportunities to refi. The key is to view refinancing not as a cure-all but as one piece of a larger personal finance strategy that includes careful debt management, timely payments, and long-term credit improvement.

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Posted on by Seth Meyer
Home » Auto refinance

Refinancing your auto loan can open the door to lower interest costs, better terms, or simply more manageable monthly payments. But if you’re unfamiliar with the process, it’s natural to wonder what actually happens when you refinance a car. The answer involves more than just signing a new contract—it’s a series of steps that reshapes how you pay off your vehicle and how it fits into your broader personal finance picture.

From understanding your current loan to comparing offers and submitting a loan application, knowing what to expect at each stage of the process can help you make smarter financial decisions.

What Is Auto Loan Refinancing?

Auto loan refinancing is the act of replacing your current auto loan with a new one—often with a different lender. The goal is typically to secure a lower interest rate, reduce your loan payments, adjust your repayment schedule, or align your loan with your changing financial situation.

When you refinance, your new lender pays off your current loan in full. You’ll then begin making payments on a new loan, ideally with more favorable terms—such as a lower rate, a shorter term, or reduced monthly obligations. This is especially useful if you’ve improved your credit score, if auto loan rates have dropped, or if your original loan came with a high APR from a dealership.

Borrowers may also refinance to tap into a cash-out option, which allows them to borrow more than their current balance and use the extra cash for other expenses. While this can provide short-term flexibility, it increases the total amount owed and should be weighed carefully.

Reviewing Your Current Auto Loan

Before jumping into a refinance, it’s essential to evaluate your current auto loan. This includes reviewing your loan balance, interest rate, remaining loan term, and monthly payment structure. If you still owe a significant loan amount, refinancing could help you save on total interest—but only if the new loan offers better terms.

Start by pulling your credit report and gathering key details from your current lender, including the full payoff amount. Understanding these elements gives you a clear starting point and helps you assess whether refinancing is worth it.

Also, check for any fees or penalties on your existing loan that could reduce the benefit of switching to a new one. These may include early payoff fees or account closure charges, especially if your original financing came from a dealership or specialty lender.

Preparing for the Loan Application

The loan application process for auto refinance loans is similar to financing a new car—but typically faster. You’ll need to provide your driver’s license, Social Security number, proof of income, vehicle details, and insurance documentation.

Lenders will perform a credit check, which results in a hard inquiry. While this can cause a temporary dip in your score, it also provides lenders with the information they need to determine if you qualify for a lower interest rate or improved terms. If your credit report shows a history of on-time payments and reduced debt, you’re more likely to qualify for a better interest rate and more competitive loan offers.

Borrowers with good credit typically see the most benefit from refinancing, as they’re more likely to receive offers from banks, online lenders, and credit unions. That said, even if your score is average, you may still qualify for better terms than those on your current car loan.

Comparing Auto Loan Refinance Offers

Once approved, lenders will offer various terms based on your credit history, vehicle value, and income. Carefully compare these loan offers, weighing not just the annual percentage rate but also the total amount of interest paid over the life of the loan.

Your goal may be to reduce your monthly car payment, shorten the length of the loan, or minimize total interest. If you want to free up monthly cash flow, look for loans with lower payments. If you’re more focused on overall savings, aim for a shorter term and lower interest rate.

In some cases, you may be offered a longer term that reduces your monthly payments but increases the total cost over the life of the loan. This trade-off is worth considering if your financial situation has changed and you need immediate relief, but it could mean paying more over time.

Always factor in any fees, such as origination charges or title transfer costs, and make sure to review the disclosures before signing. Credit unions in particular may offer lower fees and more flexible underwriting, especially for members in good standing.

Paying Off Your Existing Car Loan

Once you’ve selected the best offer, your new lender will typically handle paying off your existing car loan directly. In some cases, you may need to send the payment yourself, but you’ll always be given a clear breakdown of the payoff amount and process.

After the original loan is paid off, that account will be closed. Be sure to verify that your current lender has received the payment and update any auto-pay settings or online banking connections tied to your old loan.

Also, cancel any linked payments from your checking account or credit card to avoid duplicate charges or missed payment alerts.

Transitioning to the New Loan

With your auto refinance in place, you’ll now begin repayment on the new loan. This includes a fresh schedule, a new interest rate, and possibly new terms altogether. Be sure to note the due date for your first car payment and enroll in automatic payments or account access if offered by your new lender.

Your new loan may come with a lower monthly payment, longer term, or shorter term—depending on your goals. Refinancing allows you to retool your auto debt in a way that reflects your current budget and financial priorities.

Some borrowers use refinancing as a way to consolidate debt. If you’re struggling with multiple high-interest payments—like on a personal loan or credit card—refinancing your car at a lower rate may free up monthly cash flow and help you rebalance your obligations.

How Refinancing Impacts Your Credit

While refinancing does trigger a credit check, the long-term effects on your credit can be neutral or even positive. By consistently making on-time payments on your new auto loan, you’ll strengthen your credit history and show future lenders you can manage debt responsibly.

Just remember that opening a new account and closing your old one may temporarily reduce the average age of your credit accounts—another minor trade-off to consider.

Used Cars and Refinancing Eligibility

If you’re refinancing a used car, know that some lenders may have restrictions based on age or mileage. Typically, older vehicles with high mileage may only qualify under specific loan products or require a higher loan-to-value ratio.

Still, many borrowers successfully refinance used cars—especially when transitioning from an inflated dealership loan to one with a lower interest rate. It’s all about matching your goals to the right type of loan and being realistic about the terms available for your vehicle.

