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If you recently bought a car, you may wonder when you can refinance your car loan to reduce the interest rate or lower the payment. Strictly speaking, you can refinance a car loan as soon as you find a lender that will approve the new loan.
Most lenders have no set waiting period after you’ve purchased a car. However, they can’t refinance until your current lender receives the car’s title from the manufacturer or previous owner, and that can take several months. Other lenders won't refinance a car loan until it has been open six months or more.
Depending on your situation, there can be advantages to waiting.
When to refinance your car loan
Here are some general guidelines to help you determine the best time to refinance.
During the first 60 to 90 days of the car loan
It usually takes at least two to three months for your vehicle title to transfer from the manufacturer or previous owner to your current lender. Most lenders won’t even consider an application to refinance if the title hasn’t transferred. But waiting could be an opportunity to pre-qualify with more than one refinancing lender and compare rates.
When you applied for the original loan, the hard inquiry on your credit report may have caused a temporary small drop in your credit score. This drop could result in a higher interest rate on your new loan. Unless you already have good or excellent credit (a FICO score of 690 or higher), you'll benefit from waiting for your credit score to recover.
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At least 6 months into the car loan
Waiting at least six months into your loan term provides more time for your credit score to rebound from any temporary drops. If your goal is to lower the interest rate and monthly payment, it makes sense to wait until your credit score enables you to qualify for a lower rate than your current one.
If this is your first time borrowing for a car, or you've had credit issues in the past, you might wait at least a year to refinance. This way, you'll have time to build a good history of on-time payments. Some lenders require six to 12 months of on-time payments before they'll consider a refinancing application.
2 years or more remaining on the car loan
To see a benefit from auto refinancing, it's best to have at least two years remaining on your auto loan. With most interest paid in the beginning of a loan term, there's less potential for savings if you refinance too late in the term.
Also, many lenders have refinancing requirements that come into play later in your loan. These differ from lender to lender and usually include the number of months left on your loan term, the remaining balance on the loan, the age of the car and its mileage. When you apply to lenders, be sure to ask about their specific requirements for refinancing.
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Should you refinance?
Regardless of when you refinance, you should take time to apply with multiple lenders and get more than one offer. Comparing refinance offers with your current auto loan can help you decide whether to refinance at all. Our auto loan refinance calculator below can help you compare offers.
You're most likely to benefit from auto loan refinancing in these situations:
Your credit score has increased since you took on a car loan.
Interest rates for auto loans have gone down since you got the loan.
You took a higher-rate loan at a dealership than you would qualify for with a different lender.
You're having trouble making the monthly payment. Refinancing to a longer term may reduce your payment, but you could end up paying more interest over the life of the loan.