Refinancing a car loan means taking out a new loan to pay off your existing one — typically to get a lower interest rate, lower monthly payment, or both. When done at the right time, it can save hundreds or thousands of dollars without requiring you to buy a new car.
5 Signs It’s Time to Refinance
1. Your credit score has improved since you took out the loan. This is the most common reason to refinance — and often the most rewarding. If you had fair credit when you bought the car but have since built it up, you likely qualify for a meaningfully lower rate. Moving from a 14% rate (fair credit) to a 7% rate (good credit) on a $20,000 balance with 48 months remaining saves roughly $3,600 in interest.
2. Market interest rates have dropped. Auto loan rates move with the broader interest rate environment. If rates have fallen since you financed, shopping around may reveal better deals even if your credit score hasn’t changed.
3. You’re struggling with your monthly payment. Refinancing into a longer term (e.g., from 48 to 60 months) lowers your monthly payment, even if the rate stays similar. The tradeoff: you’ll pay more total interest. But if it keeps you current on payments, it’s often the right move.
4. You financed through the dealership at a high rate. Dealer-arranged financing is often marked up above the rate you’d actually qualify for — sometimes by 2–3 percentage points. This is legal but common. Banks and credit unions frequently offer better rates, especially to borrowers with good credit.
5. You didn’t shop rates when you originally bought. If you accepted the first financing offer without comparing, there’s a good chance you can do better now.
When Refinancing Doesn’t Make Sense
- Your car is too old or has too many miles. Most lenders won’t refinance vehicles over 7–10 years old or with more than 100,000–125,000 miles.
- You’re close to paying off the loan. If you have 12 months left, the interest savings are minimal.
- Your loan has a prepayment penalty. Less common now, but check your existing loan agreement before assuming you can refinance freely.
- You’re underwater on the loan. If you owe more than the car is worth, most lenders won’t refinance.
How Much Can You Actually Save?
Example: You bought a car 18 months ago at 13% APR with a $24,000 loan over 60 months. Your credit score has since risen from 640 to 710. Your current balance is approximately $18,500 with 42 months remaining.
| Scenario | Rate | Monthly Payment | Remaining Interest |
|---|---|---|---|
| Current loan | 13% | $547 | ~$4,500 |
| Refinanced at 7% | 7% | $452 | ~$1,460 |
| Savings | ~$95/month | ~$3,040 total |
That’s meaningful money from a refinance that takes 20–30 minutes to complete.
How to Refinance Your Car Loan
Step 1: Check your current loan balance and payoff amount. Call your lender or check online. The payoff amount may differ from your balance due to how interest is calculated.
Step 2: Check your credit score. Know your number before you shop. If it’s below 620, refinancing probably won’t help and may not be possible.
Step 3: Get your vehicle’s current value. Use Kelley Blue Book (KBB) or Edmunds. The car must be worth more than the loan balance (most of the time) for lenders to refinance.
Step 4: Shop multiple lenders. Apply to 3–5 lenders within a short window (14–45 days) — multiple applications in this period typically count as one inquiry for scoring purposes. Check your current bank or credit union first, then online lenders like RefiJet or myAutoloan.
Step 5: Compare total cost, not just monthly payment. Calculate the total interest paid over the remaining term at each offer — a lower payment with a longer term may cost more overall.
Step 6: Close and start new payments immediately. Once approved, the new lender typically pays off your old loan directly. Confirm the old loan is closed before stopping payments to it.
Where to Shop for Refinance Rates
The best rates typically come from:
- Your existing bank or credit union (member loyalty sometimes means preferential rates)
- Online refinance specialists like RefiJet and RateGenius — they work with multiple lenders and specialize in auto refinancing
- Multi-lender comparison tools like myAutoloan, which let you compare multiple offers from one application
See our Compare Rates section for current options.
The Bottom Line
If your credit score has risen, market rates have dropped, or you originally financed through a dealership without shopping around, refinancing is worth investigating. The process is quick, the potential savings are real, and shopping for rates (before formally applying) doesn’t hurt your credit score.