When Refinancing Makes the Most Sense

The best time to refinance is when you can qualify for a lower rate than what you’re paying now. You may also benefit if:

  • You want to lower your monthly car payment due to budget changes
  • Interest rates have fallen and auto loan rates are more favorable
  • You have improved your credit and now qualify for a better interest rate
  • You want to shorten the repayment period or remove a co-signer

Refinancing is particularly effective when your personal finance goals include freeing up cash flow, reducing debt, or gaining flexibility on your vehicle loan.

Weighing the Pros and Cons

Before finalizing your refinance, weigh the benefits against potential drawbacks. While a lower interest rate or lower monthly payment sounds appealing, extending your repayment period could lead to more total interest over time.

Be wary of the cons of refinancing, such as loan fees, restarting the amortization clock, and potential issues with negative equity. Always review the fine print and calculate whether the refinance truly aligns with your financial priorities.

If you’re considering using the savings to pay down a credit card, personal loan, or boost your emergency fund, refinancing can also support your broader financial health beyond the auto space.

Woman standing at a table looking through paperwork

When you refinance a car, you’re doing more than swapping one loan for another. You’re resetting your current auto loan with terms that better match your financial situation, whether that means reduced payments, a shorter term, or a better overall fit.

As long as you understand your current loan, shop for the best rate, and complete the loan application process with preparation and care, refinancing can be a smart move that supports your long-term personal finance goals.

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Posted on by Seth Meyer
Home » Auto refinance

When is the Best Time to Refinance a Car?

When is the Best Time to Refinance a Car?

Timing matters when it comes to refinancing your current auto loan. A well-timed refinance can get you a lower interest rate, lower your monthly payments, or even help you pay off your vehicle sooner. But jumping in too early—or waiting too long—can lead to missed opportunities or loan denial. Knowing how your credit profile, market trends, and vehicle value affect your options can help you decide when refinancing makes the most sense.

What Is Auto Loan Refinancing?

Auto loan refinancing is the process of replacing your current vehicle loan with a new one—often through a different lender—under new, better terms. The new loan pays off the remaining loan balance on your existing loan and starts a fresh repayment schedule. Most borrowers refinance to secure lower auto loan rates, shorten their term, reduce monthly loan payments, or remove a co-signer.

This is often referred to as an auto loan refinance. It may be done with a new lender like a bank, credit union, online lender, or even your current lender, depending on where you can get the best deal. Some borrowers also explore a cash-out refinance, where they borrow more than the payoff amount and use the difference for other expenses.

You’ll still go through a loan application and credit approval process. Lenders will evaluate your creditworthiness, income, vehicle condition, and more. Understanding the full refinancing process is essential to make sure the new loan actually benefits your financial situation.

Signs It Might Be the Right Time to Refinance:

Several indicators suggest you might be in a good position to refinance your car loan. Here’s when it may make sense to consider it:

Your Credit Score Has Improved

A higher FICO score than when you first took out the loan can unlock significantly better loan offers. Many borrowers initially secure car loans with bad credit, then refinance after six to 12 months of on-time payments. If your score has gone from subprime to fair or good, you’re more likely to qualify for favorable terms and best rates.

Even borrowers with fair credit may benefit from a refinance loan if their score has meaningfully improved. And because your FICO score affects not just interest rates but eligibility, it’s one of the first things to consider when revisiting your loan.

Interest Rates Have Dropped

Auto loan refinance rates tend to follow national interest rate trends. If market rates are down or you originally financed through a dealership with a high markup, refinancing now could save you a significant amount in total interest. Even a small reduction in your APR can make a big difference over the course of the loan.

Be sure to compare refinance rates across several lenders to find the most competitive option.

You Want Lower Monthly Payments

Reducing your monthly financial obligations is a common goal for refinancing. Whether you’re adjusting to a change in income or just want more breathing room in your budget, refinancing can help you secure lower monthly payments—either by locking in a better interest rate or choosing a longer loan term.

A longer loan term spreads out your car payments over more months. Keep in mind that while this lowers your monthly bill, it may increase the total interest paid over the life of the loan.

Your Loan Terms Don’t Fit Your Needs

If your current loan doesn’t match your financial situation—maybe your loan payments are too high, your interest rate is fixed when variable would be better (or vice versa), or you want to remove a co-signer—it may be time to refinance.

This is also a good opportunity to consolidate multiple payments or avoid default if you’re struggling. Some people even consider switching to a personal loan if it better aligns with their overall debt structure.

You Didn’t Shop Around the First Time

If you took the first offer from a dealership or didn’t compare rates from multiple lenders, there’s a strong chance you’re overpaying. Many borrowers don’t realize they could have qualified for a better deal—especially if their credit wasn’t as bad as they thought.

Getting prequalified now gives you access to current offers without triggering a hard inquiry. It’s an easy way to see if there’s room to improve your terms.

When You Might Want to Wait

Refinancing doesn’t always work in your favor. These scenarios may be reasons to pause or reconsider.

You Just Bought the Car

Lenders usually require you to wait at least 60–90 days before refinancing. If you refinance too early, you might not qualify for the best offers or your vehicle might not yet have enough equity.

Waiting at least six months after you buy a new car allows your credit score to reflect consistent payments and gives your car time to stabilize in value—especially important with a used car, which can depreciate faster than expected.

Your Vehicle Is Too Old or Has High Mileage

Some lenders won’t refinance used cars that are over 10 years old or have more than 100,000 miles. If your car falls into this category, your options may be limited, and you could face a higher interest rate even with good credit.

Always check lender requirements for model year, mileage, and minimum loan amount.

There Are Prepayment Penalties or Origination Fees

Review your existing loan agreement for prepayment penalties or origination fees. These charges can eat into your savings and negate the benefits of refinancing. Some loans include fees for paying off the loan early, while others charge processing fees for the new loan itself.

Compare the total costs—fees plus interest—before moving forward with refinancing.

