If you're paying off an auto loan, you might be curious about refinancing. When you refinance an auto loan, you essentially trade your old loan for a new one. Refinancing your car loan can help you secure a better interest rate or lower your monthly payments.
In most cases, you can refinance your auto loan with the same lender. However, refinancing with a different lender can also be beneficial. Here's what you need to know about refinancing your car loan, including what to consider when refinancing with your current lender vs. a different lender.
What Is Car Loan Refinancing, and How Does It Work?
Car loan refinancing works by exchanging your existing loan for a new loan with different terms, like a lower monthly payment, lower interest rate, or longer repayment period. The process is similar to securing your original auto loan. You apply for refinancing, and multiple lenders will send you offers. Then, you choose the offer with the best terms for your situation.
After you and your lender agree to your new loan terms, your current loan will end. This can happen in one of two ways. If you choose a new lender, they will pay off your existing loan with your current lender. You then make payments under your new loan terms to the new lender. If you refinance your car loan with the same lender, they will end your current loan, and you will enter into a new loan agreement.
Can You Refinance a Car with the Same Lender?
Yes, you can usually refinance your auto loan with the same lender. While some lenders do not allow their borrowers to refinance with them, many do. Just keep in mind that your lender might not agree to refinance your loan if you took it out recently or don't meet their criteria for refinancing.
Looking to refinance? Easily compare auto loans from lenders below.
Reasons to Refinance with the Same Lender
There are many good reasons to refinance your auto loan with the same lender. Your lender knows you, has your financial paperwork on file, and can attest to your payment history.
If you've been a stellar borrower thus far, you might get rewarded with a great refinancing offer. You might also avoid an early payment fee if you have an existing relationship with your lender.
Reasons to Refinance with a Different Lender
The biggest reason to refinance with a different lender is that it allows you to price shop. Some lenders might offer better terms than your current lender, which is a potential advantage of seeking other options.
You might also be able to use the offers you get from different lenders to negotiate refinancing with your current lender. Even if you prefer to work with your current lender, it might be worth shopping around for other refinancing offers before you choose one.
When to Consider Car Loan Refinancing
There are several scenarios when it might make sense to think about refinancing your auto loan:
You Want Better Loan Terms
You might consider car loan refinancing if you can lower your interest rate. For example, if your credit score or your debt-to-income ratio has improved, you may be able to qualify for a lower interest rate. You might also get a lower interest rate if auto loan rates have recently dropped or if you want to remove a co-signer.
You Can't Afford Your Monthly Payment
It might be a good time to refinance your auto loan if you're struggling to make your monthly payments, or need to lower them to spend money elsewhere. In this case, you can choose to refinance your auto loan with a new loan that has a longer repayment period. Refinancing can help you save money in the short term while your finances improve.
You're Running Out of Time to Refinance
To refinance your auto loan, your vehicle has to meet certain requirements. If your car is close to being too old or having too many miles on it to qualify, you should think about refinancing soon. Different lenders have different cutoff points. However, many lenders won't refinance a car that's 10 years old or has more than 100,000 miles.
A Lender Has a Short-Time Offer
Some lenders offer special deals with better-than-usual terms for borrowers who refinance with them. If you see a good offer advertised, it might be the right time to think about refinancing your loan.
Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.
