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While you can refinance your car with the same lender, there’s more to the decision-making process than just picking the lender that currently has all of your account information.

If your lender does offer auto refinance loans, you shouldn’t just assume they are necessarily the best option out there. Different lenders offer different rates, loan terms, and fees, so it’s important to shop around. Below, learn more about how refinancing works with the same lender and when it makes sense to explore elsewhere.

What Does It Mean to Refinance a Car?

Refinancing a car means replacing your current auto loan with a new one, ideally with a more favorable interest rate or better terms. Rather than making payments on your old loan, you’ll pay it off with the new loan and start making payments on that.

Why Would You Want to Refinance?

There are many reasons to refinance your car, including:

•   Lowering your interest rate. This is one of the best reasons to refinance. A lower interest rate can both lower your monthly payments and reduce the amount you pay in interest overall, assuming you keep your loan term the same or shorter.

•   Paying off your loan faster. This involves shortening your loan term. If you secure a lower interest rate and shorten your loan term, you’ll not only pay off your loan faster, but you’ll also save money in interest in the long run. However, your monthly payment might go up.

•   Reducing your monthly payments. If you refinance your car and choose a longer loan term, your monthly payments most likely will decrease. While this typically means you’ll pay more in interest over the life of the loan, sometimes reducing payments is necessary to keep you afloat during hard financial times.

•   Removing a cosigner. If you took out your original auto loan with a cosigner, you can choose to remove them by refinancing, assuming you can qualify for the new loan on your own.

Is It Possible to Refinance With the Same Lender?

If you’re thinking of refinancing, you may be wondering if you can do so with the same lender. In most cases, the answer is yes — but that doesn’t mean it’s automatically the right decision for you.

When you first start thinking about refinancing your auto loan, it’s natural to consider your current lender, especially if you’ve had a positive experience. Not all auto lenders offer refinancing, though. Most do, but it’s a good idea to double-check that this option is available before you do more digging.

Can you refinance your auto loan with the same bank? Absolutely. Is it always the best loan offer available? Not necessarily. And you won’t know for sure unless you shop around.

Recommended: Business Auto Loans: How to Get Financing

When Does It Make Sense to Refinance?

There are many pros and cons to auto refinancing. Here are some of the most common situations in which it makes sense to refinance:

You Now Qualify for a Lower Interest Rate

If interest rates go down or you have built your credit score, you could save money with a lower rate. Refinancing may be right for you if you qualify for an interest rate that’s lower than your current auto loan rate.

You Have a Helpful Cosigner

If your credit score isn’t very high, refinancing with a cosigner could also help you pay less in interest. Refinancing may be right for you if you have a creditworthy cosigner who can help you qualify for an auto refi loan that’s more favorable than what you currently have.

Likewise, you may have signed your original auto loan with a cosigner and now you want to remove them from the loan. If you can qualify on your own, refinancing your car will allow you to do so.

You Want to Lower Your Monthly Payment

You might be able to get a longer loan term by refinancing. This means you’ll be making payments longer, but your monthly payment will be less. Keep in mind that by extending your term, you may end up paying more in interest over the life of the loan. However, if you need a lower payment, refinancing may be right for you in order to make ends meet.

Your Car Is Aging or Has High Mileage

Many lenders restrict your ability to refinance a car loan once the vehicle reaches a certain age or mileage mark. If your car is close to 10 years old or is approaching 100,000 miles, then it might be time to crunch the numbers to see if one last refinance makes sense. Refinancing a car with high mileage is possible and may be right for you depending on your personal circumstances.

Recommended: Tips for Buying a High Mileage Car

Is It Easier To Refinance With Your Current Lender?

When you apply to refinance your auto loan, you’ll need to submit documents related to your current loan, including the loan agreement.

If you’re applying to refinance through your current lender, it will probably already have that paperwork on hand. But while it may seem easier to let your current lender handle this step on its own, you should still find and review that information yourself before you apply to refinance. That way you can check the contract for prepayment penalties and your exact payoff amount.

It’s also important to check your current interest rate to figure out whether or not you’re getting a better offer with a refinance.

Even if it does seem easier to refinance with a lender you’re already working with, it’s crucial to rate-shop and make sure you’re meeting your financial goals. If you find a better deal elsewhere, it may not be that much harder to switch. Most lenders create an easy, streamlined application process.

In summary, it can be easier to get a refinancing loan from the lender you already know. But “easier” doesn’t automatically mean it’s better.

How to Refinance With the Same Lender

How exactly to refinance an auto loan may differ slightly when you’re applying with the same lender. Here are the steps for how you may refinance with the same lender:

•   Gather the required documentation. Even if you have a history of making your car payments on time, you’ll still probably need to provide proof of income. This could be recent paystubs or a tax return.

•   Confirm and update your personal information, including your address and how much you spend on housing each month. The lender likely has other details about your current loan and vehicle. Nonetheless, it will probably pull a credit report to see where you stand today. Your credit score may drop by a few points temporarily if the lender conducts a hard pull inquiry into your credit report.