You’re Near the End of the Loan Term

If you’re almost done repaying your current loan, the savings from refinancing may be minimal. Most of the interest is front-loaded, so the later months go primarily toward the principal. By the time you’re in your final year, a refinance may not reduce your costs enough to justify the refinancing process.

money in hand

How to Prepare for an Auto Loan Refinance:

Being ready when the opportunity arises can help you lock in the best deal. Here are some steps to prepare:

Check Your Credit and Financial Profile

Start with your FICO score and credit report. Address any errors and work to improve your score if needed. Lenders also look at your financial situation overall, including your debt-to-income ratio and payment history.

If you’ve missed payments or have accounts in collections, you may need to wait and rebuild before qualifying for favorable terms.

Know Your Car’s Value and Payoff Amount

Find out your car’s trade-in value and compare it to your payoff amount. Being “right-side-up” (owing less than the car is worth) gives you better chances of approval. If your loan is underwater, you may need to wait or consider a cash-out strategy to restructure your debt.

Compare Lenders and Get Prequalified

Use online tools or contact lenders directly to compare loan offers. Getting prequalified doesn’t affect your credit and gives you a preview of your options.

Pay attention not just to the rate, but to loan term, origination fees, flexibility, and whether the lender offers mobile or online banking tools to help manage payments.

Use an Auto Loan Calculator

Run the numbers using a loan calculator. Compare your current loan payments to what you’d pay under a refinance. Look at total cost over time and monthly affordability—not just the interest rate.

This is especially helpful if you’re juggling other financial goals like building a savings account, contributing to retirement, or managing credit cards.

The best time to refinance a car comes down to the right combination of personal readiness and market conditions. If your financial situation has improved, interest rates have dropped, or your current lender isn’t offering competitive terms, refinancing can be a powerful tool to improve your overall personal finance strategy.

Make sure to weigh the costs—like hard inquiries, origination fees, or longer terms—against the benefits of lower monthly payments, reduced total interest, or better loan offers. And remember, refinancing is about more than just rate shopping; it’s about aligning your car loan with your broader goals, whether that’s flexibility, affordability, or long-term savings.

Take the time to compare options, understand the full refinancing process, and make sure the new loan supports your overall financial well-being. When done at the right time, refinancing can put you in the driver’s seat of your own financial journey.

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Posted on by Seth Meyer
Home » Auto refinance

 

Current Car Loan Rates

Navigating the world of auto financing can feel overwhelming, especially when interest rates seem to shift from month to month. Whether you’re shopping for a new vehicle, a certified pre-owned sedan, or looking to refinance an existing vehicle loan, understanding current car loan rates is essential for making smart financial decisions. These rates not only influence your loan payment but also the total cost of the vehicle purchase over time.

 

Understanding how lenders assess eligibility, how rates vary across different loan terms, and how to use tools like an auto loan calculator can help you secure the best possible deal—whether you’re financing your first vehicle or trading in for something new.

stick note with "refinance car" written on it. Current auto refinance loan rates.

 

What Are Car Loan Rates Right Now?

As of July 2025, current rates for car loans vary based on several key factors. Borrowers with excellent credit may see annual percentage rates as low as 6.6% on a new auto loan, while those with lower creditworthiness may face rates closer to 10% or higher. Used auto loans typically come with higher rates, often starting around 8.5% and climbing above 12% depending on the loan term and vehicle condition.

Auto loan rates are also shaped by the loan term itself. A shorter-term loan, such as 36 or 48 months, typically features a lower APR than longer terms like 72 or 84 months. Though monthly car payments are higher with shorter terms, the total interest paid over the life of the loan is significantly less.

Refinance loan options are available for borrowers who already have an auto loan and are seeking lower rates. Current refinance offers range from 7% to 10% depending on the borrower’s credit history, income, and the remaining balance on the existing loan.

How Credit Scores and Financial History Impact Rates

Creditworthiness is one of the most critical factors in determining your interest rate and loan eligibility. Lenders rely on your credit report and score to evaluate your risk level. A borrower with a high credit score and minimal debt is more likely to receive a favorable rate and broader payment options. Conversely, someone with recent missed payments, high credit card balances, or limited credit history may face higher rates and tighter terms.

In addition to your credit score, lenders often evaluate your checking account and savings account balances, monthly income, and debt-to-income ratio. These components influence both credit approval and the annual percentage rate you’re offered. Improving your credit by paying down personal loans or credit cards, avoiding late payments, and maintaining a low credit utilization ratio can lead to better auto loan rates and a smoother loan application process.

 

Getting Preapproved for a Car Loan

Before beginning the vehicle purchase process, it’s a good idea to get preapproved for financing. Getting preapproved gives you a clear understanding of what loan amount and terms you’re likely to qualify for, based on your current rates and financial profile. It also allows you to shop more confidently by establishing a firm budget that includes the purchase price, taxes, registration fees, and any optional warranties.

Most banks, credit unions, and online lenders offer preapproval tools through mobile banking or online banking platforms. These soft-credit inquiries won’t affect your credit score and can be completed in just a few minutes. Getting preapproved also strengthens your position at the dealership, allowing you to compare in-house offers with the rate you’ve already secured elsewhere.

Comparing New and Used Car Loan Rates

Interest rates are generally lower for new cars than for used ones. A new vehicle is typically easier to value, comes with a manufacturer warranty, and presents fewer risks to the lender. These factors contribute to lower annual percentage rates for new auto loans. By contrast, used vehicles—especially those several years old or with high mileage—can be more difficult to finance and often come with higher rates.

That said, a lower purchase price for a used car may result in a smaller overall loan amount. Used auto loans make sense when you’re trying to limit your financial exposure or keep car payments low. However, because of the higher rates and shorter warranties, it’s important to factor in total cost—not just the monthly loan payment—when deciding between a new or used car.

