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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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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.

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SoFi's marketplace is owned and operated by SoFi Lending Corp.
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SOALR-Q225-030

Auto loan refinancing involves replacing your current car loan with a new one — ideally with more favorable terms. Depending on your financial profile, refinancing could qualify you for a lower interest rate, which may reduce your monthly payments and help you save money over the life of the loan.

How Car Loan Refinancing Works

When you refinance, you’re essentially negotiating a new agreement that could offer better rates or a more manageable payment schedule. Comparing lenders is key, as it allows you to find the most competitive offers. The best refinance option should match your financial goals, whether that’s minimizing interest, lowering your monthly bill, or both.

Here’s an example of what an auto refinance may look like:

Sam took out a car loan in late 2023. At the time, Sam had a low income and credit score, plus a fair amount of debt. This financial situation resulted in an interest rate of 16.56% for a subprime borrower on a used car — higher than the national average of 10.79% for used cars back then.

Since purchasing the car, Sam’s income has risen, his debt has shrunk, and he’s built his credit score. As a result, Sam thinks he may qualify for better interest rates today.

Seeking the lowest auto refinance rates, Sam decides to investigate car loan refinancing by:

1.    Setting goals for the new loan, such as an improved auto loan refinance rate.

2.    Researching online and brick-and-mortar lenders, including his current lender (refinancing car loans with the same lender is possible), and inquiring about possible loan terms.

3.    Self-reporting information to preferred lenders to see what prequalifying auto refinance rates look like (if available).

4.    Reading the fine print for preferred potential lenders to make sure all terms are clear.

5.    Applying to refinance the car loan with a preferred lender.

Given Sam’s income, debt-to-income ratio (DTI), and credit score improvements, a lender may offer him a loan with more favorable auto refinance rates and terms.

When to Think About Refinancing a Car Loan

•   Your credit score or debt-to-income ratio have greatly improved

•   Car loan interest rates have dropped in general

•   You realize your current loan is not right for you

•   You want to change the term of your loan

•   You have a subprime auto loan and want to explore refinancing car loans with a cosigner

•   You need a lower monthly payment

Required Information for Refinancing a Car Loan

When you apply to refinance a car loan with a new lender, you may need to provide information proving your identity and car ownership. Some of these documents and details may include:

•   Driver’s license

•   Proof of residence (e.g., a utility bill)

•   Income verification (e.g., a pay stub)

•   Car registration details

•   Your Social Security number

•   Your credit score (via a credit check)

•   Insurance documents

•   10-day payoff amount from the current lender

•   Vehicle identification number (VIN)

•   Limited power of attorney allowing vehicle title modification

•   Evidence of consistent, up-to-date payments on your current loan

This list is relatively extensive and lenders may require all of this information. Some auto refinance lenders may initially ask for a few documents and eventually request additional information to verify details.

The best auto refinance companies may deny your application if you cannot provide adequate proof of identity or proof of current financing. Applicants with excellent credit and sufficient income may qualify for the lowest auto refinance rates.

Recommended: Auto Loan Refinance Calculator

Tips for Comparing Car Loan Refinance Rates

•   Check your credit score – Lenders base rates heavily on your credit, so knowing your score helps set expectations.

•   Shop around – Compare offers from banks, credit unions, and online lenders to find the most competitive rates.

•   Look at the APR, not just the interest rate – The APR includes fees and gives a clearer picture of the total loan cost.

•   Compare loan terms – A longer term may lower your monthly payment but increase total interest paid.

•   Ask about fees – Look out for origination, prepayment, or application fees that could impact your savings.

•   Use a refinance calculator – Estimate your monthly payments and total savings to see which offer is best.

•   Evaluate lender reputation – Read reviews and check customer service ratings before choosing a lender.

•   Know your vehicle’s value – Some lenders won’t refinance older cars or those with high mileage.

Refinance Your Car Loan and Lower Your Monthly Payments

There are pros and cons of refinancing a car loan. Every situation and every lender is different. The best company to refinance auto loan debt for some borrowers may not be the best auto loan refinance company for you. This is why shopping around and comparing used car refinance rates is so important.

Potential benefits of refinancing an auto loan include:

•   Lower interest rates: If your financial and credit situations have significantly improved since you took out the original loan, you could qualify for a lower interest rate. As mentioned earlier, applicants with excellent credit and sufficient income may get approved for the lowest car refinance rates.

•   Budget-friendly monthly payments: Refinancing your loan may result in lower payments each month if you decide to extend your loan term. Keep in mind, though, that by extending your loan term, you’ll typically pay more in interest over the life of the loan.

