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Car refinancing is a financial tool that allows you to change the terms of your existing auto loan. It can offer benefits such as lowering your monthly car payment and reducing the interest you pay, but also comes with potential drawbacks like added costs and longer loan terms. Below, we’ll explore what car refinancing entails, its advantages and disadvantages, and alternative options to help you make the best choice for your financial situation.

What Is a Car Refinance?

Car refinancing involves replacing your current car loan with a new one, typically from a different lender. You use the new loan to pay off the balance of your existing loan, and you begin repaying the new lender based on updated terms.

The main goal of car refinancing is typically to secure better loan terms, such as a lower interest rate, reduced monthly payments, or a shorter loan term. But refinancing also comes with costs and risks, so it’s important to weigh the benefits and drawbacks carefully before you jump in.

Pros of Refinancing a Car Loan

Here’s a look at some of the key benefits of refinancing your current auto loan.

You May Reduce Your Rate

A major pro of refinancing is the potential to secure a lower interest rate. If interest rates have decreased since you took out your original loan or your credit score has improved, refinancing could help you score a better rate, and lower the total interest you pay over the loan’s life. Also, if you took out dealer financing and didn’t shop around for a loan when you bought your car, it’s possible you’re paying a higher rate than necessary. Reducing your interest rate by just two or three percentage points could help you save thousands over the life of your loan.

Recommended: Smarter Ways to Get a Car Loan

You Can Lower Your Monthly Payment

Refinancing can also lower your monthly payments, either by lowering your interest rate, extending the loan term, or both. This can free up funds in your budget for other expenses, and might provide much-needed financial relief. It can also keep you from falling behind on your payments, which can lead to late fees and negatively impact your credit.

Just keep in mind that going with a longer term can also have drawbacks, as it can lead to higher overall costs (more on that below).

You Might Be Able to Access Quick Cash

Some lenders offer cash-out auto refinance loans using your car’s equity (the value of your car minus the amount you owe on it). On top of the new loan that pays off your current one, you receive a lump sum of cash based on your equity. For example, if your car is worth $15,000 and you have $8,000 left on your loan, you might get a refinance loan for $11,000 and take $3,000 in cash. You’ll pay interest on the full amount, and cash-out refis come with some risks. As a result, you generally only want to consider this option for financial emergencies or to pay off high-interest debt.

You Can Change Your Loan Terms

Refinancing may allow you to switch from a variable interest rate to a fixed rate, offering more stability and predictability. It can also give you an opportunity to modify your loan term to better suit your financial circumstances. For example, if your income has increased, or monthly expenses have decreased, since you took out the original loan, you might be able to refinance for a shorter term and pay off your loan earlier than you originally planned.

You Can Remove a Cosigner

If your initial auto loan required a cosigner, refinancing can allow you to remove them once your financial situation improves. This can simplify your financial obligations and release your cosigner from sharing responsibility for your auto loan.

Cons of Refinancing a Car Loan

If you are debating whether to refinance your car loan, you’ll also want to keep these potential downsides in mind.

You Could Pay More in Interest

If you refinance to a longer loan term to lower your monthly payment, you’ll likely end up paying more in interest over the life of the loan. Even scoring a lower interest rate may not make up for the additional months of interest you’ll pay. While the short-term relief may be helpful, it may not be worth the added cost.

Refinancing Comes With Fees

Refinancing is generally not free. Your new lender may charge an application or origination fee, and your current lender may charge a penalty for paying off your loan early. In addition, your state may charge a fee to re-register your car or transfer the title after refinancing. These fees can diminish or eliminate the potential savings of refinancing.

You Could End Up Upside Down

Refinancing to extend the term of your car loan, or cash out equity, could put you in a position of owing more than what your car is worth. This is known as negative equity, or being upside-down on a loan. This can be problematic if you need to sell the car or if it’s totaled in an accident

For example, if you want to trade in or sell your vehicle, you’ll need to cover the difference between what the buyer/dealer pays and what you owe your lender before you can transfer the title. And if your car is totaled, your insurance agency will pay out the value of your vehicle. However, you’ll still owe the full amount of the loan (a higher amount) to your lender.

It Can Impact Your Credit Score

Refinancing triggers a hard credit inquiry, which will appear on your credit reports and can temporarily lower your credit score. While the impact is usually minor and short-lived, it’s important to consider if you’re planning other financial moves, like getting a mortgage or personal loan, in the near future.

Limited Savings for Older Loans

Generally, if you have less than 24 months remaining on your car loan, the potential savings from refinancing may not justify the effort and cost. You typically pay the most interest in the first few years of the loan, which limits the benefit of refinancing toward the end of the repayment period.

Alternatives to Car Refinancing

If refinancing doesn’t align with your financial goals, there are other ways to manage your car-related debt.

Balance-Transfer Credit Card

If your lender allows it, you may be able to transfer your auto debt to a balance-transfer credit card. If you can qualify for a transfer card with a 0% introductory rate and pay off the balance within the promotional timeframe (typically 12 to 21 months), you could save significantly on interest. You might even earn rewards from your new credit card in the process.

