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When Can I Refinance My Car Loan?

January 7, 2022

Auto loan refinancing can be a powerful personal finance strategy. By taking out a new loan to pay off your current loan, you may be able to get a lower interest rate or change the loan term, which could save you money on interest, lower your monthly payments—or potentially both. 

With online lenders reducing the hassle of the process, auto refinancing can be an absolute no-brainer for some people. But if you only recently bought your car, or you’ve had it for several years, you might be wondering if it’s too soon, too late, or the perfect time to refinance. 

Understanding the “when” can be as important as the decision to refinance in the first place. 

When Can I Refinance My Car?

Timing can be a huge factor when considering an auto loan refinance. 

The first 60-90 days of the car loan

Most lenders require that you’ve had the loan for at least a few months before you can apply to refinance. At LendingClub Bank, for example, the minimum requirement is 90 days. This allows time for the car title to transfer from the manufacturer or previous owner to your current lender. The new lender also wants to see if you’ve been making on-time payments for the first few months.

At least six months into the car loan

When you applied for the original loan, the lender likely did a hard inquiry on your credit report, which can make your credit score drop. Waiting a few extra months can give your score time to recover, which may help you get a better interest rate. If scoring a better rate is your main reason for refinancing, you may consider waiting a bit longer to build your history of on-time payments.

24 months (or more) left on the car loan

If you’re considering refinancing, you’ll want to act while there’s still some time left on your loan as many lenders have a minimum requirement. For instance, LendingClub Bank requires at least 24 months remaining on the original loan term. Plus, the later in the term you are, the more interest you’ve already paid off—which means it could be more cost-effective to simply stick with your original loan and finish off the principal.

7 Signs You Should Refinance Your Car Loan

Sometimes, there are more telltale signs that it’s a good time to refinance your car.

1. You financed your current auto loan with a dealership.

Dealer-financed auto loans are often not the best deal. Because dealers act as a go-between for shoppers and the bank, they tend to mark up the interest rate to get a cut. By refinancing directly with an online lender, credit union, or other financial institution, you’re avoiding that markup, which can save you money. 

2. Your credit score has increased.

If you’ve been paying your debts on time, your credit utilization has decreased, or you’ve made other moves to improve your credit score, you may be able to qualify for a lower rate than you did when you first bought the car. Even a small boost can make a meaningful impact on your total interest and monthly payments.

3. You want to lower your monthly car payment.

Refinancing isn’t just about potentially saving money—you can also refinance to lengthen your term and reduce your monthly payment. If bills are tight, refinancing to lower your payments may be the solution you’re looking for.

4. Interest rates have dropped since you first took out your car loan.

If prevailing interest rates were higher when you first took out your loan, it might be worth a second look to see if you can lower your rate. Many lenders allow you to check your potential rate without doing a hard credit check, so you can see your savings without impacting your credit score.

5. You want to be done with debt sooner.

Can you swing a higher monthly payment? If so, you may be able to refinance into a loan with a shorter term. Not only will you pay off your loan more quickly, but you could also save on overall interest.

6. You want to remove a cosigner.

Maybe you needed a cosigner to qualify for your original loan, but you’ve established or improved your credit since then. If so, you can try to remove your cosigner by refinancing into a loan of your own. 

7. You need the extra cash.

Some lenders offer a cash-out refinance option, which means you can take out a loan for more than the value of your car and take the difference in cash.

When Not to Refinance Your Existing Car Loan

Auto refinancing can make a lot of sense for some people, but there are a few situations where you may want to hold off. 

The interest rate is higher than your current loan.

If your credit score has gone down or rates have gone up since you first took out the loan, you could end up with a higher interest rate through refinancing. And that might be okay if your goal is to get a longer term and lower monthly payments. Do the math first to make sure the tradeoff is worth it.

Your current auto loan has a prepayment penalty.

In a refinance situation, your new lender repays your existing loan, which may trigger a prepayment penalty for paying off the loan balance early. Be sure to read the disclosures and fine print to understand whether your loan is subject to any prepayment fees (and if so, what it will cost you).

You owe more than the value of your car.

Most lenders won’t refinance a car loan that’s “underwater.” If they do, the rate and terms are likely very unfavorable. Make sure to get the full picture of what it will cost to understand whether it’s worth it.

You waited too long to refinance your auto loan.

Lenders typically require borrowers to have at least two years left on the loan in order to qualify for refinancing. Additionally, it can be tough to refinance a car that’s over 10 years old or with 140,000 (or more) miles on it. 

What to Do Before Applying for a Car Refinance Loan

When you’ve decided to refi, there are a few easy things you can do to set yourself up for success.

Understand the details of your current auto loan.

Identify your current loan amount, annual percentage rate (APR), and time left on your loan term. This info will help you compare your current loan with potential refinancing opportunities. 

Determine if you will qualify for financing.

Check your credit report and score to get a feel for your refinancing prospects. If you suspect your score needs improvement, spend some time making on-time payments and paying down credit cards, personal loans, and other debt to improve your credit score before refinancing.

Compare lenders.

Check with lenders to see what kind of interest rate and terms you can qualify for. Many lenders will show you a potential rate without doing a hard credit inquiry. When it comes to actually applying for loans, submit all your applications within a span of a couple of weeks to minimize the impact to your credit score.

Calculate your savings.

Once you have an idea of your potential refinance rate, use our auto loan calculator to determine how much you could save by refinancing.

How to Refinance a Car Loan with LendingClub

LendingClub offers auto loan refinance loans with great rates, flexible terms, and no origination fees. On average, LendingClub members save thousands of dollars over the life of their loan. And the process is completely online, secure, and hassle-free. 

Start by using our auto refinance calculator to see how much you could save. Then, check your auto refinance rate in less than a minute with no impact to your credit score. 

When Can I Refinance My Car Loan FAQs

How soon after purchase can I refinance my auto loan?

You’ll typically have to wait at least 2-3 months before refinancing your loan. This gives the title time to transfer from the original car owner or manufacturer to your current lender.

How much can I save by refinancing my auto loan?

Your savings will depend on how much you can lower your interest rate and the length of your new term. On average, members who choose to refinance their car loan with LendingClub Bank save thousands of dollars over the life of their loan.1

How often can I refinance a car?

Technically, you can try to refinance your car as often as you’d like. However, refinancing is subject to lender approval as well as potential charges, so repeatedly refinancing isn’t usually the best financial decision. And most lenders would balk at refinancing a loan that’s already been refinanced multiple times.

Is it better to refinance my car loan with the same lender?

You may be able to refinance with your original lender, but you’ll likely want to shop around first to ensure you’re getting the best interest rate and terms possible. If a different lender can offer a lower rate or even a better customer service experience, it may be worth the switch.

Will refinancing my car loan lower my monthly payment?

If you can lower your interest rate or lengthen your loan term through refinancing, it can result in lower loan payments. However, be aware that the latter strategy typically means paying more interest over the life of the loan

Will applying for auto loan refinancing hurt my credit?

Refinancing can temporarily ding your credit score since the lender will typically perform a hard credit check. However, it shouldn’t hurt your score in the long term—especially if you make payments on time.

 

Savings are not guaranteed and depend upon various factors, including but not limited to interest rates, fees, and loan term length.

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