When Is The Best Time To Refinance a Car? (2024 Guide) (2024)

All APR figures last updated on 3/16/2024 – please check partner site for latest details. Rate may vary based on credit score, credit history and loan term.

There are many times when it makes sense to refinance a car loan. Ultimately, they’re all different paths to the same goal: saving money on the overall cost of your auto loan, usually by lowering your interest rate. Below are some of the situations in which it makes sense to refinance your car loan.

Interest Rates Have Gone Down

Interest rates fluctuate over time based on market conditions and government regulations. Paying attention to these rates can help you know when to refinance your car loan. Depending on when you took out your existing loan, refinance rates may be lower at a later time. If that’s the case, you can likely save a substantial amount of money by refinancing your auto loan.

The table below highlights how different interest rates can affect the amount you pay in interest for a loan term of 72 months.

As you can see, even small changes to your rate can make a big difference over the life of your auto loan.

You Have Positive Equity in the Car

Once you have more value in the principal of the car than you owe on it, you now have positive equity. This is a much safer loan for an auto lender, and as a result, you’ll likely get a better rate. If you find yourself in this situation, you might want to start looking into auto loan refinancing options.

Your Credit Score Has Gone Up

Credit history is one of the main factors used to determine interest rates. If you’ve been making regular on-time payments on your car loan since you bought it, your credit score may have improved. The same is true if you’ve paid off a significant amount of other debt. If your credit score is higher than when you took out your original loan, you may find a better rate if you refinance.

You Need To Reduce Your Monthly Payments

Sometimes it’s not about saving money in the long term. Life changes like unexpected medical expenses or the loss of a job can mean you need lower payments. While it may cost you more overall, refinancing your current loan to get a longer term can help you reduce your monthly payments to be more manageable in the short term.

You Don’t Like Your Current Lender

Money isn’t the only reason to switch to a new lender. Maybe you had a bad experience with your current lender’s customer service, or perhaps your lender was bought by a larger institution and is changing the way it does business. Maybe you’d prefer to be a member of a credit union rather than a customer of a commercial lender. Whatever the reason, refinancing your current auto loan can help you find a lender that works for you in addition to saving you money.

Source: Capital One

When You Have Other Reasons To Refinance

Saving money is one of the main reasons to refinance your car loan, but it isn’t the only one. There are a few other situations in which an auto loan refinance can be a helpful tool.

You Don’t Like Your Current Lender

Money isn’t the only reason to switch to a new lender. Maybe you had a bad experience with your current lender’s customer service, or perhaps your lender was bought by a larger institution and is changing the way it does business. Maybe you’d prefer to be a member of a credit union rather than a customer of a commercial lender.

Whatever the reason, refinancing your current auto loan can help you find a lender that works for you in addition to saving you money.

You Need Cash

Some lenders offer a cash-out auto refinance option. This lets you remove some of the equity you’ve accumulated in your vehicle as cash. Compared to credit cards and personal loans, this could be at a much better interest rate. However, you’ll also have to consider origination fees and other costs.

Knowing when you shouldn’t refinance a vehicle loan is every bit as important as knowing when to refinance. That’s because refinancing at the wrong time could cost you more money over the life of the loan or hurt your credit score. Here are some situations in which you might want to avoid refinancing your auto loan:

Your Current Loan Has Prepayment Penalties

Paying your loan off early is one of the best ways to reduce how much you pay in interest — unless your loan comes with prepayment penalties. Financial institutions sometimes attach these penalties to loans to make up for the interest they lose when borrowers repay their debts in full before their loan terms end. Prepayment penalties can easily cost as much as or more than you’d save when you refinance your auto loan.

You’re Upside-Down on Your Current Loan

Sometimes, car owners find themselves owing more on their vehicles than they’re worth. This is known as being upside-down or underwater on your car loan. Lenders usually charge borrowers in this situation very high interest rates for refinancing. They may also require you to carry gap coverage at an additional cost.

You Bought the Car Within the Last Six Months

Your credit score takes a hit when you get a new loan. While you might find more favorable rates advertised soon after you buy your new or used car, the downswing in your credit score means you probably won’t get as favorable a rate as you would if you waited for your score to recover. The general advice is to wait at least six months before refinancing your auto loan.