However, balance transfers often come with fees, usually 3% to 5% of the transferred amount. And if you fail to pay off the balance before the promotional period ends, the interest rate can jump, potentially costing you more than your original loan. This option generally works best for small loan balances and disciplined borrowers.

Personal Loan

A personal loan can be used for a variety of expenses, including paying off your car loan. These loans often come with fixed interest rates and predictable payment schedules, making them a possible alternative to auto refinancing. Going this route also gives you the option of applying for more than you need to pay off the car loan and use any additional cash you borrow for other expenses.

However, personal loans often have higher interest rates than auto loans, particularly for borrowers with average or below-average credit scores. Before opting for a personal loan, you’ll want to compare rates and calculate whether this approach would save you money compared to your existing loan.

Recommended: Personal Loan Savings Calculator

The Takeaway

Car refinancing can be a smart financial move under the right circumstances, such as securing a lower interest rate or reducing your monthly payments. However, it’s not without potential downsides, including fees, extended loan terms, and the risk of negative equity.

If refinancing doesn’t seem like the best fit for your situation, alternatives like balance transfer credit cards or personal loans may offer other ways to manage your car loan or give you more financial flexibility.

Why consider a SoFi Personal Loan? SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

SoFi’s Personal Loan was named a NerdWallet 2026 winner for Best Personal Loan for Large Loan Amounts.

FAQ

What are the advantages of refinancing your car?

Refinancing your car offers several advantages, such as lowering your interest rate, which reduces the total cost of the loan. It can also decrease your monthly payments by extending the loan term, improving your cash flow. In addition, refinancing provides an opportunity to change your loan terms, like switching from a variable to a fixed interest rate, or removing a cosigner from the loan. However, refinancing also comes with costs and risks, so you’ll want to weigh the pros and cons before you proceed.

When should you refinance a car loan?

You might look into refinancing your car loan when interest rates have dropped, your credit score has improved, or you need to lower your monthly payments. Refinancing can also be a good option if you want to adjust your loan terms for more stability, such as moving from a variable to a fixed interest rate. However, it’s important to consider potential fees and ensure the savings outweigh the costs before you proceed.

How soon can you refinance your car loan after purchase?

You can refinance your car loan as early as a few months after purchase, but it can be a good idea to wait at least six months to a year. This timeframe allows your credit score to recover from any temporary drop (due to the original lender’s hard credit inquiry). This also gives you time to establish consistent payments on the loan and shows potential refinance lenders that you are a responsible borrower. Also, some lenders require six to 12 months of on-time payments to even consider a refinancing application.

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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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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 .

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Nearly two-thirds of college graduates leave school with debt, which means many couples have to manage outstanding student loans after they get married. If you and your spouse each have multiple student loans, you could potentially end up with a large number of loans to manage in one household. That might make the idea of consolidating student loans with your spouse appealing. So, can you do it? And, if so, is it a good idea?

Yes — and maybe.

The federal government no longer offers spousal consolidation of federal student loans. However, you may be able to combine your federal or private loans by refinancing with a private lender. Whether or not that’s a wise move will depend on a number of factors, including the types of loans you have and your interest rates.

Here’s a look at options available for consolidating your loans as a couple, plus other ways to make student loan payments more manageable after marriage.

Consolidating Federal Loans

Consolidating is the process of combining your loans so you only have to make one payment and keep track of one due date, rather than several. Individual borrowers can consolidate their federal student loans through the federal government.

When you consolidate federal loans, the government pays them off and replaces them with a Direct Consolidation Loan. Your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next one-eighth of 1%.

Previously, married federal student loan borrowers could consolidate their loans together through a joint consolidation loan. However, the government ended that program in 2006 and no longer offers federal loan borrowers a way to consolidate student debt with a spouse.

Currently, the only way to consolidate federal student loans with a spouse is through refinancing with a private lender. This involves taking out a new, larger student loan to pay off all of your existing loans. The lender will base your new loan’s interest rate on your combined income and creditworthiness, and both of you will be listed as primary borrowers on the loan.

It’s important to note that consolidating in this way will convert those federal loans into private loans, which removes all federal benefits and protections, such as income-driven repayment plans and student loan forgiveness programs.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Refinancing Student Loans With Your Spouse as a Cosigner

Another way to commingle student loan repayment responsibility is to apply for refinancing with your spouse as a cosigner (or vice versa). While your loans won’t be consolidated together if you’re approved, you’ll share ownership of the loan with your spouse. This could be a good idea if you would not be able to qualify for a refinancing on your own or could qualify for a better rate if your spouse serves as a cosigner, due to their added income and/or good credit.

An advantage of cosigning versus joint consolidation is that some lenders allow you to eventually remove a cosigner from a loan, which could be useful should you ever part ways. Joint refinancing, on the other hand, generally doesn’t have an “out” clause.