 

Understanding Loan Terms and Monthly Payments

Loan term length plays a major role in shaping your monthly car payments and total interest paid. While longer terms may make the vehicle seem more affordable month to month, they usually carry higher interest rates and increase the amount of interest you’ll pay over the life of the loan.

Let’s say you’re financing a $30,000 vehicle purchase. A 36-month loan might come with a rate of 6.3% and a higher monthly payment, but you’ll pay significantly less interest than you would with a 72-month loan at 7.9%. Many borrowers use an auto loan calculator to estimate monthly costs and total repayment amounts under different scenarios.

Lenders often set a minimum loan amount—usually between $5,000 and $7,500—but this can vary depending on the institution and vehicle type. Whether you’re financing a luxury SUV or a low-mileage compact car, choosing the shortest loan term you can comfortably afford is typically the most cost-effective strategy.

Where to Apply for an Auto Loan

There are several options for financing, each with its own pros and cons. Banks offer convenience, especially if you already have a checking account or savings account with them, but they may not always offer the most competitive auto loan rates. Credit unions tend to offer lower APRs and more personalized service, though you may need to meet eligibility requirements to join.

Online lenders can be appealing for their speed and digital tools, including auto loan calculators and instant loan application approvals. These platforms are especially useful for borrowers who prefer mobile banking or who want to compare offers quickly. Some lenders also integrate with car buying services, letting you browse vehicles and apply for financing all in one place.

Dealerships often provide financing as part of the sales process. While convenient, these loans can come with dealer markups unless they’re part of a manufacturer incentive. If you’re considering dealer financing, be sure to compare their offer with other lenders and evaluate the annual percentage rate, not just the monthly payment.

Special Loan Situations: Lease Buyouts and Refinancing

If you’re nearing the end of a car lease and want to keep the vehicle, a lease buyout loan allows you to purchase it for the agreed-upon residual value. Many lenders offer specific loan options for lease buyouts, which are often easier to qualify for since the vehicle’s condition and history are already known.

For borrowers with an existing loan, refinancing may be a smart move—especially if your credit score has improved or if current rates are lower than when you first financed the car. A refinance loan can lower your monthly payments, reduce your interest rate, or allow you to shorten or extend your loan term. Just be sure to factor in any fees or penalties that could offset the savings.

Trade-Ins, Down Payments, and Loan Structuring

Your trade-in value and down payment both reduce the total amount you need to finance. Putting more money down or trading in a vehicle with equity helps lower your loan-to-value ratio, which can improve your eligibility for a better rate. Some lenders require a minimum down payment, particularly for used vehicles or borrowers with lower credit scores.

Combining a high trade-in value with a strong credit profile and a sizable down payment puts you in a much stronger position to negotiate favorable terms. And if you’re buying through a car buying service or manufacturer partner, additional rebates or financing deals may apply.

Managing Your Loan After Purchase

After securing your loan, it’s important to stay organized. Use your online banking or mobile banking app to monitor your loan payment schedule, set up automatic payments, and track your remaining balance. Most lenders offer payment options such as biweekly schedules or extra principal payments, which can help reduce total interest paid.

If your circumstances change—whether through a job shift, unexpected expenses, or interest rate changes—many lenders allow you to explore alternate payment plans or deferments. Open communication is key, and maintaining a good relationship with your lender can keep your options flexible.

Curious about what your new auto payment could be? Check out your auto refinance options here.

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Home » Auto refinance

Quick Answer:

Most people assume there is a restriction on the number of times you can refinance a car, but there is no legal limit. You can refinance your vehicle as many times as you want. However, that doesn't mean that you should refinance your car every chance you get. There are other factors to consider, such as the impact on your credit score and the amount of money you'll save.

Refinancing a car means taking out a new loan to pay off the balance of your existing loan. This can be done for various reasons, such as getting a better interest rate or a longer term. While there are some advantages to refinancing, there are still some risks. For example, if you extend the duration of your current auto loan, you pay more interest in the long run. And if you refinance multiple times, you could end up with a negative equity in your car (meaning you owe more than the car is worth).

Let’s explore why refinancing a car might be a good idea and some of the top questions people have about refinancing multiple times.

Table of Contents:

Why Would You Refinance a Car?

Most people refinance their car when they need a lower monthly payment or want to lower their interest rate. When you refinance your car, you take out a new loan with a new lender to replace your old loan. Remember that auto loan refinancing does not eliminate your debt. Still, it may help you get a lower payment or save on interest. And with auto debt continuing to rise, according to the Federal Reserve Bank of New York, it’s no wonder folks are trying to find ways to lower their payments.

Man leaning out of the driver side window with his arms crossed on top of the driver's side door. The text lists reasons why car owners would refinance, which is also outlined in the following paragraph

Let’s take a closer look at these three reasons to refinance a car.

  1. You can no longer afford your monthly payments. If you struggle to make your monthly car payments, refinancing may be a good option. By refinancing your car, you may be able to lower your monthly payments and free up some extra cash each month.
  2. You want to lower your interest rate. If you qualify for a lower interest rate, refinancing may help you save money on interest over the life of your loan. A lower interest rate could also help you pay off your debt sooner.
  3. You want to change the terms of your loan. If you originally agreed to a 60-month loan but now want to pay off your debt sooner, refinancing for a 48-month or 36-month loan could be a good option. Or, if you originally agreed to a 36-month loan but now want to lower your monthly payments, refinancing for a 60-month loan could be a good option for you.
Male hands with one holding a pen while typing on a calculator, while the other is on the keyboard of a laptop

Why Refinance a Car Again?

If you’ve already refinanced your car once, you may wonder if refinancing it again makes financial sense. The answer to this question depends on a few factors, such as your current interest rate, the terms of your new loan, and your financial goals.