•   Receive a loan offer based on your personal information and your vehicle information. The offer may include an interest rate, any fees, and the length of the loan term. Review all of these details and compare this offer to offers from other lenders to see which is the best option for you.

Why You May Want To Refinance With a Different Lender

Lenders all vary when it comes to rates, loan terms, and fees, so it’s always best to shop around in order to find the best auto refinance deal for your situation. While refinancing with the same lender may be easier, if you can save hundreds or thousands by going elsewhere, that may be worth your time and effort in the short term.

How To Refinance With a Different Lender

Even if you were interested in refinancing with your current car loan provider, you might find a better deal elsewhere and decide to change lenders. Here are the steps on how you may refinance with a different lender:

•   Submit the required documentation. In addition to the financial and income verification you need to apply with your existing lender, a new lender will likely need information about your vehicle and current loan.

•   Submit details about your vehicle. This includes the make, model, and year. You must also disclose the vehicle’s mileage and supply the lender with the vehicle identification number (VIN).

•   Provide the current loan balance and lender’s contact information. The application may also require you to submit proof of auto insurance.

•   Check your credit. The lender may check your credit report. This can result in a small, temporary drop in your credit score. But if there are multiple credit inquiries for the same kind of loan within a short period of time on your record, they’ll typically be counted as just one, since the credit score agencies understand that you’ve been shopping to find the best rates.

•   Get prequalified, if possible. Some lenders may allow you to prequalify for a loan, which won’t typically result in a credit drop. But note that the offers you see that way aren’t guaranteed, especially if your financial situation changes before you actually apply for the loan.

•   Apply for and accept the loan. Once you’ve selected the loan you want to apply for, the process will be similar to that when you apply with the same lender, except that when you’ve received and accepted the loan terms, your new lender will transfer the funds to pay off your old loan and your new payments will begin.

The Takeaway

It is generally possible to refinance your auto loan with your current lender. It may even be a bit easier than filling out an application with a new lender. However, it doesn’t mean that it’s financially the best option for you. In order to find the best auto refinance loan, it’s best to shop around to find the best rates and terms for your particular situation.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Is it better to refinance with the current lender?

No, it’s not necessarily better to refinance with your current lender, even if the process is easier. In addition to considering refinancing with your current lender, compare online auto loan refinancing rates with multiple lenders. Once you look at a few different offers side by side, you can likely see which one best helps you meet your goals, whether it’s saving on your interest rate or lowering your monthly payments.

When does it make sense to refinance with the same lender?

It makes sense to refinance with the same lender when that lender extends the best offer among multiple lenders. That may be the case — and maybe your current lender can even offer you a loyalty rate discount on top of expediting the application process. But if you get a better offer from another lender, you may be better off switching.

When does it make sense to refinance with a different lender?

Depending on your financial situation and goals, if another lender offers you a lower interest rate or lower monthly payments, then it may make sense to accept that refinance offer. There are some pitfalls to watch out for, however. Make sure there are no hefty upfront fees that could reduce your potential savings. Also confirm that there’s no prepayment penalty in case you want to pay off your loan early.

Photo credit: iStock/Altayb

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOALR-Q225-034

When you’re buying a new or used vehicle, you might prefer to finance your purchase with an auto loan rather than pay cash up front. Auto loans may offer favorable interest rates for buyers with good credit history and stable income. Before signing off on any vehicle financing, however, it’s important to be sure you understand some basic auto loan terminology.

Here’s a brief glossary of basic car loan definitions that can help you select the right borrowing option.

Auto Loan

A vehicle loan is essentially a contract between the car buyer and the financing company or lender. This contract spells out the conditions for completing the purchase of the vehicle and lays out exactly how the loan will be repaid over time.

Banks, credit unions, online lenders, and financing companies are all places you can get an auto loan. Dealerships may also offer in-house financing, in which you repay an auto loan directly to the dealer.

Recommended: What Is a Buyer’s Order for a Car?

Annual Percentage Rate

Annual percentage rate (APR) is one of the most important car finance terms to know because it relates to how much you’ll pay for a vehicle loan. APR is a reflection of the annualized cost of borrowing money, based on the interest rate and fees charged by the lender.

In auto loan terminology, APR gives you a simple way to compare the cost of different vehicle loans. Say you have two lenders you’re considering for vehicle financing. One offers a loan with a 3.99% APR, while the other is advertising a 2.99% APR. Of the two, the second loan will cost you less money in interest over time.

When you’re comparing APRs for vehicle loans, pay attention to whether interest rates are fixed or variable. A fixed APR stays the same for the life of the loan, which means you can easily calculate the total amount of interest you’ll pay. Your monthly payments will also stay the same for the life of the loan. This tends to be the most common type of car loan.

With variable-rate auto loan financing, the APR is tied to a benchmark rate, such as the prime rate. If the benchmark rate increases or decreases, the loan’s APR can also change. This makes it more difficult to predict total interest costs, and monthly payments may not stay the same throughout the life of the loan.

