The best time to refinance is when your credit score or overall financial situation have improved. Generally, you should aim to either lower your interest rate or your monthly payment — or both. Avoid refinancing when auto loan rates are high or you won't be able to save money by switching lenders.
Your state may charge fees to re-register your car or transfer the title. And your refinance lender could have application or origination fees. Your current lender might also charge a prepayment penalty for paying your loan off early, although prepayment fees aren't as common as they used to be.
Yes, refinancing your auto loan will usually hurt your credit a little. But if you make your new loan payments on time, any damage to your score will likely be both temporary and small. Your credit could bounce back to its current score in as little as a few months.
Lenders will look for a history of on-time loan payments for your existing auto loan and other loans. If your credit report shows past late payments or loans that aren't up-to-date, you may be turned down for refinancing.
There is no minimum credit score required to refinance a car loan. That being said, there is a range that is considered a “good credit score” to refinance a car loan. In general, a credit score over 700 will unlock the best interest rates, and a credit score between 660-700 will give you access to standard rates.
Key takeaways. Refinancing does not require a down payment. However, you may be on the hook for fees like prepayment penalties or transaction fees. If you want to refinance a loan, you'll need equity in the car, a stable or better credit score and a current loan that fits lender refinancing requirements.
Also, when you first applied for a car loan, a hard credit inquiry was necessary, so your credit score needs time to recover from this minor impact, which usually takes about a year. So as a best practice, it's ideal to wait at least one year before refinancing but you should have at least two years left on your loan.
Refinancing May Impact Interest Rates
Several factors can influence the rate you qualify for, including current market rates and your credit score. If these factors haven't improved since you took out your original loan, you might not qualify for a lower rate and could even end up paying more in interest.
More interest overall
A longer loan term means interest has more time to accrue, so even if you get a lower annual percentage rate, adding 12 extra months could still end up outweighing the benefits long-term. As such, it's generally best to avoid refinancing to a longer car loan unless you have to.
Cash-out auto loan refinancing, also known as cash-back refinancing, is like traditional refinancing in the sense that you apply to receive new, more favorable terms to replace your current loan. But, along with that, you will also receive a lump sum of cash as part of the refinance.
For most borrowers, the ideal time to refinance is when market rates have fallen below the rate on their current loan. If you want to refinance, calculate the break-even point so you'll know exactly how long it'll take to reap the savings.
Whether you can refinance your current auto loan may depend on your credit score, as well as the lender you choose for your auto refinancing. There's no single credit score that every lender uses as a cut-off for approval or denial.
Not only can there be fees involved in applying to refinance, but some borrowers may also experience having to pay early termination fees, depending on how their original auto loan is set up. Always check the fine print in your contract before you start applying to refinance your car.
Do you lose equity when you refinance? A straight refinance won't lower your home's equity unless you roll closing costs into your new loan. Adding these expenses to your mortgage balance decreases the paid-off portion of your home.
Exact lender requirements for your credit score vary. Generally, the higher your score, the better your interest rate will be. Most lenders require at least 600. You likely won't get a better rate by refinancing with a score lower than this.
Can I refinance my car with the same lender? Yes, many lenders will allow you to refinance your existing car loan. Keep in mind that lenders may not offer refinancing as an option. Especially if your vehicle is in poor condition, has low value, or you have few payments remaining on your existing loan.
The 2025 auto loan rate forecast shows that loans are on a downward trajectory, offering a much-needed reprieve for good-credit borrowers. This means lower monthly payments and increased affordability for car buyers. While used car rates might remain slightly higher, averaging around 10%, the overall trend is positive.
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
Hourly/Salaried Employees – Your lender will likely request pay stubs for the last two pay periods before allowing you to refinance your car loan. If you apply at the beginning of a year, they may also request a W-2 from the previous year.
You can certainly refinance, maybe not at a dealership, but you can go to a bank or a credit union and refinance.