•   Cash for other expenses: If you have positive equity (i.e., your car is worth more than your current loan amount), you may be able to borrow against that equity with cash-out auto refinancing. This means you can take out more than what you currently owe on your car and use that additional loan money to pay for other expenses.

Potential downsides of refinancing an auto loan include:

•   Lowering your credit score: A lender may pull a hard credit check before making an official auto loan refinancing offer. The hard credit check may hurt your credit score, whether or not you accept an offer.

•   Paying more in the long run: While monthly payments may be more budget-friendly in the short term, refinancing a car may entail a longer loan term. As a result, lower monthly payments can result in paying more in interest over the life of the loan.

•   Possible debt-to-income impact: Cash-out auto refinancing increases your debt burden, which can negatively impact your debt-to-income ratio and make it harder for you to qualify for other lending products.

The Takeaway

If your financial situation has improved since taking out your car loan, you could qualify for a better rate. Building a credit score, landing a better job, or paying off some other debts may cause a lender to consider an applicant as less of a risk than when they financed a car originally. Qualifying for a more favorable rate now could mean saving money over the life of the loan.

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

Can I refinance a car loan with bad credit?

Yes, refinancing an auto loan with bad credit is possible, but it may be difficult. Lenders typically handle auto refinancing on a case-by-case basis. You may be able to refinance a car loan with bad credit if you have a positive track record of making payments on your current loan or have a creditworthy cosigner. If you’re considering refinancing and are coming up empty-handed, talk to your current lender. They may be open to discussing options.

How do I know which lender is the best for my auto loan refinance?

To find the best lender for your auto loan refinance, compare interest rates, loan terms, fees, and customer service reviews. Use online tools and calculators to estimate savings. A good lender offers transparency, flexibility, and terms that align with your financial goals, such as lowering your rate or monthly payments.

Does checking my auto refinance rate hurt my credit score?

Checking your auto refinance rate with a soft credit inquiry won’t hurt your credit score. However, submitting a full loan application triggers a hard inquiry, which may cause a slight, temporary dip in your score. Comparing rates within a short time frame can help minimize the impact of multiple hard inquiries.

Can I refinance with a cosigner?

Yes, some companies allow auto refinancing with a cosigner. Some lenders may also allow qualified individuals to co-borrow. A creditworthy cosigner or co-borrower can help you get approved for better refinance car loan rates.

Who has the best auto refinance rates?

The best auto refinance rates typically come from credit unions, online lenders, and banks offering competitive APRs to qualified borrowers. Rates vary based on credit score, loan term, and vehicle details. Shopping around and comparing offers helps identify the most favorable rate for your financial situation and refinancing goals.

Can I qualify for auto loan refinancing at a lower interest rate?

Auto refinance applicants may need higher income, better credit scores, or a much lower debt-to-income ratio than they had when taking out their initial loan to potentially qualify for lower rates. That said, qualifying for a lower car loan refinancing rate is never guaranteed, no matter how much those factors may have changed in your favor.

What happens if I extend my car loan term?

Extending your car loan term can lower your monthly payments, making them more manageable. However, you may pay more in total interest over the life of the loan. It can also increase the risk of being upside-down on your loan, where you owe more than the car’s current value.

Photo credit: iStock/tomertu

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.

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-Q225-029

When you take out a car loan, the interest is the amount you pay your lender for the opportunity to borrow it. Car payments are amortized over the life of your loan, which means that in addition to the amount you’ll pay each month to pay down your principal, you’ll also owe interest.

The interest rate you’ll be offered on your loan will vary depending on a number of factors, including your credit score and the length of your loan. Interest payments are a costly part of financing your car, so it’s important to understand how they’re calculated so you can get a clear sense of what a good interest rate is as you shop for an auto loan.

How to Calculate Interest on a Car Loan

If you want to figure out how much interest you’ll be paying each month as you make payments on your auto loan, the easiest thing to do is to find an amortization calculator online and plug in the numbers.

To figure it out yourself, you’ll need the same basic information:

•   Your interest rate

•   How often you make payments

•   Loan principal

Here is the formula to figure out how much of your monthly loan repayment goes to interest:

(Interest Rate / Number of Payments per Year) x Loan Balance = Interest Amount Owed

Let’s say you take out a five-year auto loan of $20,000 at an interest rate of 8 percent. If you’re making monthly payments, we’ll make the number of payments 12. Since we’re looking at your very first payment, the balance is still $20,000. Then, we plug in the other numbers:

(0.08 / 12) x $20,000 = $133.33. This is the amount of your first payment that will go toward interest

As you pay down the amount of your principal, the amount of each payment that’s going toward your interest will also grow smaller.