Base Price

When you’re applying for auto loan financing, you may see the term “base price” mentioned. Base price reflects the purchase price of the vehicle as is, without add-ons. The actual purchase price may be higher if you add on optional equipment, upgrades (like that premium sound system you’ve had your eye on), or purchase extended warranties or maintenance contracts.

Cosigner

Lenders typically use credit scores to determine whether you’re eligible for an auto loan or an auto loan refinance and what interest rate they’ll charge you. (The higher your score, the more likely you are to get the best, or lowest, interest rates.) If you don’t meet a lender’s minimum credit score and income requirements, you may need a cosigner if you want to finalize the loan.

An auto loan cosigner is someone who agrees to assume equal responsibility with you for an auto loan. If you default on the loan and fail to pay it back, the cosigner is liable for repaying what’s owed. A cosigner is usually a relative or significant other with a solid credit history. Keep in mind, though, that only the person whose name is on the title has legal rights to the vehicle itself.

Deficiency Balance

If you fail to repay your loan and your vehicle gets repossessed and sold by your financing company to recoup its losses, and you owe more on the car than the company is able to sell it for, the financing company can still hold you responsible for paying the difference. That gap is called the deficiency balance. You may also be responsible for paying any repossession fees.

Down Payment

A down payment is a payment you make upfront against the purchase price of a vehicle you’re buying. This is similar to a down payment you might make on a home — the goal in both cases is to reduce the amount you need to finance.

Depending on your credit and where you’re buying your vehicle, you may be able to get auto loan financing with no money down. But there are some advantages to making a larger down payment. For one thing, you’ll have a smaller loan, which means less money you’ll pay in interest over the life of the loan. A smaller loan can also lower your monthly payments, which can make financing a vehicle more affordable for your budget.

Recommended: Does Financing a Car Build Credit?

Extended Warranty

If you’re buying a new or used vehicle from a dealer, you might be asked if you want to purchase extended warranty coverage. Extended warranties may cover basic maintenance or repairs to the vehicle for some time beyond the original manufacturer’s warranty.

Whether it makes sense to pay extra for an extended warranty can depend on the age of the vehicle, how long you plan to own it, and how much cash you have in reserves to cover repairs and maintenance. The cost of an extended warranty can be added to your auto loan’s terms, meaning it would affect your monthly payment.

Interest Rate

The interest rate on a vehicle loan is simply the rate that’s charged annually, without factoring in any fees. Interest rate was already mentioned as a part of your APR, but it’s helpful to know what it means by itself, too.

A lower interest rate can translate to a lower APR, but when you’re comparing car finance terms, you mustn’t get the two of them confused. If you have two loans you’re considering, you may want to look at each of their interest rates side by side as well as their APRs to get a sense of the costs. That way, you’re comparing apples to apples vs. apples to oranges, as the saying goes.

Recommended: 144 Month Auto Loans

Loan Term

A car loan term simply means how long you’ll make payments on the loan. Auto finance terms may largely depend on how much you’re borrowing. A larger loan amount might require a longer loan term so that your monthly payments are affordable for your budget. A smaller loan may require less time to pay off.

Usually, car loans range from two years to eight years, though you may find exceptions. A loan term of five or six years is common.

Monthly cost is important to consider when choosing a car loan term, but also think about what the timeframe means in terms of how much interest you’ll pay. Generally, the longer the loan term, the more the interest charges will add up over time. Paying off a shorter loan term could make the payments higher, but it can reduce the amount of interest you’ll pay altogether.

Loan to Value Ratio

Loan to value ratio (LTV) represents the total dollar value of your vehicle loan divided by the car’s actual cash value. Actual cash value is what the car is worth according to independent valuation providers, such as Kelley Blue Book. Making a larger down payment can reduce your LTV ratio.

Recommended: How to Sell a Car You Still Have a Loan On

Principal

When it comes to car loan definitions, it’s important to understand that auto loan principal is terminology for the amount you owe minus any interest, fees, or finance charges. When you make payments on a vehicle loan, part of what you pay is applied to the fees and interest, while the rest is applied to the loan’s principal.

Your lender or financing company should provide you with an amortization schedule that breaks down how your payments are applied. Typically, a higher percentage of your payments will go toward interest and fees during the early part of your loan term. Once most of the interest is repaid, more of your payments will go toward the principal.

Total Cost

Total cost is a simple car loan term that means the total amount you’ll pay for financing. This amount includes the principal, interest, fees, and any money you apply toward a down payment.

Recommended: Smarter Ways to Get a Car Loan

The Takeaway

Auto loans can vary, so it’s important to understand the terminology and to do your research before selecting one. When you’re comparing vehicle financing options, it’s a good idea to consider what different lenders offer in terms of interest rates, fees, repayment terms, and loan amounts.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is the typical term for a car loan?

Car loan terms usually range from two to eight years, with five or six years being typical.

Are most car loans fixed-rate or variable?

Most car loans are fixed-rate, but variable-rate loans may also be available. While a fixed-rate loan could end up being more expensive if rates drop, it can be helpful to have a consistent monthly payment when budgeting.

What is a car loan’s APR?