  • High-Interest Rates – If you’re currently paying a high-interest rate, exploring the refinancing process may help you save money on interest over the life of your loan. For example, let’s say you have a $20,000 loan with an interest rate of 15 percent. Over 60 months, you would end up paying $6,000 in interest. However, if you could refinance for a lower interest rate of 10 percent, you would only end up paying $4,000 in interest, a savings of $2,000.
  • Change of Loan Terms – This is no different than the first time you refinanced. If you want to change the terms of your loan, such as the length of the loan or the monthly payments, refinancing may be a good option for you.
  • Financial Goals – If you have other financial goals, such as saving for a down payment on a house or taking a much-needed vacation, refinancing may help you free up some extra cash each month. For example, let’s say you have a $15,000 loan with an interest rate of 10 percent and monthly payments of $350. If you refinanced for a 60-month loan with an interest rate of 15 percent, your monthly payments would decrease to $308. However, you would end up paying $3,000 more in interest over the life of the loan, but the trade-off could be worth it if you need the extra cash each month to reach your financial goals.

Top Questions About Refinancing Multiple Times

If you’re considering refinancing your car for a second time — or third, or fourth, or… — you probably have questions about the process. Here are some of the top questions people have about refinancing multiple times.

How soon can you refinance a car?

There is no legal time limit on how soon you can refinance a car after purchase or a previous refinance. Still, some technical and administrative considerations might make it more challenging to do so.

Photo of a calculator in the foreground and a faded car in the background. Text lists things to take into consideration when financing which is also spelled out in the article below
  • Lenders’ Policies – The first consideration is the policy of the lender you used to finance your car. Some lenders have strict policies about refinancing and may not allow it within the first year or two of the original loan. In addition, if you try to refinance with the same lender, they may require you to pay a penalty before approving the new loan. This might make it more complicated and expensive to refinance soon after getting a car loan. Having said that, if you’re in a period where lenders are worried about auto loan default rates (like during an economic recession), they may be more willing to work with you on refinancing.
  • Vehicle Title Transfer – Another consideration is the transfer of the vehicle title. In most states, the title must be transferred from the old lender to the new one. This process can take two to three months, so it may not be possible even if you want to refinance quickly.
  • Refinancing and Your Credit Score – Finally, keep in mind that refinancing can temporarily ding your credit score. So if you’ve recently refinanced, you may not have the best credit and not qualify for great loan options again. That said, if you’ve been making your payments on time and have improved your credit, you may get a better loan this time.

Does refinancing a car mean starting over?

Rather than considering it as starting over, it’s more helpful to consider it a fresh start. When you refinance, you’re taking out a new loan and using the same car as collateral. The new loan amount may have different terms from the original loan, such as a lower interest rate, different monthly payments, or a different loan length.

Can I refinance if I have a low credit score?

While it’s possible to refinance with a low credit score, it may be challenging to get approved for a new loan. Lenders will typically look at your credit history, including your FICO score, and consider factors like the number of recent credit inquiries made by the credit bureaus, such as Experian, when deciding whether or not to approve your loan. If your credit score is low, it’s less likely you’ll qualify for favorable loan terms, like a low-interest rate, but refinancing can still be an option.

A generic credit score sheet with a pencil across the document and a pair of glasses sitting at the top

One way to improve your chances of getting an auto loan refinance with a low credit score is to have a co-borrower. A co-borrower is a joint applicant who shares ownership of the asset and is equally responsible for loan payments, which can help improve your eligibility and possibly allow you to qualify for better loan terms. However, it’s important that the co-borrower understands their role and is comfortable with the commitment.

Is it wise to refinance multiple times?

If refinancing means saving money or making your financial situation more comfortable, then it is smart to do it multiple times. However, if refinancing will only extend the life of your loan without providing any real benefit, you may want to avoid it. Also, consider the refinancing costs, such as loan application and title transfer fees, which can add up if you do it multiple times.

Does refinancing a car hurt your credit?

Refinancing your car will not permanently hurt your credit. Instead, it temporarily lowers your credit score because it triggers a hard inquiry on your credit report. However, your score may rebound after a few months if you make all your payments on time. For this reason, many people find that refinancing actually helps improve their credit score.

Does refinancing give you more money?

This depends on your refinancing terms, goals, and whether you’re searching for “more money” immediately, every month, or throughout your loan.

  • More Money Monthly – Lowering your monthly payments increases your immediate disposable income. But while it may seem like you have more money, you’re likely extending the life of your loan and paying more interest in the long run. That means that overall, you come out with less money long-term.
  • More Money Saved – If you’re looking to save money over the long haul, a more aggressive refinancing strategy with a shorter term and/or higher monthly payments may do it. For example, if you refinance from a 60-month loan to a 48-month loan, you may pay more each month which reduces your disposable income. However, you’ll save on interest and be debt-free sooner.

Can you refinance a car loan with the same bank?

Technically, this is possible. However, the same bank, credit union, or other lenders may not offer you the best repayment terms. Therefore, comparing rates and terms from multiple lenders is always a good idea before deciding on a loan.

When should you not refinance a car loan?

While there are many personal finance advantages and incentives to refinancing a car loan, there are also some situations where it may not be the best idea or you simply can’t due to rules and regulations with lenders.

