Refinancing your car loan could save you thousands of dollars over the life of your loan. So what’s stopping you? Are you worried it isn’t worth the time commitment of gathering paperwork and meeting with loan officials?
“It’s actually a pretty easy thing,” says Matt Jones, senior consumer advice editor at Edmunds. “Refinancing a home is work, but refinancing a car is much, much easier.”
So is refinancing right for you? Let’s start with the basics.
What is refinancing?
Refinancing a loan is the process of replacing an existing loan with a new loan — ideally one with better terms and lower interest rates. You then use this new loan to pay off the debts of the old one.
Why should you refinance your auto loan?
When you can take advantage of a lower interest rate than you’re currently paying, you should refinance.
“If the terms [of the original loan] weren’t favorable, someone may refinance simply because they want to get out of a high interest loan,” say Jones.
Why might you be able to get a better interest rate now?
- If you didn’t comparison shop for your auto loan, you may not have gotten the best available rate.
- If you’ve raised your credit score, gotten a raise, or paid off other debts since buying your car, you could get a better rate now than when you purchased.
- If more competitive rates are available now than when you purchased. Average auto loan interest rates reached a five-year low at the end of 2015 and stayed relatively low since. So if your loan predates 2015, you may be able to take advantage of a lower rate. But be sure to factor in any fees involved in refinancing when making your decision.
There are also more dire reasons to refinance. If you’re unable to make your monthly payments, you may want to refinance to get a longer loan term, even if your interest rates don’t change.
What to consider when refinancing
Several factors affect which lender is the best option for your refinance:
Your credit score.
The best rates are reserved for the highest FICO scores. But if you shop around for your loan, even those with fair to good credit scores can find a lender with good rates.
Your remaining unpaid balance
Many lenders have minimum and maximum auto loan amounts. Make sure that your desired lender refinances loans of your size before applying.
Most lenders charge a fee to process a new loan. If this fee is more than what you will save by refinancing, it isn’t worth it.
The age of your car and miles on your vehicle
Not all lenders offer a loan for an older car with a lot of miles on it.
Most of the time, refinancing won’t make sense unless you’ve made at least 18 months of payments on your original loan.
Where to refinance your car loan
Your instinct may be to return to your original lender to request a better rate or longer terms. However, getting a favorable offer from the original lender is unusual, Jones explains. “Usually people have more luck with a new lender,” he says.
In that case, you’ll have to research new lenders. SuperMoney has made it easy to compare auto refinance lenders by creating an auto loan offer engine that gets lenders to compete for your business.
This auto loan offer engine allows borrowers to submit a single online application and get multiple auto refinance offers back. The tool makes it easy to get transparent, apples to apples comparisons when shopping for the best auto refinancing rates, fees, and terms.
“The traditional auto refinancing experience is antiquated – like purchasing an airline ticket 20 years ago,” says SuperMoney CEO Miron Lulic. “These days buying an airline ticket is fast and easy. We’ve brought that same great comparison shopping experience to the auto refinance loan industry.”
Comparing options on SuperMoney won’t hurt your credit score, because SuperMoney’s lending partners only perform soft credit pulls, not hard inquiries.
When is it a good idea to refinance your auto loan?
When interest rates go down
If you happened to get your car when interest rates were higher than they are currently, it’s a good time to consider a refinance. By doing so, you may be able to take advantage of a lower annual percentage rate.
When your credit score goes up
If you had a bad credit rating when you got your car loan but have made improvements, you may qualify for a better interest rate now. Check your free credit report here to see how you stand currently.
When you got a bad deal on your car loan
Another good time to consider refinancing is when you shop around after getting your car loan and realize you got a bad deal. Whether it was the excitement of getting a new car or a not-so-honest car sales associate, it can happen. Refinancing allows you to reset the terms.
When the payments are more than you can handle
You might have overestimated your financial capacity to afford the car you bought, or maybe a medical or other emergency suddenly put you in a bad financial situation. Refinancing can help you lower your payments.
We’ve covered reasons to refinance your auto loan, now here are a few situations when you should avoid it.
Your current auto loan has prepayment or termination penalties
In this case, make sure that the savings you incur from refinancing the loan outweigh the penalty you’ll have to pay.
When refinancing means a longer loan period
It’s not wise to trade in your loan for a longer one, say a 36-month agreement for a 60-month. The interest rates will cost you more in the long run. There is an exception, though, if it is your last way of making your monthly payments and the alternative is defaulting on your loan.
When the car is worth less than the loan’s unpaid balance
It doesn’t make sense for a lender to refinance your car if you are upside down on it, so they probably won’t.
When you’re disqualified for refinancing
Some lenders won’t refinance a car that’s over a certain age, others will refuse if your car’s outstanding balance is too high. In these cases, you can’t get your loan refinanced, so be sure to look out for restrictions when shopping for a lender.
Top lenders to consider
You can view interest rates and reviews for all our top lenders right here, but here are a few of our favorites.
LightStream, a part of SunTrust Bank, is a reputable and well-reviewed lender with ultra-low refinance APRs. The catch? LightStream only accepts borrowers with good to excellent credit.
OpenRoad Lending offers competitive interest rates that enable auto owners to save an average of $100 a month on payments. There are no application fees or other hidden costs.
LendingClub is a marketplace lending platform that connects borrowers with lenders. It has helped millions of customers reach their financial goals.