You’ve Taken Out Other Loans Recently

For the same reason you want to avoid refinancing for at least six months after getting your car loan, you’ll want to wait to refinance if you’ve recently taken out any other loans. Whether it’s a home mortgage, personal loan, or new credit card, any new loan will cause a dip in your credit score.

Even shopping for loans can hurt your credit if a hard inquiry is required. That dip, however, is temporary. If you’ve recently taken out a new loan, waiting for your score to recover can help you get the best auto loan rate to refinance your car.

Auto refinancing is complicated like any other financial product. But knowing just a few key pieces of information about auto refinancing can help you find low rates and avoid bad loans.

Interest Rates vs. Annual Percentage Rates (APRs)

Some of the language around auto refinancing can be confusing. While you may hear the terms “interest rate” and “APR” used in similar ways, they are not interchangeable.

Interest rate refers only to the actual rate of interest charged on a loan. APR is the combination of this interest rate with other costs and discounts that are rolled into the loan. In most cases, APR is the figure you’ll see advertised.

Factors That Affect Refinancing Rates

Lenders calculate rates for borrowers based on factors about them and their vehicles. While lenders score these factors in different ways, most use similar criteria to determine your rates.

Here are the main factors that affect your auto refinancing rates:

• Credit score: Your credit history is the single most important factor in determining your interest rate. Borrowers with excellent credit scores get the lowest rates. Those with bad credit have to pay higher rates and have a harder time getting loans.
• Loan term: Depending on your financial situation, you have some control over how long you’ll be paying your loan off. While a longer term can get you a lower monthly payment, it also usually comes with a higher interest rate.
• Vehicle age: Older vehicles are typically more expensive to finance than new cars or newer used cars. If you want to finance a vehicle that’s more than a few years old, expect to pay higher rates.
• Vehicle mileage: Just like older cars, higher-mileage vehicles will have higher interest rates.
• Loan-to-value (LTV) ratio: Your vehicle’s value in comparison to how much you want to borrow is also part of the equation. Having a higher LTV ratio — in other words, borrowing more money compared to the vehicle’s value — will usually mean you’ll be offered higher interest rates.

Auto Loan Refinance Estimates

One way to get a more precise idea of when to refinance car loans is to use an online auto loan calculator. Several online lenders and third-party sites have calculators that can help you see how different terms and interest rates can affect your monthly payments and the overall cost of your loan. This is a good way to learn more about how much you might pay, and it doesn’t require a credit inquiry that could harm your credit score.

There’s a lot to consider when it comes to knowing when to refinance your car loan. If you can access a better interest rate and your current loan doesn’t have prepayment penalties, refinancing could certainly be worth it. The same is true if you need to lower your monthly bills.

But if you can’t afford a negative impact on your credit score or refinancing would cost you more over the life of your loan, you may want to wait for conditions to change.

If it’s time to refinance your car loan (or will be soon), shop around for the best refinancing rates and lender for you. Some lenders offer free quotes that make it easy to compare. Even a small difference in interest rates can make a big impact on how much you pay over time.

Recommended Auto Loan Refinance Providers

Some lenders offer free quotes that make it easy to compare and get the best rate available. Even a small difference in interest rates can have a significant impact on how much you pay over time. Our research team recommends taking a look at the following providers:

Auto Approve: Best Refinance Loan

Auto Approve is a refinance-only provider. The company works with a network of lenders to find refinancing solutions for a wide range of credit situations. Borrowers with scores as low as 580 can find refinancing options through Auto Approve, but good credit borrowers will get the best rates.

Keep reading: Auto Approve review

myAutoloan: Best Low-Rate Option

As a lending marketplace, myAutoloan often provides access to some of the lowest refinancing rates. Borrowers enter their information and wait to receive loan offers, which they can easily compare to choose the one with the best rates.

Keep reading: myAutoloan review

All APR figures last updated on 3/16/2024 – please check partner site for latest details. Rate may vary based on credit score, credit history and loan term.

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.

Here are the factors our ratings take into account:

• Reputation: Our research team considered ratings from industry experts and each lender’s years in business when giving this score.
• Rates: Auto loan providers with low APRs and high loan amounts scored highest in this category.
• Availability: Companies that cover a variety of circ*mstances are more likely to meet consumer needs.
• Customer experience: This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness, friendliness and helpfulness of each warranty company’s customer service team based on our shopper analysis.

Our credentials:

• 300+ hours researched
• 25 companies reviewed
• 2,000+ consumers surveyed

*Data accurate at time of publication.