If your credit has improved or rates have dropped since you got your car loan, refinancing could save you significant money. Here's everything you need to know about auto loan refinancing.
When Refinancing Makes Sense
- Your credit score has improved 50+ points
- Market rates have dropped since your original loan
- You got dealer financing at a high rate
- You need a lower monthly payment
- You want to remove a co-signer
Potential Savings Example
Current loan: $20,000 remaining at 10% APR, 48 months left
Refinanced loan: $20,000 at 6% APR, 48 months
| Scenario | Monthly Payment | Total Interest |
|---|---|---|
| Original (10%) | $507 | $4,336 |
| Refinanced (6%) | $470 | $2,560 |
| Savings | $37/month | $1,776 |
Best Lenders for Refinancing
Credit Unions
- PenFed: Rates from 5.24%
- DCU (Digital Federal Credit Union)
- Navy Federal (for eligible members)
Online Lenders
- LightStream: No fees, great rates
- RefiJet: Specializes in refinancing
- Capital One: Easy online process
Requirements for Refinancing
- Vehicle age: Usually less than 7-10 years old
- Mileage: Typically under 100,000-125,000 miles
- Loan-to-value: Owe less than the car's worth
- Remaining balance: Usually $5,000+ minimum
- Current on payments: No recent late payments
How to Refinance: Step by Step
- Check your current loan details (balance, rate, payoff amount)
- Check your credit score
- Get your car's current value (Kelley Blue Book, Edmunds)
- Apply with 3-5 lenders within 14 days
- Compare offers (APR, terms, fees)
- Choose the best offer and complete application
- New lender pays off old loan
- Start making payments to new lender
When NOT to Refinance
- Your current loan has prepayment penalties
- You're near the end of your loan term
- You're underwater on the loan
- Savings don't outweigh any fees
- You're planning to sell the car soon
Watch Out For
- Extended terms: Don't stretch payments to lower them—you'll pay more interest
- Application fees: Many lenders charge nothing; avoid those that do
- Prepayment penalties: Rare, but check your current loan
The Bottom Line
If you can reduce your rate by 2%+ or more, refinancing is usually worth it. The process is straightforward and can be completed in a week or less.