A car loan’s APR is the annual percentage rate. This figure reflects the interest rate plus any other fees and loan costs. It more accurately reflects the cost of the loan than simply the interest rate.

Photo credit: iStock/takasuu

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOALR-Q225-033

After taking out a loan to buy a car, you may discover that there are better options available with better terms or lower interest rates. If this is the case, you can refinance your auto loan almost immediately.

You may have to wait a month or longer while your dealer and the local Department of Motor Vehicles (DMV) process your paperwork, but once that’s complete, you can pursue a new auto loan that better fits your financial situation.

Keep reading to learn more about how soon you can refinance a car loan after purchase, including reasons to refinance your car, pros and cons of auto refinancing, and the steps to take to refinance your car.

What Is Auto Loan Refinancing?

When you refinance a loan, you replace your existing car loan with a new one. Ideally, the new loan will have better terms and/or a lower interest rate, which may help you improve your financial circumstances.

Your interest is included in your monthly payment, and a lower interest rate means your monthly payments will potentially be more manageable and you’ll pay less over the life of the loan.

You can also lengthen or shorten the term of your loan. Lengthening this period can make your monthly payments smaller, but may mean you end up paying more interest in the long run.

When Should You Refinance Your Car?

How long do I have to wait to refinance my car? Typically, consider refinancing when one of the following occurs:

•   You can’t afford your payments. If you’ve lost your job or otherwise find yourself strapped for cash, your monthly payment or interest rate may become too expensive for you. Refinancing could help make your monthly payments more manageable.

•   You’ve built your credit. If you’ve built your credit since you took out your original loan, banks may be willing to offer you a less expensive loan than you’d previously qualified for.

•   You found a better deal. If interest rates drop or a lender is offering a promotional deal, you may want to refinance simply to save a little bit of money you can then use toward other financial goals.

No matter your reasons for considering a refinance, be aware that you are not eliminating your debt. Your original balance will stay the same, though the amount you pay over the life of the loan in interest and other fees may be different. What’s more, the refinanced auto loan may use your car as collateral, meaning your lender can seize your vehicle if you default on your loan.

Recommended: Refinance Commercial Auto Loan

How Long Should You Wait to Refinance an Auto Loan?

If you’re interested in car loan refinancing, you may submit an auto refi loan application with a lender whenever you’re ready. Waiting to apply may be right for you if you’re stalling to increase your equity stake in the car or waiting to build your credit score.

Equity is the appraised value of your vehicle minus any outstanding loan balance you owe on the car. For example, having an $8,000 car loan balance on a vehicle worth $12,000 means you have $4,000 in equity. It might not be the right time for you to refinance if you have an upside-down auto loan in which your car loan debt is greater than your car’s resale value.

Borrowers with good credit may qualify for more attractive interest rates than borrowers with bad credit. Refinancing when you’ve built your credit may qualify you for better auto refi loan rates.

Recommended: What Should Your Average Car Payment Be?

When Should You Refinance Your Car?

There is no set amount of time you have to wait before you refinance your auto loan. Below, we highlight different times when you may submit an auto refi loan application:

Immediately

Barring whatever waiting period there may be while your paperwork is sorted out, you may refinance a car loan immediately after buying the vehicle. This might be a suitable option for you if you’ve made a sizable down payment on the car and can qualify for better terms elsewhere. The initial financing you get from a bank, car dealer, or other source is not necessarily the best financing for you.

During the First 60 to 90 Days

You may apply for auto loan refinancing during the first 60 to 90 days of your auto loan contract agreement. This is the stage where you may have started making monthly payments on your loan. Refinancing at this stage may be right for you if you need a lower monthly car payment.

Six Months Into the Loan

Refinancing your auto loan six months into your term may be right for you if you can lock in a lower interest rate at this stage. Securing a lower interest rate reduces the cost of borrowing money. This can translate into sizable cost savings over the life of your loan.

Refinancing for a lower monthly payment in some cases may extend your term, and extending your term can saddle you with more interest charges over the life of your loan. A car refinance calculator can help you see whether a refinanced loan offer may increase or decrease your total interest costs.

Two or More Years In

You may pursue auto refinancing two or more years into your car loan, as well. At this stage, your credit score may have increased, you may have more equity in your car, and you may qualify for terms that work better for you. Or maybe you’re experiencing economic hardship and need a lower monthly payment. Whatever your circumstances, this may be an ideal time for you to explore whether auto refinancing is right for you.

Recommended: What Happens to a Car Loan When Someone Dies?

When Is It Better to Refinance Early?

Generally speaking, the sooner you refinance, the better. That’s because the interest rates you’re likely to get are usually better for newer vehicles than for older ones. As your car ages, you may have access to fewer favorable loans. In fact, some lenders won’t even consider refinancing loans for cars over a certain age.

What Are the Pros and Cons of Refinancing an Auto Loan?

While there are some real benefits of refinancing a car, there are some drawbacks to consider as well. Here’s a look at some of the pros and cons of refinancing:

When Shouldn’t You Refinance Your Auto Loan?

