Refinance Your Auto Loan: When, Why, and How to Do It

Refinancing your car loan can help you lower your monthly payment, reduce the interest you pay, or even shorten your repayment term. Before you decide to refinance, it’s important to understand when it makes sense and when it doesn’t.

What It Means to Refinance an Auto Loan

To refinance a personal loan means taking out a new personal loan to pay off your existing one. The goal of refinancing is to get better terms like a lower interest rate, a shorter payoff period, or smaller monthly payments.

You might be wondering, “Can you refinance a car loan?” The short answer is yes, it’s possible to refinance a car loan, depending on your lender. If you meet their eligibility requirements, you can replace your current loan with a new one that may better fit your financial situation.

When to Refinance Your Auto Loan

The right time to refinance depends on your financial goals and current loan terms. Here are the most common situations when refinancing makes sense:

1. Interest rates have dropped

If national interest rates are lower than when you first financed your car, refinancing could save you money over the life of your loan.

2. Your credit score has improved

If your credit score has significantly improved since you took out your current loan, you may qualify for a much lower interest rate now.

3. You want lower monthly payments

Refinancing to a longer loan term can reduce your monthly payment and make your budget easier to manage. Just remember that you might pay more interest overall.  

4. You want to change your loan term

You can shorten your loan term to pay off your car faster and reduce total interest paid — or extend it to free up monthly cash flow.

5. You want to remove or add a cosigner

Refinancing is one of the simplest ways to update who’s on your loan if your financial situation or relationship has changed.

6. You want to pay off your car faster 

By switching to a shorter loan term, you may be able to pay off your car loan faster than you could if you kept your current loan.

When Not to Refinance

There are also times when refinancing may not be a smart move. You might consider waiting if any of these apply:

• You’re almost done paying off your loan. The potential savings may be too small to justify refinancing fees.
• Your car’s value has dropped below what you owe. Some lenders may not refinance vehicles with negative equity.
• Your credit score has gone down. If your credit score is lower than when you got your original loan, you may not qualify for a better rate.
• Your current rate is already competitive. If you already have a low interest rate, refinancing may not offer much better interest rates.
• The car is too old or has high mileage. Many lenders limit refinancing for vehicles over a certain age or mileage threshold.
• Refinance fees outweigh your savings. Title, registration, or loan origination fees can offset the money you could save on interest.

How to Refinance a Car Loan in 5 Simple Steps

Step 1: Review your current loan

Gather your loan documents to check your balance, remaining term, and current interest rate. Knowing these numbers helps you calculate potential savings.

Step 2: Check your credit score and finances

A higher credit score usually means a lower interest rate. Review your credit report, pay off any lingering debts, and make sure your income documents are ready.

Step 3: Know your car’s value

Look up your car’s estimated market value through resources like Kelley Blue Book or Edmunds. If your vehicle is worth less than you owe, refinancing may be harder.

Step 4: Compare refinance offers

Shop around with multiple lenders. Banks, credit unions, and online lenders all offer auto refinance options. Comparing interest rates and loan terms is the best way to find your ideal deal. You can check your rate on Upgrade with no impact to your credit score. 

Step 5: Apply and finalize your new loan

Once you choose a lender, submit your application and provide any required documents (such as proof of insurance, ID, title information, etc.). When approved, your new lender pays off the old loan and sets up your new payment schedule.

FAQs About Auto Loan Refinancing

Can you refinance a car loan more than once? Yes, you can refinance multiple times, though it’s ideal to wait until it benefits you financially, like when your credit score has improved or when interest rates drop.

Will refinancing hurt my credit score? Refinancing may cause a small dip in your credit score due to a hard credit inquiry, but consistent and on-time payments can help your credit score recover.

How long does refinancing take? Most refinances are processed in a few days to a couple of weeks, depending on how quickly you submit required paperwork and the processing speed of the lender.

Do I need to refinance with my existing lender? Not necessarily. You can refinance with your current lender if they offer better terms, but it’s smart to compare multiple options first. Check your rate at Upgrade with no impact to your credit score.

The Bottom Line

Refinancing your car loan can be a smart move if it helps you save money, reduce monthly payments, or adjust your repayment timeline. The key is to refinance when your credit is strong, your vehicle qualifies, and interest rates are favorable.

By knowing when to refinance, when not to refinance, and how to refinance a car loan effectively, you can make a confident decision that supports your financial goals.

Auto refinance loans through Upgrade feature Annual Percentage Rates (APRs) of 5.54%-19.94%. Lowest rates require Autopay. The APR and other terms of your loan may vary and you may not be presented with multiple offers. If offered, your loan terms, including your rate, will depend on credit score, credit usage history, loan amount, and other factors. Late payments and other fees, as noted in your Borrower Agreement, may increase the cost of your fixed rate loan. Eligible vehicles must be 10 years old or newer and have less than 130,000 miles (or less than 150,000 for trucks).