If you’ve considered refinancing your car, know that it might be possible to refinance as soon as a few months after your original purchase, though your terms could be better if you wait six months to a year. Don’t wait too long, though. If you are too far into your repayment term, lenders might be unwilling to approve your application.

Refinancing a Car Loan

Refinancing a car loan involves getting approved for a new loan that will:

1. Pay off your current auto loan.
2. Allow you to pay off your vehicle under more favorable terms.

Refinancing will require you to apply for a refinance loan, a process similar to auto loan financing for a new car.

Refinancing in the First Months of Your Loan

If you recently purchased a car and aren’t happy with your current loan terms, refinancing might be a possibility. Still, there are several factors that could hamper your ability to win approval for a refinance or to get the terms you are looking for:

1. In cases where you have very recently purchased your car (such as in the past month), your car title or registration might not yet be processed. A lender will either need the title (if you are in one of the states that allows car owners to hold their titles before loan payoff) or registration to begin the refinancing process. Because of this, there might be a delay in being able to refinance.
2. Taking out a car loan often lowers your credit score. This is due to two factors. First, the hard pull on your credit report results in a credit inquiry being reported to the credit bureaus. This can take a few points off your score. Your loan also contributes to your debt load, which, depending on how much debt you have, can also lower your score.
3. Some lenders have a policy against refinancing a new loan. They’ll want to see at least six months of payments before considering your refi application.

Still, everyone’s situation is unique and you could be able to get approved for refinancing in the earliest months of your loan.

When Is the Right Time to Refinance a Car Loan?

Loans that are six to 18 months old are often in the “sweet spot” for refinancing. There are two primary reasons for this:

• No administrative or credit issues: By this time, your paperwork has been sorted out and your credit score has likely rebounded.
• Loan balance is still high: A higher loan balance makes the refinance profitable for the lender.
• It’s less likely that you are upside down on your car loan at this point. Being upside down on your car loan means that you owe more to your lender than your car is worth. Many lenders won’t consider refinancing in this situation.

There are other factors to consider, however. If interest rates are currently high, refinancing is likely not a good idea. Pay attention to economic indicators before seeking a refi loan.

Another thing to consider is your use of credit and financial situation. If you have recently financed a large purchase, you might find it hard to get attractive terms on a refinance. Use our refinance car loan calculator to determine how much you’ll pay each month and over time.

Don’t Wait Too Long to Refinance Your Car Loan

Unfortunately, it’s also possible to wait too long to refinance your auto loan. Here are some scenarios in which this could be the case:

1. Your car has a lot of miles on it: Cars with a lot of mileage are worth less, which can make refinancing more of a challenge.
2. You are close to paying off your loan: Lenders want there to be at least a few thousand dollars left on your loan balance before agreeing to issue a refinance loan.
3. You are already in financial trouble: Refinancing a car loan can be a decent strategy if you need to lower your monthly payments, you still have good credit and a verifiable income. If your credit has already been damaged or you’ve lost your job, you might still qualify for refinancing, but the process might take a bit longer.

It pays to be a savvy consumer, particularly when it comes to large purchases. If you believe that you might be able to get a better deal on your auto loan through refinancing, take the time to do some research and then make sure to shop around to find the best loan for you.