Here are several cases where refinancing may not be right for you:

Longer-Term Loans

Refinancing may not be ideal for borrowers with longer-term loans. If you’ve bought an exotic car with a 144-month auto loan, for example, refinancing might not make sense under those circumstances. Refinancing for a longer term may replace your existing loan with a more expensive loan product.

Meanwhile, replacing a longer-term car loan with a short-term auto refi loan may substantially increase your debt-to-income ratio. If your car loan term is seven years or longer, making extra payments on your existing loan may be a better option for you than refinancing it.

Going Upside-Down on Your Loan

As mentioned earlier, it might not be the right time for you to refinance if you have an upside-down auto loan in which your car loan debt is greater than your car’s resale value. It’s generally better to have positive equity in your car rather than negative equity that leaves you underwater. Replacing your existing auto loan with an underwater auto refi loan may not be right for you.

Prepayment Penalties and Fees

Another time when refinancing might not be right for you is if your existing car loan includes a prepayment penalty clause. A prepayment penalty is a fee that lenders may charge if you pay your loan off early.

Getting a refi loan in some cases may trigger a prepayment penalty. That’s because refinancing pays off your existing loan and replaces it with the terms and conditions of a new financing agreement. You can check your original loan agreement to see whether it includes a prepayment penalty disclosure.

Missing a Payment

Refinancing may not be the solution you need if you’ve missed a payment and find yourself delinquent on your existing car loan. Missing a payment can leave a derogatory mark on your credit report, and lenders at that point may be reluctant to offer you auto loan refinancing on terms that are right for you.

Refinancing Too Late in the Loan

Refinancing too late in the loan term may put you at risk of replacing your existing loan agreement with a more expensive loan product. Be sure to calculate the total price to refinance a car and determine whether refinancing saves you enough money to make the process worth it.

Refinancing isn’t necessarily cheap. Lenders may charge origination and processing fees, and states may charge a new title fee.

How Difficult Is It to Refinance?

Refinancing is typically a relatively simple process. After comparing your options and getting your paperwork ready, you can submit an application with the lender of your choice.

Once you’ve submitted your application and the required information, lenders may provide loan approval as soon as the same day. Online lenders, in particular, may offer a quick turnaround time, and subprime borrowers may qualify for bad credit refinancing.

How Long Does It Take to Refinance a Car?

In general, you can expect the refinancing process to take a few hours to a few weeks, depending on the lender and whether any additional information is needed to review your application.

The process may take longer if your previous lender takes a little while to apply the funds to pay off your loan. Or, the process could be dragged out if your application is incomplete or inaccurate, which is why it’s so important to make sure you’re organized and ready when you start applying.

What Are the Procedures in the Refinancing Process?

Here’s an overview of what you can typically expect in the process of refinancing an auto loan:

1. Supply Necessary Documents

The first step in the refinance process is to gather the necessary information and documents. Typically, you’ll need to provide the following:

•   Information about your existing loan, including recent statements

•   The make, model, year, and unique VIN for your vehicle

•   Proof of income

•   Proof of insurance

•   Your legal name and address

If you’re doing a same-lender refinance (which is possible), your lender may already have some of this information. Still, it’s a good idea to verify that it’s all correct to make sure your application — and the resulting offer — reflect your current situation.

2. Prequalify for Auto Loan Refinance

Next up, take some time to shop around for refinancing offers from various lenders and consider applying for prequalification. While prequalifying for a loan doesn’t guarantee approval, it can give you a better picture of what loan terms you may be able to get without dinging your credit score in the process.

Loan preapproval is another option as you’re shopping around for loans, as it can offer more concrete information on what loan terms you’re eligible for. However, it will require a hard credit pull, and the process is generally more rigorous than it is for prequalification.

Recommended: Preapproval vs Prequalify: What’s the Difference?

3. Apply for Auto Loan Refinancing

Once you’ve checked out your options and decided on the lender that’s the best fit for you, it’s time to apply for auto loan refinancing. You will need to complete an application, which is where the documents you collected at the start of the process will come in use.

This process will include a hard credit check. However, if you’re submitting multiple applications and submit them within a certain window of time — usually 14 to 45 days — they will typically only count as a single inquiry.

If you’re approved, you’ll sign the paperwork and receive details on the terms of the new loan.

4. Pay Off Existing Car Loan Debt

From here, you’ll need to make sure your old loan is paid off. While this is typically taken care of by your new lender, it’s smart to check in with your old lender to make sure everything is paid off in full before you quit making payments.

Once that’s taken care of, you’ll start making payments to your new lender. Make sure to mark down payment due dates — or consider setting up auto pay — to make sure you make your payments on time.

The Takeaway

There are no hard and fast rules about when to refinance, and you may choose to follow this path as soon as you find a loan that meets your needs.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How long after getting an auto loan should you wait to refinance?

It can be beneficial to refinance as soon as possible to take advantage of the lower interest rates typically offered for newer cars. Ultimately, however, you should make the decision to refinance when you’re able to find a loan with terms and an interest rate that meet your financial needs.

What are the pros and cons of refinancing?

