Ideally, it will cost you nothing to refinance in the long run. In fact, refinancing can ultimately help you save money by giving you a lower rate. However, these savings might be offset by a few fees:
- Title transfer fee. The cost of transferring the lien on your car between lenders. This can run anywhere from around $8 to over $200 depending on your state.
- State reregistration fee. You might also have to pay to re-register your vehicle, which also varies by state. This can run from around $20 to over $200, depending on your state vehicle weight, age or the number of cars you own.
- Prepayment penalty. Your current lender might charge a fee for paying off your loan early, usually around the amount you would have paid in interest. In this case, it might not be worth refinancing.
Lenders sometimes cover the title and reregistration fee, but not in all cases. Use the calculator below to find out how much a new car loan would cost each month to see if your savings are worth it.
Car loan refinancing involves taking out a new loan to pay off your old one, usually with lower rates and more favorable terms.
The new loan amount typically covers the amount remaining on your previous loan, including any prepayment fees or closing costs. When you compare your refinancing options, you’ll want to be looking for the deal that saves you the most money every month and over the life of your loan.
Should I refinance for a longer term?
Even if you can’t score a lower interest rate, you may be able to extend your loan term. But this method has its pros and cons. Your monthly payments may be lower, but you’ll often end up paying more in interest than if you’d stuck with your original lender.
Generally, auto loan refinancing isn’t the best choice unless you can be sure your new loan will really cost you less. Consider talking to your lender about your options if you’re struggling with the monthly cost.
Pros and cons of auto loan refinancing
Auto loan refinancing can be helpful if you’re trying to save, but there are some drawbacks that might have you considering other options.
- Lower your monthly cost with a lower rate or longer term
- Lower your total interest cost with a lower rate or shorter term
- Switching providers can get you better customer service
- Get out of debt faster by shortening your term
- Prepayment penalties increase your monthly and total cost
- Potential fees could reduce savings
- Lengthening your term for lower payments increases the total cost
When should I refinance my car loan?
You should refinance your car loan if your credit and income have improved since you first took out the loan. Even if it hasn’t changed, refinancing can also help if you think you can qualify for a lower rate with another lender.
Generally, you should avoid refinancing if your financial situation has changed for the worse. And if your lender charges a prepayment penalty, refinancing can make your car loan more expensive.
Considering refinancing if
- Interest rates have dropped
- You qualify for a lower interest rate
- You need a smaller payment
- Your credit score has increased
- Your income has improved
- Your debt has decreased
- You want to remove a cosigner
Avoid refinancing if
- Your lender charges a prepayment penalty
- You’re underwater on your current loan
- You don’t meet the minimum requirements
- You’re almost done paying off your current auto loan
- You plan on borrowing more in the future
- You don’t have solid financial footing
How is refinancing different from taking out a standard car loan?
Refinancing is different from taking out a new car loan because you’re using the funds to pay off debt, rather than buy a new car. This means that you won’t have to negotiate the price with dealerships or private sellers.
It also typically comes with lower rates than your average car loan. But there are also fewer options available for borrowers with bad credit.
Follow these six steps to refinance your car loan.
1. Review your current car loan. Weigh the fees you’ll be charged for paying off the loan early compared to the savings you’ll get if you refinance. If your lender charges a prepayment penalty, refinancing could actually cost you more.
2. Determine your car’s value. You can check the value using a site like Kelley Blue Book or Edumnds. Your vehicle’s make, model, mileage and condition, as well as its year of manufacture and where you live will all affect its overall value.
3. Check your credit and eligibility. Every lender is different, so review its specific eligibility criteria before you apply to avoid a rejection — and an unnecessary hit to your credit score. Typically you need to have at least $10,000 left on your loan and a car less than 10 years old with less than 100,000 miles to qualify.
4. Compare your refinancing options. When comparing your options, consider the cost, term and how much your monthly repayment will change with your new loan.
5. Apply for preapproval and review your offers. Preapproval allows you to see what rates and terms you might qualify for by filling out a quick form on the lender’s website. After you’ve received a preapproval offer or two, calculate your new monthly payment and total interest cost to see if you’ll actually save money by refinancing.
