Technically, 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 finalizes the loan and receives the car’s title from the dealership or previous owner — that can sometimes take several months. Other lenders won't refinance a car loan until it has been open for six months or more.
Just because you can refinance your car loan soon after buying a new ride doesn’t mean you should. Depending on your situation, there can be advantages to waiting.
When you can refinance your car loan
Here are some general guidelines to help you determine the best time to refinance your auto loan.
During the first three months of the car loan
It’s possible to refinance your auto loan during the first three months, but we don’t recommend it.
Because a loan application requires a hard credit inquiry, your credit score likely took a small hit after your current lender pulled your credit history. Your score should bounce back soon if you make on-time payments, but this drop could mean a higher interest rate on a new loan if you apply for one right now. 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 before refinancing.
Beyond the impact on your credit score, it can take up to three months for your vehicle title to transfer to your current lender. And most lenders won’t even consider an application to refinance if the title hasn’t transferred to your current lender yet.
What to do instead of refinancing: Apply for prequalification with different refinancing lenders and compare their rates and terms. This will give you an idea of what you can expect when you apply for a new loan in the future without impacting your credit.
At least six months into the car loan
You can refinance after six months, but we recommend waiting longer in some cases.
Waiting at least six months into your loan term gives your credit score more time to rebound from the temporary drop of taking out the auto loan. It also lets you build a history of on-time payments, which FICO and VantageScore consider more strongly than recent loans when calculating your credit score.
If your goal is to lower the interest rate and monthly payment, it makes sense to wait until your credit score helps you qualify for a lower rate than your current one. In this case, waiting at least a year might get you a better rate and save you more money in the long run.
What to do instead of refinancing: Focus on making on-time payments to build your credit history. If you can afford it, consider making larger monthly payments and applying the extra to the loan principal. This will reduce how much you need to borrow with your new loan and show a new lender that you can afford the loan.
At least one year into the car loan
Waiting a year to refinance your auto loan hits the sweet spot. However, if you were stuck with a high interest rate or your credit score drastically increased after purchasing your car, you’ll likely want to refinance sooner.
If this is your first auto loan or you've had credit issues in the past, waiting a year will give you time to build a history of on-time payments. Some lenders require a certain number of on-time payments, such as six or 12 months’ worth, before they'll consider a refinancing application.
What to do instead of refinancing: Ensure you make on-time payments to help your credit history. You can also look at other ways to improve your credit score to give you the best chance at a better interest rate.
You’ll want at least two years remaining on the car loan to save money
To see a benefit from auto refinancing, it's best to have at least two years remaining on your auto loan. You pay the most interest at the beginning of a loan term, so there's less potential for savings if you refinance too late in the term.
Some lenders will let you refinance with less time left on your loan. For example, Chase Auto only requires you to have 12 months remaining on your loan. But just because you can refinance, doesn’t mean you should.
Additionally, many lenders have refinancing requirements, such as a certain number of months left on your loan term and a minimum remaining principal balance. Some lenders also required the car to be under a certain age and mileage. When you apply to lenders, be sure to ask about their specific refinancing requirements.
Reasons to refinance earlier in your car loan
Refinancing earlier in your loan term can help you save money in a few scenarios, but you’ll still want to do the math to make sure the decision puts you in a better financial situation. Here are a few cases where refinancing earlier in your auto loan might be a good idea:
- If interest rates drop, and you’ll qualify for a better rate.
- You financed with a dealership and can get a better interest rate with a different lender.
- You can’t afford your monthly payment and need to pay less to avoid getting behind on your car loan.
Reasons to wait to refinance later in your car loan
There are a few scenarios where you’ll probably want to wait to refinance your car loan. These include:
- If interest rates increase, and you won’t qualify for a better rate regardless of your credit score.
- Your credit score went down since you took out your current loan.
- You already have a low interest rate that will be difficult to beat.
- Your current lender charges prepayment fees that will cancel out any savings with a new loan.
- You have less than two years left on your current auto loan.
Should you refinance?
Whether you should refinance depends on your financial situation. To answer the question, be honest with yourself about what you can afford and what terms your credit history and credit score can qualify you for. Then compare the pros and cons of refinancing your loan to see if it’s a good fit for you.
No matter when you refinance, take the 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 can show how different loan terms can affect your loan and monthly payment.
Frequently Asked Questions
Does refinancing an auto loan hurt my credit score?
In the short term, refinancing will likely drop your score a few points, but it should recover soon if you make on-time payments with all of your loans and credit cards. In the long run, the hit to your credit score is minor compared to what you might save with good refinancing terms.
When is the soonest I can refinance an auto loan?
It depends on the lender you want to refinance your loan. Some lenders will let you refinance your auto loan as soon as your current lender has the title. This could be a matter of weeks. But some lenders require you to make a certain number of payments on your current loan before they’ll approve a refinance.
Can I refinance with just a year left on my car loan?
You can if a lender lets you, but you might not save money with that little time left. Most payments that late in the loan are toward the principal, not interest. That means a lower interest rate won’t help as much as it would have earlier in the loan.
