Refinancing your car loan can save you money on interest if you do it right. If you first got your loan when you had bad credit, and you’re working on improving it, you might also be wondering how often can you refinance a car loan? How long should you wait to refinance as your credit score goes up.
The short answer: it depends.
Although many lenders might not have any restrictions on when you can refinance your car, others might not feel comfortable refinancing a brand new loan. “At LendingClub, the minimum is 90 days,” says Alia Dudum, a spokesperson for LendingClub.
She adds, “This is usually to confirm that you’re making on-time payments, so stay on top of those payments if you’re hoping to refinance in the near future.”
How does car refinancing work?
When you refinance your car loan, you’re replacing the original loan with a new one. If your credit or financial profile has improved since you were approved for the original loan, you might be able to qualify for a lower interest rate.
At LendingClub, the minimum is 90 days. This is usually to confirm that you’re making on-time payments, so stay on top of those payments if you’re hoping to refinance in the near future.”
The process of refinancing is similar to the process when you first bought the vehicle.
“When you apply, a lender will look at your credit profile, as well as the make, model, trim, and mileage of your car to determine your rate,” says Dudum.
Once the loan is processed, it will cut a check to the original lender to pay off the loan, and they’ll receive the title to the car in return.
Refinancing with even a small interest rate decrease can make a difference.”
Refinancing with even a small interest rate decrease can make a difference. For example, say you bought a truck with a six-year $30,000 loan at 5.99% APR. Over the course of your loan term, you’ll pay $5,787 in interest.
If, however, you manage to refinance your loan to one with a 5.25% APR, you’d save $749.
That might not seem like a lot over the course of six years, but it’s money you wouldn’t have otherwise, so why not do it?
How does refinancing a car loan affect your credit?
Every time you apply for credit, the lender will run a hard check on your credit report. If you can qualify for a lower interest rate or you want to lower your payment with a longer loan term, it might be worth the small ding to your credit.
Hard inquiries only knock a few points off your credit score, and it’ll recover after a few months.”
Refinancing multiple times in a short period, however, can multiply the negative impact on your credit report and it can take longer to rebound. Remember hard inquiries stay on your credit report for 24 months.
So, if you’re looking to borrow again in the future, lenders might see the multiple credit inquiries and view you as too risky.
Should you refinance your car?
There are two main scenarios where it makes sense to refinance your car loan.
If your credit has improved
“Has your credit score increased since you took out the loan?” asks Dudum. “If so, you may qualify for a lower rate than you did when you first bought the car—which means savings in your pocket.”
You need to lower your monthly payment
“Refinancing at a lower rate can lower your interest bill,” says Dudum. But not everyone can qualify for a lower interest rate.
This is a great option if money is tight. It will mean more interest paid over the life of the loan, but that might be worth having a little more wiggle room now.
How to find the right lender
“Auto dealers can mark up your interest rate, charging as much as 3% more than the APR you could’ve qualified for with another lender,” says Dudum. That’s why it’s essential to shop around to compare interest rates.
Auto dealers can mark up your interest rate, charging as much as 3% more than the APR you could’ve qualified for with another lender,”
Some lenders will allow you to get pre-approved for an auto loan without running a hard credit check.
Use SuperMoney’s auto loan offer engine to see what kind of rates you could qualify for with your credit history.
The more time you put into researching auto lenders, the more likely you’ll be to get the best interest rate on your refinance.
And if your credit score continues to improve, keep checking back on the pre-approvals. You might see another opportunity to refinance in the future.
FAQ on Auto Loan Refinancing
Why 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. Refinancing your auto loan could help lower your monthly payments by lengthening the term of your repayment. Or it could help you save money through a lower interest rate.
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.
Why does my lender want me to refinance?
Your financial institution wants to keep you happy. Another reason lenders might encourage you to refinance is to prevent you from seeking out a lower rate elsewhere. By offering the best rates, banks are able to keep their account holders’ business and ensure a positive experience to promote future business.
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 lienholder fees (usually $5 to $10) and state re-registration fees ($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.
Ben Luthi is a personal finance writer and a credit cards expert who loves helping consumers and business owners make better financial decisions. His work has been featured in Time, MarketWatch, Yahoo! Finance, U.S. News & World Report, CNBC, Success Magazine, USA Today, The Huffington Post and many more.