Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insuranc...

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Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florid...

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Mar 25, 2022

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At a Glance

  • You can refinance your auto loan as soon as a lender will offer you a new loan
  • Refinancing your auto loan can have several benefits, from a lower interest rate to cheaper monthly payments
  • While auto loan refinancing is an option, it’s not the right choice for everyone

If you own a vehicle, there’s a good chance that you used a car loan to fund the purchase of your car. After all, buying a car is expensive, whether it’s a new or used vehicle, and most people need to use an auto loan to complete the transaction. But what happens after you’ve used a loan to buy a car? Can you refinance your car loan? 

The good news is that yes, you have the option to refinance your auto loan, but that doesn’t mean it’s the right move for every driver. If you’ve been wondering when to refinance a car loan, or what the benefits of refinancing your auto loan are, here’s what you should know.

What are the benefits of refinancing your auto loan?

There are several benefits to refinancing an auto loan, but an important one is that it gives you an opportunity to lower the interest rate on your loan. By refinancing at a lower rate, you have the opportunity to save significantly on the total amount of interest you pay over time.

Refinancing your auto loan can also make your monthly car payments more affordable. If you’re facing a payment that’s too large for your current budget, refinancing to a longer loan term can reduce your payments and make them more affordable. 

A refinance will also give you the option to shorten your loan term, which would allow you to pay off your loan more quickly — and with less interest. While refinancing to a shorter loan term isn’t a requirement of an early payoff, it typically puts more of your monthly payment toward the principal. A shorter loan term could mean you can lower your car insurance rates sooner by dropping extra coverage the lender requires.

Some lenders will also allow you to complete a cash-out refinance loan on your car, which lets you borrow against the equity you’ve built in the vehicle.

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Should you refinance your auto loan?

So how soon can you refinance a car loan and when should you? You can refinance your loan as soon as a lender will offer you a new loan.

However, there is no firm answer to the question, “When should I refinance my car loan?” That’s because there are a number of factors to consider, including:

  • Your current interest rate. If interest rates have dropped since you took out your loan, it may be worth considering a refinance. Dropping your interest rate by just one point can lead to big savings on interest over the life of the loan.
  • Your current loan term. If you’re close to the end of your loan term, it may not be worth refinancing. There are costs associated with refinancing, and extending your loan term would mean paying more in total interest. On the other hand, it can make sense to refinance if you have a few years left on your current loan. 
  • Your credit score. If your credit score has improved since you first took out your loan, you may be able to capitalize on interest savings by refinancing to a lower interest rate. However, if your credit score has declined in the time since, you may not be offered the rates or terms you need on a refinance.
  • Your financial needs. If you are unable to cover your current car loan payments, or if you need to free up cash, refinancing your auto loan to one with a longer term could make sense. On the other hand, you may want to think twice if you plan on buying a house or new car soon, as refinancing could affect your credit score. 

You must take all of these factors into consideration when deciding if you should refinance your vehicle or not.

How to Refinance a Car Loan

Ready to refinance your car loan? Here are the steps you’ll take to do so:

  • Know your needs. Before you start the process, make sure you know why you’re applying for a loan refinance. This will help you determine what loan offers are right for you.
  • Gather your documents. This includes the paperwork for your current loan, your driver’s license, pay stubs, your VIN, and other vehicle-related documentation.
  • Learn your credit score. Your credit score will give you a good idea of the types of rates you can qualify for.
  • Shop around. You aren’t limited to one lender. Shop around with several lenders to find the best rates and terms for your loan.
  • Apply for the loan. Once you’ve gotten quotes from multiple lenders, you can narrow down the options and apply with the lender offering the best deal for your situation.
  • Complete the loan paperwork. Once you’re approved by the lender, you’ll need to complete the loan paperwork to seal the deal. 

Those steps may make car loan refinancing seem like a complex process, but it’s not. Once you’ve determined what lender is right for you, you can typically apply and get approved for your refinancing loan in just a few hours.

Refinancing Your Loan Is a Big Decision

Refinancing your loan can be a great way to save money on interest, lower your monthly payments, or pay off your loan early. But while there are big benefits to refinancing, it won’t be the right move for everyone.

If your credit has improved since you took out your original loan, if interest rates have dropped, or if you need to lower your monthly payments or shorten your loan term, it may make sense to refinance.

Make sure you know what you’re getting into before you refinance and be sure to choose the path that works best for your needs.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.