  • Car Over 10 Years Old – Cars over 10 years old are generally refused by most lenders for refinancing. They typically only refinance loans for newer cars because they view them as having a greater resale value. As such, they see them as a less risky investment and are more likely to approve a loan for one of these cars. If your car is an older model, you might get approved for a refinance loan, but it will likely come with a higher interest rate. Alternatives to refinancing could entail taking out a personal loan or using the car as a trade-in when purchasing a new vehicle.
  • You’re Upside Down on Your Loan – If you owe more on your car loan than your car is currently worth, you may have difficulty refinancing your loan. This is because lenders typically only refinance loans for borrowers with equity in their vehicle — meaning the car’s value is greater than the remaining loan balance. If you’re upside down on your loan, you may be able to roll the negative equity into a new auto loan, but this will likely extend the length of your loan and increase your monthly loan payments. It also puts you at risk of once again being upside down on your loan in the future.
  • Your Loan Has Stiff Repayment Penalties – Before refinancing your car loan, check the terms of your current loan agreement with your current lender. Some lenders charge penalties — known as prepayment penalties — for borrowers who pay off their loans early. These penalties can add substantial amounts to the cost of refinancing your loan, so it’s essential to be aware of them before making a decision.
  • Refinancing Is Not Worth It – There are certain periods when it’s not financially advantageous to refinance your car loan. For example, if there are less than 12 months on your loan, refinancing costs may outweigh savings. Similarly, if interest rates have increased since you initially took out your loan, you may be unable to secure a lower rate. In these cases, it’s usually best to stick with your current loan.
  • You Have a Low Credit Score – Borrowers with a lower credit score may have difficulty qualifying for auto refinancing. Lenders typically only approve borrowers with high or good credit for refinancing products. If you have a low credit score, you may still be able to get approved for a loan, but it will surely come with a higher interest rate. This often negates the savings from refinancing in the first place, so it’s usually not worth it.

How do I know if refinancing is right for me?

The best way to decide if refinancing is right for you is to compare the terms of your current loan with the terms of potential new loans. Look at things like the interest rate, monthly payments, and length of the loan. It might be worth refinancing if you can get a lower interest rate or better terms. Consider all the costs involved in getting a new loan, such as application and title transfer fees. You don’t want to pay more in the long run just because you refinanced. Using a refinance car loan calculator is an excellent place to start your research.

The Bottom Line on Refinancing More Than Once

If you’re considering refinancing your car, there’s no limit to how many times you can do it. However, keep in mind the lender’s policy on refinancing, the administrative process of title transfer, and the impact on your credit score. Refinancing can be a great way to save money on interest or change the terms of your loan, but make sure to consider all the factors before making a decision.

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Home » Auto refinance

Car and home purchases are typically the largest purchases that most people will ever make. Because of the cost of the average home or new car, most consumers take out a loan to cover all or part of the cost. 

Although both types of loans can take a long time to pay off, car loan terms can range anywhere between 24 and 72 months — sometimes longer. These payments can be a drain on your finances.

If you are currently paying off an auto loan, car loan refinancing can help you save money over the length of your repayment period, in the form of lower monthly payments or both. How much money you save depends on several factors including your goals, current interest rates and your creditworthiness.

stick note with "refinance car" written on it

What Is Auto Refinancing?

Auto refinancing is the process of changing the terms of your current car loan. If your refinancing application is approved, your lender issues you a new loan that replaces the one you had. The differences are in the loan terms. 

For example, you could refinance at a time when interest rates are lower than what they were when you took out your original loan, or you could qualify for a lower interest rate based on an improvement in your financial situation or credit score. 

Over time, you’ll save money as you repay your balance at the lower rate. You might also be able to shorten or lengthen the amount of time over which you’ll need to make payments.

person using a calculator and notepad

Understanding Your Savings

When considering a car loan refinance, it’s important to determine what your goals are. If you are looking to reduce the amount of money you pay over the length of your loan, you’ll either want to reduce the interest rate that you were locked into when you first entered into the auto loan financing process, reduce the number of payments left on your loan (even if it means making higher monthly payments) or both.

On the other hand, if you are dealing with financial issues and need to free up some cash every month, you might want to refinance so that the length of your auto financing agreement is longer but with smaller payments each month.

If you don’t secure an interest deduction with this type of auto loan refinance, you might pay more over time than you would have with your original financing deal. However, since your payments are smaller, you’ll have more cash each month.

credit report with a 672 credit score

Factors That Influence Savings

The amount of money that you can save depends on multiple factors, including:

  1. Current interest rates: Current interest rates have a huge impact on the cost of your loan. If interest rates were high at the time that you signed your original contract, but have gone down since then, refinancing could save you money. However, if interest rates have gone up, it could end up costing you more money to refinance.
  1. Your financial profile: A financial profile includes several factors that affect the loan rate and terms that a lender offers you. Credit scores are a large part of this. If your credit score has improved since you were approved for your current loan, you might find that refinancing now could get you better terms. 

And although your credit does have an impact on loan approval and terms, it isn’t the only factor lenders take into consideration. Your debt-to-income ratio (DTI) and loan-to-value ratio (LTV) on your current car loan are also factored in during the approval process.

  1. Loan length: In many cases, the fewer payments you make, the more money you save over time. However, if you are refinancing to free up cash for your monthly budget, a longer loan term might provide you with lower monthly payments. 
  1. Lender fees: Lenders often charge fees when you apply for a loan, and sometimes your current lender will charge prepayment fees if you pay off your loan early. These fees vary, but you’ll want to check with the lenders and factor them in when you are calculating the cost of refinancing your vehicle.
  1. Car condition and mileage: Your car’s current condition and mileage also factor in when applying for an auto refinance. The better condition your car is in and the lower the mileage, the more likely you are to get better loan terms.

To get an idea of what you might be able to save, try using a refinance car loan calculator to determine what your savings and monthly payments might be. Be prepared to provide the balance left on your loan when you use one of these calculators.

Shop Around to Find the Best Auto Loan

Everyone is different, of course, so it’s worth it to do some research, run some numbers and check your options for refinancing. If you decide to apply for refinancing, make sure you shop around for lenders to find the best interest rate and loan terms. You might be able to save money long-term while also reducing your ongoing expenses.  

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Home » Auto refinance

Car loan refinancing can be a great way to reduce your monthly bills and save money as you pay off your car. A refinance loan is still a loan, however, so you’ll need to meet your lender’s requirements before you can be approved. 

