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How Soon Can You Refinance a Car Loan?

How Soon Can You Refinance a Car Loan?

Buying a car can be an overwhelming process. It’s easy to lose track of the details of your auto loan during such an emotionally charged time. Unfortunately, some car buyers learn they made a poor choice selecting their auto loan when their first payment was due.

Whether you didn’t shop around to get the best interest rate on your original auto loan or you’re just now figuring out you can’t afford the payments on the 36-month loan you signed, you might be wondering how soon can you refinance a car loan. Here’s what you need to know.

Can You Refinance a Car Loan Immediately?

In some cases you can refinance your auto loan immediately, as long as you meet all the requirements for the new loan. Most traditional auto loans require your car to be worth more than the loan amount. In order to refinance your auto loan immediately, you may have to pay down the current loan until you owe less than your car is worth in order to refinance at the best interest rates.

Sadly, not all loans are easy to refinance. Some auto loans have costly prepayment penalties. Luckily, you can possibly save more than the prepayment penalty if you can secure a lower interest rate when you refinance your auto loan.

On the other hand, if the original loan you signed was a pre-computed interest loan, you’ll likely be stuck paying the full price of the loan no matter how early you pay it off. That means refinancing would actually cost you more money than just paying off the current loan as scheduled.

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Who Is a Good Candidate for Refinancing an Auto Loan

An ideal candidate for refinancing an auto loan has equity in their car, which means you owe less on the loan than your car is worth. In order to get a better interest rate on the refinance loan, your credit score should be at least as good, if not better than, your credit score when you originally applied for a loan. Of course, if interest rates have dropped since you originally financed your car, you may be able to get a better interest rate even if your credit score has slightly dropped.

Some lenders require cars not be older than a certain number of years, such as five or seven years, in order to refinance. Other lenders won’t allow you to take out a new loan to refinance your car if you owe a particularly small or large dollar amount such as $1,000 or $60,000, respectively.

Why You Should Refinance a Car Loan

If you qualify, there are a couple reasons you may want to refinance your car loan. If your car payment is stretching you too thin, you may be able to lengthen the term of your loan to achieve a smaller monthly payment. Lengthening your loan could cause you to pay more money in interest over the life of the loan, but the extra room in your budget may make it so you can get by without incurring expensive credit card debt each month.

Another reason to refinance is to lower the total amount of money you pay in interest over the life of the loan. In some cases, you can achieve lower overall interest payments by getting a lower interest rate on your refinanced car loan or by shortening the term of the loan.

If your car is moderately priced and made in the last few years, check today to see if you can save money or lower your payments by refinancing your car loan. Just make sure to get quotes from multiple lenders to find the best interest rate possible on your auto refinance loan, even if you didn’t the first time around.


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