Refinancing can potentially help you lower your interest rate, saving you money over the life of your loan, or change the length of your loan to make your monthly payment more manageable. There are some drawbacks to consider, however. Closing costs and other fees can eat into your savings. And if you extend the life of your loan, you may end up paying more in interest in the long run.

Will refinancing hurt my credit?

Refinancing may temporarily lower your credit score. When you apply for a loan, lenders make what is known as a “hard inquiry,” which is entered into your credit report, causing a small reduction. Also, when borrowers take on new debt, they may be more likely to miss payments. A lower score reflects this possibility. However, monthly on-time payments could help build your score over time.

Can you refinance a car within six months?

Yes, you can refinance a car loan within six months if you meet a lender’s underwriting standards and qualifications.

Is it possible to lower car payments without refinancing?

Yes, it’s possible to lower car payments without refinancing. If you’re experiencing economic hardship and need a lower monthly payment, your lender may be willing to renegotiate the terms and conditions of your loan agreement. It’s possible your lender may agree to a loan modification if you request a lower monthly payment. A loan modification could restructure or amend your existing loan agreement in a number of ways, including a change to your loan term and monthly payment amount.

Photo credit: iStock/PeopleImages
SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q225-032

Refinancing a car loan can be a smart financial move, especially if you’re looking to lower your interest rate, reduce your monthly payments, or adjust your loan term. But before signing on the dotted line, it’s important to ask the right questions to ensure you’re making the best decision for your situation.

From understanding the total cost of refinancing to evaluating potential savings, asking the right questions can help you avoid surprises and maximize your benefits. Here’s what to ask when you’re considering refinancing your auto loan.

1. Do I Qualify for Car Loan Refinancing?

There’s no guarantee that you’ll be approved for auto refinancing. It can be difficult to qualify for an auto refi loan if you have bad credit or a high-mileage car. Even if you have excellent credit, a lender may be unwilling to refinance your car loan if you owe less than $5,000 on your loan.

Each lender has its own eligibility requirements and underwriting standards. Prequalifying for an auto refinance loan doesn’t guarantee loan approval, but it may help you determine whether refinancing is right for you.

2. Will Refinancing Impact My Credit Score?

Yes, refinancing affects your credit score because it requires a hard credit inquiry. This means that when you apply for a refinancing loan, your credit score may for a time drop by as much as 10 points.

And while you’ll likely want to shop around for the best loan terms, submitting multiple applications over several months can ding your credit score. However, timing is everything. If you submit all of your applications within a short window, the impact on your credit score should be the same as if you’d only submitted one application.

Keep in mind that the age of the debt is a factor in your credit score. Taking on the refinancing debt increases your amount of newer debt, which may also temporarily ding your credit score.

In the aftermath of acquiring your loan, much of what happens to your credit score depends on you. For example, if you use the savings from your lower monthly payments to pay off higher interest debt, reduce your credit utilization ratio on your credit cards, or pay off old collections accounts that drag down your score, these actions may help rebuild your credit record. And of course, if you pay your loan back in a timely fashion, that can work toward building a positive credit history, too.

Recommended: Refinancing With Same Lender

3. Is Cash-Out Auto Refinancing Worth It?

Cash-out auto refinancing allows you to borrow against the available equity in your financed car. This can provide you with a lump sum of cash for covering personal expenses, but there are some potential downsides to cash-out refinancing. For one, it can increase your overall debt in terms of outstanding principal and total interest costs. Your personal preferences and circumstances may dictate whether cash-out auto refinancing is right for you.

4. What Will My New Payment Be?

There are several factors that may determine what your new monthly payment will be after refinancing your auto loan. These include your interest rate, the length of the loan term, and the total loan amount. Each potential refi lender should let you know exactly what the payment would be so that you can compare it with your current monthly obligations and other refi loan offers.

Recommended: What Should Your Average Car Payment Be?

5. What Will My New Interest Rate Be?

Ideally, your new interest rate will be lower than the one you’re paying now. If you can’t get a lower interest rate, refinancing will likely lose much of its appeal.

The odds are in your favor if you’ve built your credit score since you got your first loan. If interest rates have generally dropped, too, you may also qualify for a better deal for you.

On the flip side, if your credit score has dropped, you’re likely to face the consequences, meaning you won’t necessarily qualify for the best interest rates — or even the same ones you got before. Also, if your car’s appraisal value has declined significantly, you’re likely to receive a higher interest rate.

6. How Long Will My New Loan Term Be?

Some borrowers may qualify for auto refinance loan terms up to 84 months. Creditworthy applicants may have the option to choose either a short or long term. A longer term may provide you with a lower monthly payment, but it could also increase your total interest costs over the life of the loan.

Refinancing may not be right for you if it leads to an upside-down car loan. This describes a situation in which the outstanding balance on your auto refi loan is greater than the resale value of your refinanced car. Being underwater on a car loan is generally not an ideal situation.

However, if you’re unable to afford your monthly payments, refinancing for a longer term may provide you with a much-needed lower monthly payment.

