Not everyone has an amazing credit score, but it seems most people consider cars a necessity for daily life. When you add those two factors together, that means many people likely have car loans with interest rates that could be improved. Luckily, you can improve your credit score with a bit of work, which means you may be able to get a better deal on your auto loan by refinancing. If you've been working hard to improve your credit score, you may want to know how many times can you refinance your car loan as your credit score increases.
Exactly How Many Times Can You Refinance Your Car?
Technically, you can refinance your car loan as many times as a lender will approve your auto refinance loan application. Lenders have incentive to allow you to refinance since they're trying to win your business. So, you'll have to look out for your own best interests.
As with any financial decision, there are both positives and negatives to refinancing your car loan multiple times. Some people may save enough money to make refinancing multiple times worthwhile, but others may end up paying more in fees and interest. Consider the following factors for your personal situation when making your decision.
Benefits of Refinancing Your Car Loan
Saving money is the biggest benefit of refinancing your car loan. Whether you refinance to a lower interest rate or a shorter loan term, saving money on interest and fees paid to lenders should be your number one goal. If you can save money by refinancing your car loan again, go ahead and save the money assuming everything else about the loan fits your needs.
One way you can substantially lower your interest rate is by increasing your credit score into a new credit range. For instance, if you are able to raise your credit score from bad credit to average credit, you should be able to save money by refinancing to a lower interest rate. Your credit score could continue to increase into the good category if you continue working diligently to fix your credit. If that happens, check to see if refinancing again would save you even more money.
Why You May Not Want to Refinance Your Auto Loan Multiple Times
Refinancing isn't always all good news. Every time you refinance your auto loan, you'll likely have to pay titling fees. Your old lender will have to remove their lien from the old title and at the same time your new lender will have to add their lien to your new car title. Every state has their own titling fees, so you'll have to check with your state or local authorities to find out how much you'll have to pay each time you refinance to a new lender.
Title fees aren't the only fees you may have to pay when refinancing your loan. Some lenders charge origination, administrative or processing fees as another way to increase their revenue on each loan. It's easy to forget about these fees when you see a low interest rate on the paperwork for your new loan, but paying these fees each time you refinance may cost you more when you add the fees to the interest you will pay.
Fees aren't the only issue with refinancing multiple times. You could end up paying more money in interest over the life of your refinanced loans even if you lower your interest rate. To make sure you won't be paying more in interest over the life of your new loan, calculate the sum of all the payments left on your current loan versus the sum of all the new payments on your new loan. Don't forget to add any fees to the total cost of the new loan, such as titling or administration fees. If the new loan total, including all fees, is more than the old loan total, you'll pay more in interest and fees with the refinanced loan if you follow the payment schedule.
Keep in mind, increasing your score just a few points might not make a big enough difference to qualify for a lower interest rate on a refinanced loan. Even though it feels amazing to raise your credit score 10 or 20 points, you probably won't get a better interest rate unless your credit score moves up into the next credit score range.
For instance, if you increase your score from 680 to 700, you still wouldn't move up to the excellent credit range needed for the best interest rates. Instead, you'll just add another credit inquiry to your credit report which could actually lower your credit score a few points in the short term.
Do What Makes Sense For You
Only you can figure out what makes the most financial sense for your family. Run the numbers and make sure refinancing is the best option for your financial picture. You can raise your credit score from the bad range to the average range and refinance your car to save money. If you then manage to raise your credit score to excellent and you can save money by refinancing again, go for it. Just make sure you're shopping around to get the best interest rate possible combined with the lowest fees to save the most money.