Autopay aims to make car loans simple, fair, transparent, and friendly. The average Autopay customer who refinances their auto loan saves $165 per month and reduces their APR by 50%.
SpringboardAuto makes refinancing your auto loan a breeze. You can find out within 60 seconds if you qualify and it won’t hurt your credit score.
If you already know what your credit score is, here are some lenders we recommend checking out for good, fair or even bad credit.
Best Auto Loan Refinance Options for Good Credit
Lightstream is one of the leading providers of unsecured auto loans. It has a quick approval process that can be completed within a day. It also has some of the best interest rates along with no prepayment penalties, origination fees or other hidden charges. You should especially consider this lender if you’re planning to get a motorcycle or an RV, as it is one of the few that approves loans for these vehicle types.
U.S. Bank offers a variety of loan options along with favorable interest rates. After applying, it will let you know whether they can help you to lower your payments or pay off your loan sooner. It offers a few programs to help you save on your interest rates and offers an easy application process online.
Apart from competitive interest rates, Bank of America offers a wide network of branches that you can take advantage of. This is great if you like doing business in person; if you don’t, you also can use their comprehensive online application process as well. It is known for being more flexible with loan approvals for high mileage vehicles, as well as vehicles that are slightly older.
Best Auto Loan Refinance Options for Fair Credit
Up2Drive is a division of BMW North America that specializes in auto loan financing. It finances all makes and models, but the car can’t have more than 90,000 miles and must meet other eligibility criterias. To apply, go to its website and fill out the application. If approved, it sends you cash to use to pay off your old loan and set you up with new terms through them.
iLending Direct is a great option for someone with a fair credit rating. It partners with many banks and credit unions to generate offers, then creates a customized solution based on your unique situation. Its main focus is helping customers easily lower their car loan payments and interest rates.
Best Auto Loan Refinance Options for Bad Credit
Capital One is known to lend to people with subpar credit. It offers good interest rates and its restrictions are quite reasonable. Used cars can’t be more than 10 years old and must have less than 120,000 miles on them. It also doesn’t offer financing for motorcycles, recreational vehicles or commercial vehicles.
With My Auto Loan, your bad credit won’t stop you from getting in touch with up to four lenders in a matter of minutes. It also offers an interest rate calculator to help you make better estimates on the overall costs of your loan. In lieu of a good credit rating, you’ll need to have an income of at least $1,800 per month with no bankruptcies. Additionally, cars must be no more than 8 years old and must have under 100,000 miles.
Tips on auto loan refinancing
Pay more when you can
The quicker you pay back your loan, the less interest you pay. It’s as simple as that. So if there are months you can pay more, do it.
Shop around for options
Finding the best refinancing arrangement means scouring the market for all options possible. Try not to settle for the first good deal you find because you may miss out on something better. Ask experts for advice, read reviews and don’t be afraid to make inquiries with a variety of lenders. You’ll thank yourself later when your monthly payments are more affordable.
Opt for auto pay if you can
The “auto pay” option found on car loan applications usually comes with a lower interest rate. Be sure to compare the rates and sign up if your financial situation allows it.
Avoid loans with prepayment penalties
Most lenders don’t charge this, but it’s wise to always check. Refinancing doesn’t work well with loans that have termination penalties. To be safe, ask your lender whether there will be a penalty for paying off your balance early.
See what auto loan refinancing rates you qualify for
Regardless of where you choose to refinance, be sure to do your due diligence. You can see reviews of dozens of lenders from real customers right here.
There’s no substitute to comparing multiple lenders to see what rates and terms you qualify for. SuperMoney’s auto loan offer engine allows you to see what rates you qualify for without damaging your credit score or wasting time on endless application forms.
FAQ on Auto Loan Refinancing Companies
How does car refinancing works?
Refinancing a car loan involves taking on a new loan to pay off the balance of your existing car loan. People generally refinance their auto loans to save money, as refinancing could score you a lower interest rate. As a result, it could decrease your monthly payments and free up cash for other financial obligations.
When should you refinance your car?
When you can replace your existing loan at a lower rate, it’s best to refinance as early as possible. Most auto loans are amortizing loans, which means you pay a fixed monthly payment with interest costs built into the payment.
How long should I wait to refinance my car?
Wait at least 60-90 days from getting your original loan to refinance. It typically takes this long for the title on your vehicle to transfer properly, a process that will need to be completed before any lender will consider your application. Refinancing this early typically only works out for those with great credit.
Does refinancing hurt your credit?
When you refinance a loan, you are closing out an old loan account and replacing it with a new one. This can affect your credit scores because most scoring models take into account the age of the credit accounts on your credit reports. The longer your credit history, the better.
What are the fees to refinance a car loan?
Typically, the only fees associated with an auto refinance loan are fairly standard transfer of lien holder fees (usually $5 to $10) and state re-registration fees (usually $5 to $75). These estimated fees may vary by lender, state of residence, etc. Be sure to check if your existing lender has any pre-payment fees.
How do you refinance a car into someone else’s name?
If you’d rather not refinance the loan directly with the current lender, the other option to refinance your car into someone else’s name is by choosing a new lender. The new lender would pay off the remaining balance and issue a reduced loan to the new borrower.
Do you have to put money down to refinance a car?
Most lenders only consider refinancing if you owe from $7,500 to $30,000, provided your car is less than 5 years old and worth at least what you owe. If you are upside down, meaning you owe more than the car is worth, you may need to pay the difference in order to refinance.