Recommended: 144-Month Auto Loan

7. How Soon Can I Refinance a Car Loan?

You can technically refinance a car loan at any time, but most lenders prefer you to wait at least 60 to 90 days after the original loan begins. This gives the initial lender time to finalize the title transfer and for your payment history to start building. Lenders also want to see that you’ve made at least a couple of on-time payments, which shows you’re a responsible borrower. Some lenders may have their minimum time frames, so it’s worth checking their policies before applying.

That said, there are certain particular times when you might consider refinancing. These may include when interest rates are significantly lower than what you’re currently paying or when your credit score is now higher than when you got your current loan (since you will likely be offered a more favorable interest rate this time).

8. What Fees Are Associated With Auto Refinancing?

There are usually fees involved in refinancing, which may vary by lender, your state of residence, or the state where your refinancing lender is based.

Some fees are relatively standardized, including the transfer of lien holder fees and state re-registration fees (which can cost more than $200 in some cases).

However, other fees may depend on your old and new lenders. They can include the following:

•   Prepayment penalties. Your existing lender might have prepayment fees. Many lenders don’t charge these, but if yours does, calculate whether those fees will cost you more than you’d save with a new loan.

•   Application fees. Your new lender might charge you an application fee for filing the papers. Don’t be shy about asking the lender to waive the application fee, though.

•   Transaction fees. There could also be a transaction fee, an administrative fee, or a processing fee charged when you terminate your loan.

9. What Should I Be Aware of in the Fine Print?

You have to be a bit of a sleuth when you’re thinking about signing any sort of contract. You want to be on the lookout for disclosures and details about any and all fees. Do ascertain whether there are prepayment penalties for early payoff of the loan, for example.

Also, be aware that your loan could include items you might have no interest in, like gap insurance, which could add more costs to your refinance. Take your time and review the fine print; it could save you money and costly misunderstandings.

The Takeaway

Refinancing your car loan can mean a positive difference to your finances if you get a lower interest rate and lower monthly payments. Asking questions can help you be sure you’re making your decision based on solid information.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Do I qualify for refinancing?

You may qualify for auto refinancing if you have a steady income, you’ve built your credit score, and your car is newer with sufficient value. Lenders also consider your current loan balance, payment history, and whether your vehicle meets mileage and age requirements. Each lender’s criteria may vary.

What will my new loan payment be after refinancing?

Your exact new loan payment depends on your individual situation. But typically, when you refinance, it’s most often so that you can get a lower monthly payment. Potential refi lenders should tell you what your monthly payment would be if you refinanced with them so that you can compare your options.

What will my new interest rate be after refinancing?

Ideally, when you refinance you’ll be getting a lower interest rate than you have on your current loan. What that rate is may depend on factors such as your credit score, the value of your car, and prevailing market rates, among other things.

How long will my new loan term be after refinancing?

How long your new loan term will be depends on what you work out with your new lender. Ideally, you’ll be aiming for the shortest term that you can afford, that way you can minimize the amount of interest you end up paying over the life of the loan.

Photo credit: iStock/Jinda Noipho

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q225-031

Technically, there’s no minimum credit score required to refinance your car. Your score is one of multiple factors that lenders review as part of your application.

That said, you’ll typically qualify for better interest rates with a strong credit profile. But having bad credit may not automatically exclude you from getting approved, either. You will, however, likely pay more to borrow than a person with a score of 600 or higher.

Here, learn the ideal credit score when refinancing an auto loan, how your credit score will impact your new loan, current auto refinancing rates, and more.

Is There a Minimum Credit Score to Refinance an Auto Loan?

There’s no specific credit score that’s needed to refinance your car. Loans are available for people with a wide range of scores. However, typically, a FICO® score of 700 or above will give you access to the most favorable loan offers, while a score of 600 or higher means you’ll likely get standard offers.

As you start shopping for a new loan, it’s important to consider your reasons for refinancing your auto loan:

•   The first reason you might want to refinance would be that you might now qualify for a better interest rate than when you first got your car loan. That could be because rates have lowered in general or because you have built your credit score. A lower interest rate could reduce how much you dole out in interest over the life of the loan.

•   Another common reason for refinancing is to simply lower your monthly payments and take some stress off your budget. You might do this by extending your loan term. However, this means you’ll be making car payments for a longer period of time and may pay more in interest over the life of the loan.

How Different Credit Levels Affect Auto Loan Refinancing

Refinancing a car is usually most difficult when you have a bad credit score, meaning between 300 and 579. However, you may still be able to get approved, especially if you’ve demonstrated a strong track record of making your current car payments on time.

Another strategy that could help you get approved is to refinance with a loan cosigner. This puts another person on the car loan with you. The idea is that their credit score and even potentially their income could help you get approved. It also puts your cosigner on the hook for the payments if you don’t make them, and their credit can be damaged significantly if you miss payments. (Worth noting: The cosigner has no legal claim to the vehicle unless you add them to the title.)

With a good credit score, you’re more likely to get approved for a refinance and with a more competitive rate. However, your income still needs to support the loan payments. A lender will verify your income as part of the application process and also compare it to your debt levels.

This comparison is called your debt-to-income ratio. If your monthly debt payments are too large compared to your income, you could have trouble getting approved.