Car Loan Interest Formula

A car loan may include daily simple interest charges and a fixed monthly payment. This means a variable portion of your monthly payment may go toward principal and interest.

A larger portion of your monthly payment may go toward interest at the beginning of the term, and a smaller portion of your monthly payment may go toward interest near the end of the loan term.

As mentioned earlier, you can use this simple interest formula to calculate how much of your monthly payment goes toward interest:

(Interest Rate / Number of Payments per Year) x Loan Balance = Interest Amount Owed

The interest rate in this formula is expressed as a decimal. For example, a 5% interest rate would be expressed as 0.05.

Your outstanding loan balance decreases with each payment, so this formula could be applied each month to determine how much of your payment went toward interest charges in that particular month. This is the formula used by online amortization calculators to estimate total interest costs over the life of your car loan.

Recommended: Simple Interest vs Compound Interest

Car Loan Interest Example Calculations

Here are some car loan interest example calculations:

48 Months at 3%

A 48-month car loan with a $25,000 loan balance, 3% annual percentage rate of interest, and $553.36 monthly payment would include the following interest charge:

(0.03 / 12) x $25,000 = $62.50 interest charge for the month in question

72 Months at 3%

A 72-month car loan with a $530.45 loan balance, 3% APR, and $531.78 monthly payment would include the following interest charge:

(0.03 / 12) x $530.45 = $1.33 interest charge for the month in question

48 Months at 6%

A 48-month car loan with a $25,000 loan balance, 6% APR, and $587.13 monthly payment would include the following interest charge:

(0.06 / 12) x $25,000 = $125 interest charge for the month in question

72 Months at 6%

A 72-month car loan with a $577.17 loan balance, 6% APR, and $580.05 monthly payment would carry the following interest charge:

(0.06 / 12) x $577.17 = $2.89 interest charge for the month in question

Recommended: What Should the Average Car Payment Be?

Simple vs. Precomputed Interest

Most car loans use a simple interest formula, which is what we discussed in the last section. This means that the amount of interest you owe each month is a percentage based on your principal, or loan balance, as of the day your payment is due.

In some cases, especially for subprime borrowers, a car loan might use precomputed interest instead of simple interest. This means lenders calculate the amount of interest upfront and add it to the principal, then divide that total by the number of months in your loan term to get your monthly payment. Your payments don’t apply to interest and principal separately.

And if you make extra payments, you likely won’t be able to lower the amount of interest you pay over the life of the loan as much as you would by prepaying on a loan with simple interest. However, if you’re only going to make the minimum payment each month, it may not make much difference to you.

Recommended: How Much Is My Car Really Worth?

How Is Interest Paid on a Car Loan?

The average interest rate on new car loans in the first quarter of 2025 stood at 7.1%, according to Edmunds.

In the early months of your loan, you’ll owe more interest, and a greater portion of your monthly payments will go toward paying it off. As your loan balance gets smaller, you’ll owe less interest. Thus interest will become a smaller portion of your monthly payment, and more of your money will go toward paying off your principal.

If you prepay your loan (meaning you make one or more larger payments than the amount due), you can pay down your principal faster, potentially decreasing the amount of interest you owe. Be aware that some lenders charge prepayment penalties, so check your loan agreement before making prepayments.

Is Car Loan Interest Tax Deductible?

Car interest is tax-deductible in limited cases. Traditional employees generally can’t deduct interest paid on a car loan, but self-employed taxpayers may deduct car loan interest if they use the car for business purposes.

A tax deduction can reduce the amount of income tax you may have to pay or increase the size of your tax refund. The car interest deduction is limited to self-employed taxpayers who pay interest on a car loan and use the vehicle for business purposes.

The amount of car loan interest a self-employed taxpayer may deduct is determined by how much the taxpayer uses the vehicle for business purposes. Self-employed taxpayers who use their vehicle 60% of the time for business may deduct 60% of their car loan interest when reporting profit or loss from their business. Always consult a tax professional to ensure proper documentation and eligibility.

Car Loan Interest vs. APR

As you shop for auto loans, in addition to interest rate, you may also see the annual percentage rate (APR) listed. These two numbers are usually pretty close together, but APR can give you more information about how much you’ll actually owe over the life of your loan.

While the interest rate is a percentage that shows you how much you will pay to borrow alone, APR is a percentage that shows you your interest rate plus any other fees you might owe. APR illustrates total costs for financing a vehicle. The federal Truth in Lending Act generally requires that all lenders disclose APR, which can make it a good metric to use when comparing the true cost of borrowing as you shop for a loan.

