Should I Refinance My Car Loan?
July 10, 2025 • 6 mins
Article Contents
Refinancing your car loan could save you money, but it isn’t right for everyone. It’s important to weigh the benefits and potential downsides before making your move.
How does refinancing a car work?
Refinancing your auto loan can save you money. It can reduce your car loan’s interest rate, lower your monthly car payments, and reduce the total amount that you pay for your vehicle.
When you refinance, you get a new car loan with a lower interest rate than your current loan. Some lenders who offer refinance loans charge an origination fee upfront, so make sure to ask about any fees.
Your new loan has its own terms. If you had 24 months remaining on your original loan, you could get a new 24-month loan with a lower interest rate. Or you could get a 36-month loan, which would reduce your monthly payments even more. It takes longer to pay off a 36-month loan, of course, so you’d pay more interest over the course of the loan.
Once you’re approved for the refinance loan, your new lender will pay off your existing auto loan. (Some lenders charge you a prepayment penalty for paying off your loan early, so read your current loan contract.) You’ll then start making monthly payments to your new lender for your new loan.
When to consider refinancing
You might want to refinance your car loan if:
- Your credit score has improved.
You may qualify for better terms than you have now.
- You want lower car payments.
Refinancing can lower your interest rate and thus your monthly car payment. (Getting a longer loan term will also lower your payments.)
- You want to pay your loan off faster.
You can get a new loan with a shorter term. (Just remember that you’ll have higher monthly payments.)
- You’re unhappy with your current lender.
If you aren’t getting good service, you can refinance and switch lenders.
- You’d like to remove your co-signer from the loan.
If you bought your car in college and a parent co-signed, you might be ready to take on the loan yourself. Refinancing allows you to do that. (You can also add a co-signer when you refinance.)
- You need some cash.
If you have a lot of equity in your car, some lenders offer cash-out refinance loans. You take out a loan that’s larger than your original loan and receive the difference in cash.
It may not make sense to refinance if your current lender charges a prepayment penalty that exceeds the amount you’d save by refinancing.
It might be difficult to qualify for a refinance loan if your car is older (10 years or more), if it’s logged lots of miles (100,000 or more), or if you owe more on your current loan than your car is worth.
Also, you might want to avoid refinancing if you’re currently shopping for another type of loan, such as a mortgage loan. Hard inquiries on your credit report for various types of loans could harm your credit score.
How do I refinance my car?
If you’ve decided that refinancing is the right move, take these steps:
- Check your credit score at AnnualCreditReport.com. Has your score improved since you took out your car loan? If so, refinancing may get you a better interest rate.
- Gather the documents you need to apply for a loan. That usually includes your driver’s license, your social security number, vehicle information (such as your car’s VIN and current mileage), your current loan contract, proof of income, and proof of auto insurance.
- Shop around for a refinance loan. Contact various lenders to see some options.
- Get pre-approved. Each lender will verify your income, confirm your auto insurance, and appraise your vehicle. They will also conduct a hard credit check, but don’t be too concerned about that harming your credit rating. When you apply for multiple loans within 45 days, those inquiries are usually combined by the credit agencies.
- Review your loan offers. For each loan, look at the interest rate, loan term, monthly payment, and any fees and penalties.
- Make a decision and submit your application to the lender, who will create a new loan that includes the terms you agreed upon.
- Review and sign your refinance loan contract. Be sure to read it — including the fine print — before signing.
Once you’ve signed the loan paperwork, your new loan will go into effect. Your lender will pay off your current car loan, and you’ll start making monthly payments to your new lender.
Car payments on the rise
Monthly auto loan payments for new vehicles have risen by 30% since 2019, outpacing inflation generally. Refinancing is a great way to lower your car payments.
Common questions about refinancing a car
How soon can I refinance my car?
You buy a new car, then a few months later, you notice that interest rates have fallen, and lenders are now offering better deals. Can you refinance to lower your car payment?
You can try, although refinancing shortly after buying a vehicle can be tricky.
Some lenders won’t refinance a car within the first few months of the purchase. And even when they do, you’ll need to confirm that the car title has been transferred to your current lender, which generally takes two to three months.
It’s best to wait until at least six months after buying your vehicle to refinance.
Can I refinance with the same lender?
Yes, you can refinance your loan with any lender you like, i.e. your current lender or a different one. Some lenders don’t offer refinance loans, however, or offer such loans only for specific types of vehicles.
If your current lender does refinance, tell them you’d like better loan terms and ask about options. You could be in luck, because some financial institutions give better rates to current customers. If your credit score is higher than it was when you purchased your car, be sure to tell your lender.
Even if you like your current lender, it’s a good idea to shop around and compare loans so you can make the best decision. Other lenders may offer better rates and terms.
How many times can I refinance my car?
You can refinance your car as many times as you like — but should you?
Whenever you apply for a loan (including a refinance loan), you’ll get a hard inquiry on your credit report. That will temporarily lower your credit score just a bit — 5 points or less. That doesn’t mean you shouldn’t refinance for a second or third time. The money you save with your refinance loan may be worth it.
How can I find a lender I can trust?
It’s best to work with financial institutions you know. If you’d like to work with a new lender, check with the Better Business Bureau and your state attorney general’s office to see if any complaints have been made against the lender.
Also, be aware of the signs of an auto refinance scam. Avoid doing business with any lender who:
- asks you to pay them first. Some scammers try to charge you an upfront “appraisal fee,” “enrollment fee,” or other advance payment. If this happens, walk away.
- charges you to work on the loan. Legitimate lenders don’t do this.
- tells you to stop making your car payments immediately. Some scam lenders will ask you to start making monthly payments to them right away and then promise to pay your existing lender.
- tries to sell you add-ons like gap insurance or extended service warranties.
- produces a loan contract with a different interest than the one they promised. Read the contract thoroughly, so you can catch any discrepancies.
- pressures you to sign. This may signal a scam.
What can I do if I don’t qualify for an auto refinance loan?
If you aren’t able to refinance, ask your lender for a loan modification. They may be able to lengthen your repayment term, for example, to lower your monthly car payment.
Switch to Save at Patelco
Use Patelco’s auto loan refinance calculator to see how much you can save by refinancing your car loan with Patelco.
Sources:
Experian, “How to Refinance an Auto Loan in 5 Steps,” February 28, 2025.
Car and Driver, “Does Refinancing Start Your Loan Over? Everything You Need to Know, July 17, 2023.
Experian, “What Is Cash-Out Auto Refinancing and How Does It Work?” March 12, 2025.
Equifax, “Should I Refinance My Car?” accessed June 23, 2025.
Car and Driver, “How Does Car Refinancing Work?” December 15, 2022.
Car and Driver, “What Do You Need to Refinance Your Car?” July 19, 2023.
Experian, “How Soon Can You Refinance a Car Loan After Purchase?” December 13, 2024.
Experian, “Can You Refinance a Car Loan With the Same Lender?” October 11, 2024.
Experian, “How Many Times Can You Refinance a Car Loan?” March 31, 2025.
Bankrate, “TransUnion report highlights affordability challenges in the auto market,” April 21, 2025.
This article was created in accordance with the Patelco editorial policy.
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