Refinancing an auto loan is moving an original car loan to (in many cases) a new lender with new terms that are better for your financial situation. The process to refinance a car loan will depend on each lender, but here are the steps you’ll generally follow.
Refinancing an auto loan can affect your credit score, since you’ll need to submit to a hard credit pull when you apply for a loan. This can cause your score to drop by a few points temporarily. However, as you repay your car loan, your score will gradually increase again.
It may be a good idea to refinance your car if you have good credit, market rates are low or you’re having a hard time keeping up with your current loan. It may be a bad idea, however, if you don’t have good credit or don’t have much left on your loan. Keep in mind that if you refinance, some lenders may try to sell you add-ons such as auto GAP insurance or an extended car warranty.
How soon you can refinance a car loan will depend on how long it takes for the car title to transfer to you. Typically, this takes 60 to 90 days. After that, you should be in the clear to refinance.
You can get out of your current auto loan if you trade in your car, refinance it or sell it. However, selling your car when you still have a loan can be complicated, as you’ll need to pay off your current lender so the title can be transferred to the new buyer.