Should I refinance my car loan?

Trying to decide whether refinancing your car loan is a good idea? You might want to consider it if your credit improved or you recently got a raise — you could qualify for lower rates and more competitive terms. But if your car is super old or you recently took on more debt, you might have a hard time qualifying.

When should I refinance my car loan?

Whether your personal finances have improved or you’re looking for smaller monthly repayments, there are a few situations when refinancing might be for you.

Your credit has improved

Your credit score is often the most important factor when it comes to getting a good deal on a car loan. If you’ve been making on-time repayments toward your current auto loan for the past six months, your credit score has likely improved. Because of this, you could get a lower rate through refinancing, which means you could pay less every month and over the life of your loan.

Your income has increased

The more you make, the less likely lenders are to consider you a risk. If your income has increased, consider refinancing for a lower rate and shorter loan term. If you can afford the higher monthly payment that comes with a shorter term, you could save thousands on interest in the long run.

Your debt has decreased

If you had credit card debt or other loans when you first got your car loan that you’ve since paid off, you’ll have proof that you’re good with your finances. In addition, you’ve likely lowered your debt-to-income (DTI) ratio. This shows lenders that you can afford your repayments, especially if you plan on shortening your loan term. The less risky you look to a lender, the more likely you are to be approved for a lower rate when you refinance.

Your car loan is through a dealership

Dealerships are notorious for marking up interest rates to increase their own profits. If you got financing through a dealership instead of a third-party lender, you might want to see what rates you could qualify for by refinancing. Even if you keep your remaining loan term the same, refinancing with a new lender at a lower interest rate can save you hundreds over the life of your loan.

Your interest rate is high

Having an interest rate over 10% is generally a sign you may be better off finding a new lender — even if your credit hasn’t improved much. This is especially true if interest rates have dropped across the board due to the current lending market. You may not get the lowest rate out there, but you could walk away paying less in interest than you previously were.

Your monthly payments are unaffordable

If your circumstances have changed and you find yourself unable to keep up with repayments — or even if your payments are just larger than you’d like — refinancing your car loan may be a good solution. You may be able to find a lender that can lower your monthly repayments by extending your loan term or lowering your interest rate — or both. This can help you avoid defaulting on your car loan and losing your vehicle.

Compare top auto refinancing offers

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Name	Product	Filter Values	Minimum credit score	APR	Loan term	Requirements
PenFed Auto Loans			Varies	2.99% (Starting at)	Up to 10 years	Active membership with PenFed	Low APR car loans from a well-known credit union.	See your rate More Info	Compare	loading Fetching your data...
LendingClub Auto Refinancing			Fair or better credit	7% to 24.99%	From 2 years	Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.	Lower your monthly car payments and save on interest through a fast and easy online application process.	See your rate More Info	Compare	loading Fetching your data...
Ally Clearlane			640	4.24% to 7.99%	3 to 7 years	Monthly income of $2,000+, live in an eligible US state, ages 18+	See your rate More Info	Compare	loading Fetching your data...
SuperMoney Auto Loan Refinancing			600	Varies by lender	Varies by lender	Car must be less than 10 years old with fewer than 150,000 miles. Fair to excellent credit, an income source, US Citizen or Permanent Resident, 18+ years old	Find an offer and get rates from competing lenders without affecting your credit score.	See your rate More Info	Compare	loading Fetching your data...
LendingTree			Good to excellent credit	Starting at 3.09%	Varies by lender	18+ years old, good to excellent credit, US citizen	Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.	See your rate More Info	Compare	loading Fetching your data...
MotoRefi Car Loan Refinancing			525	2.99% (as low as)	1 to 6 years	Must have an income of at least $2,000/month and have a vehicle with less than 100,000 miles.	A car loan connection service for borrowers looking to refinance.	See your rate More Info	Compare	loading Fetching your data...
RateGenius Auto Loan Refinance			510	2.99% (as low as)	Varies	Income of $2,000+/month, vehicle has less than 150,000 miles and is no older than 8 years, loan balance is between $10,000 and $100,000, debt-to-income ratio is less than 50%	Connect with a network of over 150 lenders to refinance your car loan.	See your rate More Info	Compare	loading Fetching your data...

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3 benefits to refinancing your car loan

Aside from saving money on interest or lowering your monthly payment, here are a few more perks of refinancing:

• Work with a better lender. Some lenders have better customer service, easier account management and discounts that may not be available with your current lender.
• Improve your credit score. If you’ve been struggling to make your monthly payments, refinancing at a longer term could help make it easier to handle your loan and improve your credit along the way.
• Remove your cosigner. If you’ve been making regular on-time payments and want to remove your cosigner, refinancing can be a quick and painless way to remove them while potentially saving you money.

When should I avoid refinancing?

You may want to avoid refinancing if you fall under any of these categories:

• You’ve been late on your car loan payments. Not only is your credit score lower, you’re more of a risk to lenders. In general, lenders want to see multiple months of on-time payments before approving you for refinancing.
• You don’t have a regular source of income. If you can’t prove to a lender that you can make your monthly payments, it’s likely that you’ll be denied a loan offer. You’ll have to supply proof of income — not necessarily employment — to qualify for most refinancing options.
• You’ve taken on more debt. If you’ve recently opened a new credit card or borrowed a personal loan, you likely won’t be in the best position to refinance your car loan.
• You have an older car with significant mileage. Although there are lenders that will refinance a vehicle no matter its age or mileage, most want to see vehicles under 10 years old or 100,000 miles. This way, you avoid borrowing money on a car that might not retain its value.
• Your car is worth less than your loan balance. Lenders are generally unwilling to refinance a car loan if it’s upside down — when you have more debt than your car is worth.
• Your lender charges prepayment penalties. Refinancing involves repaying your loan early. You might not save much if you have to pay extra fees to get out of your original loan contract.
• Your loan comes with front-loaded interest. If you paid most of the interest on your car loan in the first few months or years, you don’t stand to save much by refinancing.

Bottom line

If your personal finances have improved since first taking out your car loan, you may qualify for a more competitive rate or better terms by refinancing. But it might not be for you if your current lender charges prepayment penalties or you recently took on more debt.

Think you can benefit from refinancing? Learn more about how it works and compare lenders with our guide to car loan refinancing.

Frequently asked questions

• Should I refinance for a longer car loan term?

  It depends on your financial situation. If you’re struggling to keep up with repayments, then a longer term can make for lower payments that are easier to afford. The downside is that you’ll likely end up paying more in interest than if you’d stayed with your original lender.

• Can I refinance with my current lender?

  In general, no. Most lenders aren’t willing to refinance or renegotiate your current car loan because you’ve already committed to it. But there are exceptions, so check with yours to see if it’s an option.

• How can I track car loan interest rates?

  The easiest way to track car loan interest rates is to go directly to the source — check with different banks and online lenders to see what range of rates they’re offering for refinancing.