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

What Determines Interest Rates on Car Loans?

There are a variety of factors that may influence a lender’s auto loan interest rate offers. We highlight some of these factors below:

Type of Lender

Some lenders, particularly captive finance companies, may offer 0% APR on new car loans for a certain number of years. The following lenders may offer their best rate to borrowers with excellent credit:

•   Banks

•   Credit unions

•   Buy here, pay here dealerships

•   Independent finance companies

•   Captive finance companies affiliated with auto manufacturers

New vs Used Financing

Used vehicles tend to carry higher interest rates than new cars. While the average interest rate for a new car loan was 7.1% during the first quarter of 2025, it was 11.3% for used cars.

Credit Score

Lenders may use your credit score as an indicator of how likely you are to pay down your debt on time. They see borrowers with higher scores as less risky and will typically offer them lower interest rates. In the first quarter of 2025, borrowers with the highest credit scores saw rates of 4.77% on average for new vehicle financing, while borrowers with the poorest credit scores saw interest rates of 15.75% on average.

Recommended: Does Financing a Car Build Credit?

Loan Term

Lenders see longer loan terms as riskier, so they may charge higher interest rates for them. This can lead to a phenomenon known as an upside-down loan. Cars generally depreciate quickly, and a long term and higher interest rate may mean you’ll eventually end up owing more on your loan than your car is worth.

Down Payment

A lender calculating car loan APR may offer you a lower interest rate based upon the size of your down payment. The more money you put down when you buy a car, the lower the interest rate a lender is likely to charge. It follows that the less money you put down, the more it will charge. That’s because your lender wants to balance the risk that you might default and leave them with a depreciated vehicle worth less than the amount you had left on your loan.

Interest Rate Environment

The interest rate environment can influence a lender’s decision-making concerning auto loan financing. When the Federal Reserve raises its fed funds rate target range to combat inflation, lenders may follow suit by raising their interest rates on consumer loans. Interest rates on consumer loans may be more affordable when the Federal Reserve lowers its fed funds target range to stimulate the economy.

Recommended: Gap Insurance Refund After Refinancing

Average Car Loan Interest Rates

The average car loan interest rate will vary depending on a person’s credit score and loan term and whether they’re buying a new or used vehicle. Here’s a look at key data highlighted by Experian:

Tips for Lowering Interest on Your Car Loan

If you want to pay less interest on your car loan, there are a few options that may help.

First, when you’re selecting a loan, you can choose one with a shorter term. Though this will increase the size of your monthly payments, you’ll pay less interest over the life of the loan.
Prepaying your loan can also reduce the amount of interest you pay if you have a simple interest loan. As you pay off your principal, the amount of interest you pay will get smaller faster.

Just look into whether your loan carries any prepayment penalties. Even if it does, you might be able to save money by paying your loan, or part of your loan, early.

You might also consider refinancing your loan, especially if interest rates drop or you build your credit score. When you refinance, you can pay off your old loan with a new loan that hopefully offers you a term or interest rate that better fits your needs.

Recommended: What Credit Score Is Used for Refinancing?

The Takeaway

Once you understand how interest is calculated, the factors that can affect it, and how it differs from APR, you’re in a better position to compare auto loans and find the one that’s right for you. You’ll also have a better sense of the strings you can pull if you ever want to pay less interest on your loan, whether by prepayment or refinancing.

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 car loan interest tax deductible?

Car loan interest is tax-deductible in limited cases. Traditional employees generally can’t deduct interest paid on a car loan, but self-employed taxpayers may deduct car loan interest if they use the car for business purposes.

Does paying a car loan off early mean you pay less interest?

Yes, paying off a car loan early typically means you pay less interest overall. Since interest accrues over time, reducing the loan term cuts down the total amount paid. However, check for prepayment penalties, as some lenders charge fees that could offset your savings from early payoff.

Can you calculate car loan interest manually?

Yes, you can calculate car loan interest charges manually if you know the interest rate and the outstanding loan balance. This applies to simple interest car loans in which the interest you owe each month is a percentage based on your loan balance. Interest on a precomputed interest loan is calculated by the lender upfront.

What is the formula to calculate car loan interest?

The formula to calculate how much interest you owe when making a monthly payment on a simple interest car loan is (interest rate/number of payments per year) x loan balance. The interest rate is expressed as a decimal in this formula. For example, a 5% interest rate would be expressed as 0.05. Getting $25,000 in car loan financing with a 5% simple interest rate would include a $104.17 interest charge in the first monthly payment as calculated under this given formula.

Photo credit: iStock/busracavus

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-Q225-028