Your chances of approval, as well as getting the most favorable loan terms, depend on several factors, but your credit score and history play a big role. 

Fortunately, there are many things that you can do to improve your credit before applying for auto refinancing. These include reviewing your credit reports and challenging errors, reducing your spending, keeping accounts open and not applying for new credit right before submitting your loan application.

credit report dispute form

1. Check Your Credit Reports

In a recent study on the accuracy of credit reports, one-third of study participants found errors on their reports. 

These errors could result in a denial of your auto financing loan application or an approval with less favorable terms, such as a higher interest rate. (This higher rate can cost you more money over time, and you can see how much by using a refinance car loan calculator.)

Fortunately, you have the right to check your credit reports and to dispute inaccurate information. All consumers are entitled to free annual credit reports and, in many cases, can request another free report under certain circumstances. 

It’s important to check your reports from all three major credit bureaus — TransUnion, Experian, Equifax — regularly, and particularly before you apply for car loan refinancing.

If you find errors, file disputes with the credit bureaus. Recheck your reports to confirm that your disputes were effective and that your credit history is accurate before beginning the refinancing process. Pay particular attention to the age of negative information on your credit reports. 

If the information is more than seven years old, you might be able to have it removed. Exceptions to the seven-year rule include bankruptcies, which can remain on your reports for up to 10 years, and judgments, which, as long as they are unpaid, can stay on your report until the statute of limitations expires.

On the other hand, if you find that the negative information on your reports is accurate, there might be things you can do to address the situation. If you can, pay off your balances. 

These accounts will update within a month or so, which might improve your credit score. You might also be able to work with creditors to settle your balances, which reduces your debt load but might negatively impact your credit score in other ways.

person using scissors to cut a credit card in half

2. Don’t Close Accounts

This can be a tricky one, particularly if you are very careful with your spending. Although it might seem reasonable to want to close credit accounts that you are no longer using, doing so can have a negative impact on your credit score. 

Credit scoring models consider several factors, including the age of your accounts as well as the amount of available credit that you are not using. Open accounts with low or no balances positively impact your credit. In addition, older accounts also impact your credit positively, as they show that you’ve been able to maintain an account for an extended period of time. 

3. Don’t Make Any Large Purchases

Because your available credit has a significant impact on your credit score, it is wise to forgo other large purchases before refinancing your car — unless, of course, you plan to pay for the purchase in cash. 

Taking out new or refi loans, or running up a large credit card bill, will affect your credit and reduce your chances of approval or getting a good rate.

4. Don’t Apply for Credit

Credit applications can result in what is known as a “hard pull” on your credit reports. This means that your credit history will show that you made a credit application. This can reduce your credit score. 

If auto loan refinancing is in your near future, refrain from applying for other credit products now. Even if you easily qualify for loans or credit cards, the inquiries, plus the opening of new accounts, can have a negative impact on your creditworthiness.

Be aware, however, that not all credit checks result in a hard pull or hard inquiry on your report. Some checks, also called “soft pulls,” are performed by utility companies, employers or banks that are considering you for a preapproval offer. 

These do not impact your credit score. If you are unsure about whether a business or organization is performing a hard or soft inquiry, ask before you consent to a credit check.

application form for a credit card

Take Steps to Improve Your Credit Today

Getting your credit in order before applying for a refinance loan doesn’t have to be incredibly complicated, but it can take time  — particularly if you must dispute information in your report or wait for your information to be updated. Planning ahead can be your best option for a successful auto loan refinance.

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Home » Auto refinance

If your car payment is high or you just want to take advantage of a better interest rate, the thought of refinancing your auto loan might have crossed your mind. When your credit score is less than perfect, refinancing might seem out of reach, but this is not always the case. 

Your credit score is important when refinancing your auto loan, but it’s not the only factor. Lenders look at other aspects which could improve your chances of getting approved.

How Credit Scores Affect a Car Loan

Although credit isn’t the only factor that impacts your ability to get an auto loan, it still carries a lot of weight. Lenders use your credit score to determine the likelihood that you’ll repay the loan with no issues. Your credit score is a three-digit number used to quickly communicate whether you’d be a risky borrower to lend money to. 

The higher your score, this demonstrates that you’d paid off debt in the past and continue to pay your other current bills on time. Meanwhile, a lower credit score can tell just the opposite. Credit scores typically range from 300 to 850, and according to Equifax, anything above 670 is considered “good” and a 740 to 799 credit score is “excellent.” 

Even if your credit score is lower than 670, you could still be approved for an auto loan. The lender might just charge you a higher interest rate since you’d be considered a more risky borrower. 

Both your FICO® score and VantageScore are based on a range of factors including:

  • The total amount of debt you owe
  • Payment history
  • Length of credit history
  • New credit you apply for (hard credit inquiries)
  • Type of credit accounts you currently have (account mix)

All of these factors hold some weight when the credit bureaus calculate your score, which gives lenders a good idea of if and how they should offer a loan. From a borrower’s standpoint, a lower credit score means you might not be approved for the loan terms you want, or you might pay more in total loan costs.

What Is the Minimum Score Needed to Refinance a Car?

There are hundreds of lenders that offer auto loans and auto refinancing. The list ranges from banks and credit unions to online lenders, dealerships, and more. Each lender has its own guidelines including the minimum credit score they accept. 

This is why there’s no universal minimum credit score requirement to refinance an auto loan. Some lenders even focus on working with subprime borrowers who have a 600 credit score or lower. Meanwhile, a local credit union might not offer an auto loan or auto refinance to someone with a score that’s less than 660.

The good news is that there will likely be a lender who will be willing to offer you a loan no matter what your credit score is. Still, this doesn’t mean you should accept the loan – especially if the terms are not good or helpful to your situation. 