Recommended: What Should Your Average Car Payment Be?

Cash-Out Refinance and Credit Scores

In many cases, the best time for refinancing may be when your car is worth more than you owe.

This situation could arise for a couple of different reasons. The first is that you’ve taken good care of your car and it hasn’t depreciated too quickly. The second is that you’ve been making extra payments on your car loan, keeping your overall balance lower than the value of the vehicle.

In these scenarios, you could apply for a cash-out refinance on your auto loan. This lets you take out a larger auto loan and receive the cash difference between the smaller, original loan and the new, larger loan. The car is used as collateral, just as it would be with any other auto loan. However, you do lose the equity you had before.

A cash-out refinance can negatively impact your credit score, so that is something to keep in mind. When you apply, you’ll likely see a slight dip once the lender performs a hard credit check.

Additionally, a cash-out refinance can change the overall amounts you owe and a higher overall level of debt could lower your score.

Increasing Your Odds of Approval

If you’re thinking about refinancing an auto loan, you can take a few steps to increase your chances of approval.

•   First, make sure your credit history is accurate. You can do this by checking your credit reports. Double check that your balances are accurate and that no fraudulent accounts have been opened in your name. You can file a dispute with the credit bureaus if you see something that is inaccurate.

•   Next, continue to pay your bills on time, especially your car payment. Most lenders use an industry-specific credit score to buy a car. This places a great priority on your previous auto loan payments.

•   Also, it can be a good idea to work on paying down your debt, especially if you’re concerned about your debt-to-income ratio. Not only can lower debt amounts build your credit score, it may also help you qualify for a higher loan amount. The maximum debt-to-income ratio allowed by a lender is usually between 45% and 50% (including the new car payment), but many lenders prefer no more than 36%.

For example, say your monthly income is $8,000 and you’re already paying $1,250 on a mortgage, $250 on a car loan, and $250 on other debts. That puts your debt-to-income ratio at 25% ($2,000 divided by $8,000), leaving you comfortably below the usual requirement.

How Does an Auto Loan Refi Affect Your Credit?

When you take out a new loan, your credit will be impacted in a few different ways. However, that doesn’t mean that refinancing your car is a bad idea, as long as it helps you meet your primary financial goals. A few ways auto loan refinancing affects your credit score includes:

New inquiry on credit report: When you’re figuring out what kind of interest rates you can get, remember to rate-shop in a set window of time. Auto credit bureaus may count multiple hard inquiries for the same type of loan as just one inquiry if they’re performed within 14 to 45 days, depending on the scoring method being used. If you’re sporadic with your applications, you could cause your credit score to drop up to five points for each one.

New account: Part of your credit score is based on the combined age of all your accounts. When you refinance an auto loan, you’re closing one account and opening another. That can cause your average age of accounts to go down and cause a drop in your score.

Amounts owed: A new car loan could cause a big dip in your score since it’s adding a large amount of new debt. But a refinanced car loan is usually for the same amount as the debt you already have, so it shouldn’t have a huge impact unless you do a cash-out refinance.

Recommended: Loan After Rebuilt Title

Auto Loan Refinance Rates

Of course, interest rates vary among different lenders. But the following chart may help you get a sense of what you’re likely to be offered.

Average Auto Loan Interest Rates

The credit bureau Experian® published the average auto loan rates based on credit range for the third quarter of 2024. This gives you a jumping off point about what you might expect when it’s time to refinance.

How to Look for Auto Loan Interest Rates

It’s important to shop around for auto loan refinance rates no matter what your credit score may be. One way to compare multiple rates without hurting your credit score is to use online tools that allow you to gather options. Dig into the details, however, to be sure you understand the annual percentage rate (APR), fees, and terms, and know the true cost of the loan, both in terms of your monthly payment and the overall cost of borrowing.

Once you find the best refinance quote, you can finish the application with your lender of choice.

Recommended: Refinancing After Repossession

The Takeaway

You can qualify for an auto loan refinance with a wide range of credit scores, depending on the lender and your other credentials. However, the higher your score, the more likely you are to get favorable rates and terms on your refinance. Getting a cosigner or taking the time to establish a stronger credit history can help you get more favorable interest rates on your car loan refinance.

And, of course, comparison shopping (within a short window of time) can also help you find the loan that is best suited to your needs.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What is a good credit score for refinancing a car?

You will typically need a credit score of at least 600 in order to qualify for a refinance car loan. Those with higher scores are likely to access more favorable (or lower) rates and terms.

Can I refinance my car loan with a 500 credit score?

It can be challenging to refinance an auto loan with a credit score of 500. If you do find a lender, you will likely face very high interest rates and fees, as well as less favorable terms. Make sure you fully understand the total cost of the loan and your options before signing on.

Can refinancing hurt your credit?

When you refinance a loan, the lender typically does a hard credit pull to review your credit file. This causes a small (perhaps several points) drop in your credit score, which is temporary. Your score should be positively impacted as you make on-time payments and follow other credit-building habits.

Photo credit: iStock/MicroStockHub

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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