Recommended: Student Loan Consolidation vs Refinancing

How to Combine Student Loans With Your Spouse

If you’re interested in combining student loans with your spouse, here’s a look at the steps involved in a joint refinance.

1.   Find a lender. You’ll need to find a lender that offers joint refinancing (not all do). Ideally, you’ll want to shop around and compare offers from multiple lenders to make sure you find the best deal. Browsing around and receiving prequalified rates won’t affect your credit, since companies will do a “soft” credit check.

2.   Apply for the loan. Once you find a lender you want to work with, you’ll need to choose which loans you want to consolidate (you don’t have to include every loan you have) and officially apply for the loan. Both you and your spouse will need to supply personal and financial information.

3.   Review your documents and sign. Once approved, it’s a good idea to carefully review all the documents you receive and check the fine print before signing anything. Confirm the loan terms you were approved for match the ones you applied for.

4.   Keep paying your individual loans until the refinance is complete. When you refinance a loan, your new lender must then pay off your old lender. It may take a little while for that process to finalize. In the meantime, it’s important for you and your spouse to continue making your payments on your individual loans until you’ve received notice from your new lender that the debt transfer is complete.

Recommended: Pros and Cons of Refinancing Student Loans

Advantages of Consolidating Student Loans With Your Spouse

Combining your student loans with your spouse’s through refinancing comes with certain advantages. Here are some to consider:

•  Simplified repayment Rather than juggling multiple student loan payments and due dates, you and your spouse will only have one payment to make.

•  A potentially lower rate If your spouse has better credit or a higher income than you, refinancing with your spouse may allow you to qualify for a lower interest rate than you’d get on your own. Together, you could potentially save money.

•  You could lower your payment You may be able to lower your monthly payment by getting a lower interest rate and keeping the same repayment term. You can also lower your payment by extending your loan term. (Note: You may pay more interest over the life of the loan if you refinance with an extended term.)

•  Fosters teamwork When you combine student loans with your spouse, there’s no longer separate debt. You have one joint goal you’re working towards as a team.

Recommended: Making Important Money Decisions in Marriage

Disadvantages of Consolidating Student Loans With Your Spouse

Although consolidating student loans with your spouse can seem appealing, there are some significant drawbacks to keep in mind:

•  Few lenders offer it Only a small number of lenders offer spousal student loan consolidation. With few options to choose from, you may have trouble getting approved or finding a competitive interest rate.

•  Loss of federal protections If you or your spouse have federal student loans and you refinance them, they become private student loans. You’ll lose federal loan benefits and protections, including the ability to enroll in an income-driven repayment plan and access to federal forbearance or deferment options.

•  Divorce could be messy When you refinance your student loans with your spouse, you are taking on a new loan together. If you end up divorcing, you’ll still be legally obligated for the combined debt and you’ll have to work out payment terms with your former spouse as part of the divorce agreement.

•  You might not lower your rate In most cases, refinancing only makes sense if you can get a lower interest rate. This is especially true if you have federal loans because you give up many protections by refinancing.

Other Ways to Tackle Student Debt as a Couple

A joint refinance isn’t the only way to manage your combined student debt load. Here are some other tips for how to manage student debt as a married couple.

•  Be honest — with yourself and your spouse Having a high student loan balance might feel overwhelming, but avoiding your debt or hiding it from your spouse can affect your relationship. You can start by getting acquainted with exactly how much you each owe, your interest rates, and the loan terms.

•  Know your repayment options If you have federal loans, it can be helpful to read up on the different plans available for student loan repayment and the pros and cons of each. If you’re having trouble making payments, you can look into income-driven repayment plans or other federal loan forgiveness programs. Speak to your loan servicer(s) if you’re concerned with your ability to repay your total loans as a couple.

•  Consider consolidating separately If your or your spouse has multiple federal student loans, consolidating with a Direct Consolidation Loan can help you better manage the loans you have in your name. If you have loans other than Direct Loans, it can also give you access to additional repayment options. Federal consolidation won’t lower your rate, however. It could also extend your loan term, which would increase your overall costs.

•  Look into refinancing separately If you (or your spouse) has higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans, refinancing could help you get a lower rate, a lower payment, or both. Keep in mind that refinancing federal student loans with a private lender means giving up federal benefits. And, if you opt for a longer loan term, you could end up spending more over the life of the loan.

💡 Quick Tip: It might be beneficial to look for a refinancing lender that offers extras. SoFi members, for instance, can qualify for rate discounts and have access to financial advisors, networking events, and more — at no extra cost.

Figuring Out the Financial Path that’s Right for You

While you and your partner can’t jointly refinance your student loans with the federal government, you may be able to find a private lender that offers a spouse consolidation loan. Other ways to manage student loan repayment after marriage include: listing all of your loans and coming up with a repayment strategy together, re-evaluating your payments plans, and looking into consolidating or refinancing your loans separately.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

Learn More” cta-url=”https://www.sofi.com/refinance-student-loan/“>

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SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FORFEIT YOUR ELIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

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.

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