How to Refinance a Car Loan

Here’s how to refinance a car in six simple steps.
Shannon Bradley
By Shannon Bradley 
Edited by Julie Myhre-Nunes

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The process of refinancing a car is typically a simple one. Submitting the refinance loan application often takes less than an hour, and many lenders return a loan decision in minutes. However, it’s a good idea to spend a little time preparing before you apply, to make sure refinancing your car is the right choice for you.

Refinancing your auto loan can make sense in several scenarios. For instance, if your credit has recently improved, there’s a chance you can lower your interest rate and monthly payment. You might also be able to shave time off the loan term, or extend the term — lowering your monthly payment.

If you're wondering how to refinance a car loan, this guide walks you through each step.

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1. Review your current auto loan

Find payment information about your existing auto loan and make sure you know the following:

  • Your current monthly payment and the payoff amount.

  • The amount of time left to repay the loan in months.

  • The interest rate you're paying.

  • The customer service number of the lender in case you have questions.

Although prepayment penalties aren’t common, dig out your original auto loan contract to make sure you won’t have fees for paying it off early. If you can’t find your contract, your lender’s customer service department can provide the information you need.

This would also be a good time to research the value of your car. You can use resources like Kelley Blue Book and Edmunds to estimate what your car is worth. Online car retailers like CarMax, Vroom and Carvana provide cash offers that you can use as a baseline. 

If your remaining loan balance is greater than the value of your car, you’re upside-down on your loan and may have more difficulty refinancing. However, some lenders will refinance for more than a car's value.

2. Evaluate your credit

You can pull your own credit report — that’s a history of your credit activity — or check your credit score for free to see where you stand. Because you’re checking your own credit, this kind of research will not lower your score. 

If you’ve made all your car loan payments on time for six to 12 months, your credit may have improved and there’s a better chance you can benefit from auto refinancing. Of course, that’s only true if you’ve also kept all your other credit accounts up to date. 

Something to keep in mind is that each of us has more than one type of credit score, and lenders base loan approval on criteria beyond credit score. So the score you see won’t determine if you will qualify for auto loan refinancing or at what interest rate.

In general, you can use this information to gauge whether it makes sense to pursue auto refinancing. If you have no late payments, delinquencies or collections — and your credit score is moving in a positive direction — that’s an indicator of progress that lenders will look for.

3. Gather information for your application

The information lenders require for auto refinancing differs, but you can prepare by gathering items ahead of time. Documents you may need include the following:

  • Your driver’s license.

  • Vehicle registration.

  • Proof of insurance.

  • The vehicle identification number, or VIN, of your car.

  • Pay stubs from your current employer or proof of employment.

  • Your Social Security number.

  • A statement of loan payoff amount from your current lender.

4. Shop lenders and get rate estimates

Some lenders offer pre-qualification with a soft credit check, so you can see rate estimates without affecting your credit scores. Pre-qualification can give you an idea of whether you might qualify for a lower interest rate, and it won’t cost you anything.

Pre-qualify with several lenders, then use an auto loan refinance calculator to compare loan offers. First enter information about your current loan. Input the original loan amount, interest rate and the length of the loan in months. Then enter the amount you want to refinance (usually your remaining loan balance) and the loan term and rates from your pre-qualified offers.

This will show you the amount you could potentially save on your monthly car payment and help you narrow down where you want to apply.

5. Decide whether refinancing makes sense for you

With the information you’ve gathered and comparisons you’ve made, you should have a better idea of whether you would qualify and benefit from refinancing. Here are a few additional questions to consider:

  • Does it seem likely that you can qualify for a lower rate and car payment, or shorten your loan term if that’s your goal for refinancing?

  • Will your savings outweigh the cost of any pre-payment penalties or fees charged by the refinance lender?

  • If your main goal is to lower your payment, and your only way to do so is with a longer loan term, does the benefit outweigh the extra interest you will pay?

  • Do you meet other lender requirements? For example, some refinance lenders have requirements for how soon you can refinance your original auto loan. Others require that a certain balance or number of months remain on your loan.

6. Apply to refinance

If you decide to move forward with refinancing, apply to one or more car loan refinance companies. Pre-qualification provides rate estimates and not loan approval, so your last step is to get final approval and compare firm loan offers. 

If submitting multiple loan applications, do so within a 14-day period. Similar queries in this time period are typically grouped together and treated as one, which lessens the impact on your credit score and triggers only a small drop of about five points.

Pay attention to the loan term when you compare loans. You can leave the length of your loan unchanged, but some lenders might also suggest these options:

Paying off the loan more quickly. If you’re used to making loan payments of a certain amount, you may be able to keep the payment about the same but shorten the length of the loan. This saves you money because you’ll pay less interest over the life of the loan.

Lowering payments with a longer loan. If your budget is stretched and you want a little financial breathing room, you could extend the loan term to lower your payments. This isn’t ideal because you’ll pay more interest in the long run. However, it’s better than missing payments and damaging your credit history.

Completing your auto loan refinance

Once you’ve chosen a lender, applied and received approval, you will be sent loan paperwork and can simply respond to the lender’s requests.

Refinancing does start your auto loan over, so you’ll sign new loan documents and a new loan will be created for you, at a new interest rate, with the term length you choose. Your new lender, the refinance company, should pay off your old loan, but it’s always a good idea to make certain it does. You will receive information about when and how to begin making payments to your new refinance lender.

When it comes to how to refinance your car, the time from loan application to lender approval shouldn’t be long. Attention to details before you apply can add a little time, but it can also help you get the most benefit from refinancing.

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