The true cost of auto loan refinancing can include transaction fees and other potential charges. While you may save money in the long run if you refinance at a lower interest rate, there may still be some hidden costs involved in refinancing your car loan. Read the fine print before signing any loan agreement so you’re fully aware of what those fees are.
Key Points
• Refinancing a car can involve various fees, including application fees, processing fees, and sometimes prepayment penalties on your existing loan.
• The cost of refinancing can be offset by securing a lower interest rate, which can reduce your monthly payments and the total interest paid over the life of the loan.
• Extending the loan term can lower your monthly payments but may increase the total interest you pay over the life of the loan.
• Your credit score can significantly affect the cost of refinancing. A higher credit score can help you secure better terms and lower interest rates.
• It’s important to calculate the break-even point to determine how long it will take for the savings from refinancing to outweigh the costs, ensuring it’s a financially sound decision.
What Is Car Refinancing?
When you take out a loan to purchase a car with, you can refinance that loan at any time. Refinancing simply means that you take out a new loan to pay the remaining balance on the existing one, ideally at a lower interest rate.
Here’s an example with more detail. Let’s say you currently owe $10,000 with Star Car Loan Company and have decided to refinance with Moon Auto Lenders. Moon Auto will send $10,000 to Star Car to pay off your loan balance. Moon Auto will then take over the lien on your car. That means that if you can’t pay your new refinanced loan, Moon Auto can seize your car to cover what you owe. You’ll then start making monthly payments to Moon Auto until your loan is paid off (with interest).
The True Cost of Refinancing a Car
Although you may save money if you refinance your car loan, you need to find out first whether refinancing your car will cost money. Some lenders charge transfer, exit, and/or upfront fees that can reduce the money you might save with that lower interest rate.
Here are some potential charges to look for as you’re trying to figure out how much it may cost to refinance your car:
• Early termination fee. Some lenders may charge you this fee if you pay your loan off early. See if your current lender has such a policy and, if so, how much it will cost you.
• Transaction fee. Both your current and new lender may charge a processing or application fee. (Some new lenders may be willing to waive this fee, so ask.)
• Late payment fee. If you make a late payment on your refinanced loan (or the current one, for that matter), your lender may charge a late payment fee.
• Registration fee. Some states may require you to re-register your car when you refinance.
• Title transfer fee. Some states may charge a title transfer fee as the title moves from your old lender to the new one.
If you owe more than your car is worth, it may be challenging to find a lender who will refinance your loan. Some lenders may be willing to do so with an upfront cash payment to make up for the difference between what your car is worth and the amount you’re borrowing.
While these various fees and costs may not be large, they can add up, so read the fine print so that you know what added expenses your car refinance could involve.
Pros and Cons of Car Refinancing
There are many pros and cons to refinancing a car. The biggest benefit is the potential cost savings you could get if you refinance at a lower interest rate, but there’s no guarantee you’ll get a lower rate.
Another benefit is that if you’re struggling to pay your monthly loan payments, you may be able to lower what you pay each month if you refinance for a longer period. The drawback here, however, is that you may not save in interest, since most car loans have higher interest rates for loan periods of 60 months or longer.
Another potential drawback is the fees. Some refinancing lenders charge fees, and that can add to the cost of refinancing your car loan.
Recommended: Can You Refinance a Car Loan With the Same Lender?
When to Consider Refinancing Your Car
Now let’s first talk about when to refinance a car.
Interest rates go up and down with the economy. If current car interest rates are lower than they were when you got your car loan, refinancing could save you money because you can likely get a lower rate now. Also, if your credit scores are now better than they were when you applied for your original loan, you may also qualify for lower rates.
These are both great opportunities to refinance your car loan.
Beyond those situations, you might dislike the lender on your current auto loan and might want to switch to a brand with better customer service. Or maybe you want to have a shorter repayment period with a lower interest rate so you can pay your car off faster without paying too much in interest.
All of these situations may make it worth considering a car loan refinance. Auto loan refinancing may be right for you if you can secure a lower annual percentage rate (APR). Lenders calculating APR on a car loan may determine your finance charges.
Recommended: Can You Refinance a Car Loan With Bad Credit?
When Not to Consider Refinancing Your Car
That being said, it’s not always a good idea to refinance your car.
If you owe more on your current loan than your car is worth, you may not even qualify for a refinancing loan. Even if you do qualify, refinancing an upside down car loan may not be right for you.
Or if you want to refinance $4,000 or less, some lenders won’t loan such a small amount to you.
If your car is more than 10 years old, you probably won’t be able to refinance either. Refinancing a car with high mileage can be challenging at best.
If you want to refinance, have a good reason and a plan to either save money by doing so or lower your monthly payments so you can afford them.
Will Refinancing Affect Your Credit?
You may also be wondering, does refinancing hurt your credit?
The answer is that it can impact your credit, but there should be no long-lasting harm. Whenever you apply for an auto refinancing loan, there is a hard inquiry on your credit report as the lender does a credit check to see what your financial situation is.
The good news is that if you apply or check to see if you prequalify with multiple lenders, credit bureaus see these as one inquiry rather than many. In other words: they understand that you’re shopping around for a good deal and they don’t penalize you for it.
These hard inquiries may affect your credit score temporarily but will stop impacting it within a year.
Recommended: What Credit Score Do You Need to Refinance a Car?
The Takeaway
Refinancing your car loan can unlock significant savings if you secure a lower interest rate or better terms, but it’s important to factor in potential costs — like early termination fees from your current lender, transaction or application fees, and any late‐payment charges. Always read the fine print and request fee waivers when possible.
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
Does it cost money to refinance a car?
Some lenders may charge fees for a refinance loan, including early payment fees, transaction fees, and transfer fees. Additionally, your state may require you to transfer your car title, which may also involve fees.
How much does it cost to refinance a car?
Fees may vary from one lender to another. Read your contract to find out details on specific fees. Your state may also require registration and/or title transfer fees.
Are there closing costs to refinance a car loan?
There may be closing costs, depending on your loan and lender. Check with your lender before signing your new loan agreement.
How do I renegotiate my car loan interest rate?
If you’re looking for a better car loan interest rate, you may want to check out what rates would be available to you with a refinance loan. If you feel you can get a better deal, you can refinance, either with your original lender or with a new one, ideally for a lower rate.
Photo credit: iStock/andreswd
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.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
SOALR-Q325-037