When To Refinance a Car
- Refinancing can help you save money on your car loan or get lower monthly payments that fit better in your budget.
- When is the best time to refinance a car? Consider refinancing if your credit score has improved, market rates are low or you can’t afford your current payments.
- The best way to know if refinancing your car is worth it is to get quotes from several lenders and compare them with your current car loan.
Signs it’s time to refinance
Your credit is better
If your credit score has improved since you took out your car loan, you’ll likely get lower rates when you refinance your car loan. This translates to real savings and lower monthly payments.
But how much can you save? Here’s some quick math: raising your credit score from “fair” to “very good” could help you save an average of $4,253 on your car loan. So if you’ve recently beefed up your score, refinancing could put thousands back in your pocket.
Rates are low
When the Fed cuts rates, car refinance rates tend to follow. If rates are lower now than when you got your car loan, it could be a great time to refinance. Lower interest rates mean cheaper monthly payments and a cheaper car loan — savings all around.
You can’t afford your car payment
If you can’t afford your car payment, you’re not alone. Approximately 8.1% of car payments have fallen 30 or more days past due, as of the most recent data.
Refinancing is a popular way to get lower car payments and avoid the consequences of missing a payment, like damage to your credit score and eventual repossession.
You’re willing to get quotes from lenders
The only way to know for sure if it’s time to refinance your car is to get offers from lenders and compare them to your current loan. Since lenders offer different rates, car buyers could save $5,198 on average by shopping around for a car loan. You can go to lender websites and apply directly, or you can use a service like LendingTree to get quotes from up to five lenders with no impact to your credit.
If any of the signs to refinance apply to you, it’s a good idea to check your refinance rates and compare them to your current loan. Many lenders and marketplaces like LendingTree allow you to check your car refinance rates without impacting your credit, which keeps the stakes low.
Compare auto refinance rates from top lenders in minutes
How refinancing a car works
When you refinance, you trade in your old car loan for a new one. You should have a goal in mind — either saving money on your loan with lower rates or shorter loan terms, or getting a lower monthly payment.
Here’s a quick guide to refinancing a car. If you want the details, check out our guide on how to refinance a car loan.
1. Check your offers.
Apply for a car refinance loan on car lender websites or through the LendingTree marketplace. Get several offers before crunching the numbers to ensure you’re getting the best rates possible.
2. Compare the numbers.
Use our auto refinance calculator to see how much you can save by refinancing your loan. Remember that a lower monthly payment doesn’t necessarily mean you’re saving money on your car loan. Stretching out your payments over a longer loan term can give you lower monthly payments at the cost of a more expensive loan in the long run.
- Your credit score. The higher your score, the better your car refinance rates will be — and the more you might be able to save on your car loan.
- Any prepayment penalties. When you pay off your car loan early to refinance your loan, your current lender may charge a fee called a prepayment penalty. Check your loan agreement to see if you’ll need to pay a fee, and subtract any fees from the savings you get from refinancing.
- Your current monthly payment, interest rate and loan balance. Look at your online account or a recent bill to find these numbers — you’ll need them to compare with your car refinance offers.
3. Sign your new loan agreement.
If the numbers check out, you’ll choose the car refinance offer that either helps you save the most money on your car loan or offers you the lowest monthly payment.
You’ll formally apply for the loan with your chosen lender, and they’ll do a hard credit check before sending you the loan agreement to sign. Your new lender will likely pay off your old loan and you’ll start making payments directly to the new lender.
Refinancing for lower monthly payments
Refinancing your car can help you cut your monthly car payments and give you some breathing room in your budget.
There are two ways refinancing can lower your car payment:
- Better rates. If your credit score or income has improved since you took out your car loan, you’ll likely qualify for lower rates. This will make your monthly payment cheaper and save you money on the overall cost of your loan.
- Longer terms. When you stretch out your loan term, your monthly payment will go down — but you may pay more money in interest. This isn’t a good long-term financial strategy, but it’s worth considering if you can’t afford your monthly payments.
The only way to know for sure how much you can save on your monthly payment is to get quotes and compare them to your current car loan.
Still can’t afford your payments?
As soon as you notice you’re struggling to make your monthly car payment, start looking at refinancing options and consider the following to make ends meet:
- Talk to your lender. Ask your car loan company if it offers hardship programs or debt restructuring. You may be able to postpone a few payments or stretch out your loan term with your current lender to make your payments cheaper.
- Look at your budget. Find ways to save money and make extra cash to make your car payments more affordable.
- Sell your car. If you owe less on your car than it’s worth, consider selling your car and using the extra cash to buy a cheap used car or pay for temporary transportation while you work on your budget.
Struggling with your monthly payments? Here’s how to get out of a car loan you can’t afford.
Frequently asked questions
Some lenders require that you’ve had your car loan for at least 60 to 90 days before they’ll offer you a refinance loan. Outside of the lender’s requirements, though, there’s no hard and fast rule about how long to wait before refinancing. As long as you get lower rates or monthly payments, you can refinance your car as soon as you’d like.
Yes, refinancing a car hurts your credit, but the impact is small and temporary as long as you make your new car payments on time. Refinancing is a good financial move if it helps you save a lot of money on your car loan or avoid missing payments because your current loan is too expensive.
Yes, it could be smart to refinance your car right now — it all depends on your financial situation and the current market. Look for signs it’s time to refinance and get quotes from lenders to help you decide if refinancing is worth it for you.
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