6. Complete the full application. Decide on a lender and submit a full application. If approved, review your new loan documents for the lender’s terms and conditions, confirm your new payment due date, interest rate, loan term and potential fees. If you agree to the terms, sign your loan documents to finalize the agreement.
Your new lender will either pay off your old car loan directly or transfer the funds to your account so you can pay it off yourself. Regardless, reach out to your old lender to confirm your payment has been processed and your account has been closed to avoid any headaches down the road.
What information do I need to refinance my auto loan?
In order to complete the refinancing process, you’ll need to provide information about yourself and your vehicle, just like when you applied for your original loan. Your lender will typically also request information about your current loan so it can calculate a competitive offer.
Every lender has a different process, but most ask for some or all of the following information:
Information about yourself
- Full name
- Date of birth
- Email address
- Phone number
- Residential address
- Employment status
- Proof of income
- Proof of citizenship
Information about your vehicle
- VIN (vehicle identification number)
- Current mileage
- Vehicle make, model and year
Information about your loan
- Your current lender
- Remaining loan balance
- Current loan term
- Amount you want to finance
Look for a better deal on your loan
Every lender offers different terms and features, so don’t let a low potential APR dazzle you. Take your time and compare everything that goes into borrowing, including the lender’s legitimacy and the fees it charges.
- Loan amount. Make sure that the lender you choose offers enough money to cover your current loan amount. Otherwise, you could end up paying more in interest on top of out-of-pocket refinancing fees.
- Interest rates. Check the maximum interest rate the lender charges. This way, you’ll know the highest potential cost of the loan and can better compare it to your current loan.
- Fees. Ask about the fees a potential lender will charge you — including prepayment penalties, monthly maintenance fees and origination fees — to see if refinancing is worth it.
- APR. Looking at a loan’s annual percentage rate (APR) is often considered the best way to compare offers to see which will cost you less each year.
- Repayment flexibility. If you’re currently struggling to meet your repayments, ask a potential lender how flexible it is with changing payment dates, automatic payments and late fees.
- Legitimacy. Read reviews and give customer service a call. If it’s difficult to get a clear answer about rates and fees — or if you don’t get an answer at all — you’ll know it’s best to move on.
7 best car loan refinancing offers of 2024
You can, but you’ll want to make sure it’s a smart financial move. If you borrowed your first car loan at a similar credit rating, you’re unlikely to really lower your interest rate by refinancing. But if your score has increased slightly, you might be able to qualify for a better deal with another lender that’s willing to work with bad-credit borrowers.
Can I refinance if I’m upside down on an auto loan?
It’s possible, but it might not be the best idea. If you’re already upside down on your car loan — meaning you owe more than the car’s worth — you may have to put up additional collateral to cover the remaining loan balance.
Refinancing can help you turn your car loan around and avoid defaulting. Some lenders even offer loans specifically for this situation. However, not all lenders are willing to work with upside-down car loans, so you might want to reach out to customer service first to make sure you’re eligible.
Compare car loan refinancing options
Learn more about how it all works by reading our guide to car loans.
Will refinancing affect my credit?
Yes, but minimally. Whenever you apply for a loan, lenders will run a hard credit check that can lower your score by a few points. However, once you start making regular repayments on your new auto loan, you’ll likely be able to raise it back up without too much hassle.
What factors do lenders look at when determining approval?
A lender will review your credit history, collateral, income, personal details and ability to repay the loan.
Can I refinance my auto loan with no credit history?
You may be able to, although it can be difficult and you might not get a better rate or lower your monthly payments significantly. A cosigner with a good credit score and high income could improve your chances of approval.
Is car loan consolidation the same as refinancing?
No, car loan consolidation involves taking out a new car loan to pay off multiple car loans you currently have. On the other hand, refinancing means moving just one car loan into a new loan with better rates and terms. Both can save you money, though consolidation comes with the added benefit of more manageable repayments.