Refinancing a car may not be the best for everyone. If you’re considering refinancing it’s likely that you’ll have two reasons: lower your monthly payment or lower your interest rate.

Why Refinance a Car Loan?

If you’re running low on money, want a better interest rate or just better terms – refinancing can be the best way to get your loan restructured the way you want it. Refinancing may not be the best move for everyone and you should really consider your options before signing a new loan.


Refinancing is a form of auto financing and can be helpful in many situations but most people refinance their car to lower their monthly payment or interest rate.


You’ll want to understand the cost of refinancing before you do. Aside from any specifics needed for your new loan, like a down payment, you’ll almost always be extending your loan payments for another 2+ years and pay back even more interest over time.


You can refinance a used car loan and a new car loan but you may have an easier time if the car you’re refinancing is newer and you’re in good standing.


Unfortunately, if you have leased a car you are not able to refinance and instead you will have to look into other options, such as lease swapping.

Refinancing a Car Loan

Get connected with dealers near you that help with refinancing car loans.

How to Refinance a Car Loan with Bad Credit?

Even with bad credit, it is possible for you to refinance your car loan to get a lower interest rate or better terms. By refinancing you’re replacing your existing loan with a new one that will hopefully save you money or keep you from being underwater.


As you’re shopping around for lenders the thing to think about is that you’re really just applying for a new loan and not any special loan.


Typically you should plan for income verification, at least a 650 credit score and possibly a down payment if you refinance with bad credit. The general rule of thumb is that you can’t get a car loan with bad credit then you’ll likely have a hard time refinancing.

Should you Refinance an Auto Loan?

Before you refinance your car you should really think if it’s right for you. In many cases it’s not in your best interest to refinance, especially if you’re over 50% of the way done with paying off your loan.

There are some things to consider before refinancing a car:

  • Lenders will have strict refinancing requirements. Review the requirements with each lender that you get offers from and make sure to ask about any specific details. For instance, most banks won’t refinance a car older than 10 years.
  • Possible prepayment penalties for paying early. Depending on who you have your auto loan through you may get charged if you pay it off early. If the money you’ll save over the life of the loan is more than the penalty, it may be worth it to refinance.
  • Your interest rate. If the interest rate you qualified for today is significantly lower than what you currently have, it may be a good time to refinance. Keep in mind a significant drop in interest is 1.5-2% or more, not a .5% drop.
  • Your credit score. If you have gotten a better credit score than when you first took out the loan you can likely qualify for a better interest rate.
  • Your income and any changes to income. If you’ve had a change in income, such as a loss of wages, it may make sense to refinance to lower your payment.
  • Remaining time on your current loan. Refinancing and extending your loan term can lower your monthly payments and put more money in your pocket but it comes at a cost – paying more interest over time on top of interest you’ve already paid.

Best Time to Refinance a Car Loan

The best time to refinance your car loan is when you can make a strong difference in your financial situation with a lowered payment or interest rate.


In most cases, you won’t be able to refinance your car loan before 6 months and many lenders will require at least 12 months of on-time payments before offering you a refinance.

Learn More about Refinancing