According to RateGenius’ 2022 State of Auto Refinance Report, the average credit score of auto refinance borrowers the previous year was 670. However, this doesn’t mean borrowers who had a credit score below 670 weren’t approved to refinance.

Although credit scores are one concern, it’s also important to make sure that refinancing your auto loan makes sense for you financially. And even with an excellent credit score, there is no guarantee you’ll be approved to refinance your auto loan since lenders look at other factors as well. 

Aside From Credit, What Else Do Lenders Look At?

Lenders look at more than just your credit score to determine if you qualify for a loan or not. Here are a few other important factors to be mindful of.

Debt-to-income (DTI) ratio (DTI)

Your DTI is a simple calculation that determines how much of your income is going toward current debt payments. DTI is expressed as a percentage and the formula is your total minimum monthly debt payments divided by your gross monthly income (before taxes). 

Total debt includes all minimum payments for current loans and credit accounts such as student loans, personal loans, auto loans, mortgages, credit cards and so on. So, if you add up all your minimum debt payments and they total $1,000 for the month and your income is $5,000, your DTI calculation would be:

$1,000 / $5,000 = 0.20 = 20%

The lower your debt-to-income ratio, the better because it tells lenders you can afford to pay for your auto loan along with other current debt. Most lenders prefer to see a DTI below 36% but some mortgage lenders will allow up to 43% to 45%. 

Loan-to-value (LTV) ratio

Your LTV ratio is used to evaluate the value of your vehicle. This is done during the application process by comparing the amount of your existing auto loan balance to the value of the vehicle. Since cars depreciate over time, the value of your vehicle will change and likely decrease as the years go by.

Since auto loans are secured, meaning a lender can repossess the vehicle due to nonpayment, your LTV ratio lets lenders know if they can cover the loss should they have to sell your vehicle to pay back the loan. 

This means, lenders prefer cars that are newer and have a higher value than the loan amount. There is no set LTV since different lenders have their own guidelines. 

Income

Your income is part of your DTI, but in addition to credit, lenders will evaluate your income to make sure you can financially afford to pay back your auto loan. 

When you apply to refinance your auto loan, you’ll need to provide proof of employment, including check stubs or even a tax return if you’re self-employed. You can submit proof for all forms of monthly income you receive including salary and tips, social security, or rental income. 

Ideally, you’ll want a higher income with less debt to maintain a low debt-to-income ratio. 

Your current vehicle’s details

When you apply for an auto loan or auto loan refinance, you’ll need to provide certain details about your vehicle including the year and model, along with the mileage and current auto loan balance. 

Lenders set their own maximum age and mileage requirements for auto loans, and this information will also help determine your LTV.

If your vehicle is older or has a lot of miles, a lender could deny you an auto loan refinance. However, you might notice the recurring theme that not all lenders are the same and another one might approve you with the same vehicle age and mileage. So don’t let the fact that you don’t have a new car keep you from applying for a refinance.

As you can see, a good credit score does not guarantee approval for an auto loan just as a lower credit score doesn’t guarantee a denied application. Weaknesses in any area discussed above can impact your approval and the auto loan rates you’ll get. 

How to Increase Your Chances of Getting Approved to Refinance an Auto Loan

If you’re nervous about getting approved for an auto refinance loan, don’t worry. There are plenty of things you can do to strengthen your financial profile and reduce the risk to a lender. Remember that you don’t need a perfect financial situation to get approved, but making some of these improvements can help.

Improve your credit score

A higher credit score could help you save money on your auto loan if you can lock in a lower interest rate. To increase your credit score, start by reviewing your credit report to pinpoint areas for improvement. Make sure you’re paying bills on time and limit your hard inquiries. If you have credit cards with low or no balance, keep them open to extend your credit history length. 

You can also use tools like Experian Boost to increase your score since it includes reporting for your phone and utility bills. Applying with a cosigner who has good credit can also give you a boost and improve your chances of getting approved. 

Lower outstanding debt

Lowering your debt before applying for an auto loan has so many benefits. It can help increase your credit score, lower your DTI, and provide more peace of mind and cash flow. Choose one debt to focus on at a time and consider starting with the one that has the highest interest rate. 

Add debt payments to your budget and set up autopay. Then, put any extra money toward the account to chip away at it faster.

Make a larger down payment

Making a larger down payment will lower your loan amount and total loan costs. When applying for an auto refinance loan, you can also choose to make a down payment which can help lower your LTV ratio. 

Even if you’re upside down on your car loan (meaning you owe more than the vehicle is worth), you could still get approved to refinance with a new loan. Making a down payment can only improve your chances for approval and make lenders feel that their risk is even lower. 

The same goes for making extra car loan payments when possible. If you know you plan to refinance in the future, it could make sense to lower your loan amount by making extra payments.

Increase your income

Increasing your income is another way to lower your LTV ratio. See if you can pick up extra hours at work or apply for a promotion. If you have time in your schedule, apply for a part-time job or consider a temporary side hustle that can raise your income. Just remember, you’ll need to show lenders that your income is consistent and validate it with pay stubs or a bank statement. 

Shop around

You probably shop around before making a purchase more than you think. Since a car is a very costly purchase, you can benefit from shopping around for a new lender to compare rates and loan offers. Use the information you find to ensure you’re getting the best loan terms for your needs.

Don’t Give Up On Auto Loan Refinancing Due to “Bad Credit”

Refinancing an auto loan with a lower credit score is possible. There are so many lenders and each one sets its own guidelines and requirements for eligibility. Ultimately, your credit score will most likely not count you out for getting a new auto loan since there are other factors lenders look at. 

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* This value was calculated by using the average monthly payment savings for our customers from [payment_savings_range].

** For well-qualified borrowers.  Rates are subject to change and may not be available in all states. Customers must meet income qualifications, debt to income requirements and other vehicle restrictions such as loan to value, age, and mileage.

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