How does refinancing work on a car?
Refinancing your car means replacing your current auto loan with a new one. The new loan pays off your original loan, and you begin making monthly payments on the new loan. The application process for refinancing doesn't take much time, and many lenders can/may make determinations quickly.
Car refinancing is a process that allows you to apply for a new auto loan to replace your existing loan. The main purpose of refinancing is to change your loan terms. For example, refinancing can help you lock in a lower interest rate or adjust the length of the loan if you need more time to pay it off.
- Review your existing auto loan. Find the contract for your current auto loan and gather the following information: ...
- Determine the value of your car. ...
- Evaluate your credit. ...
- Gather information for your application. ...
- Compare lenders and rates.
Refinancing can reduce a monthly car payment that's too large for your budget. A lower payment can free up funds to pay off other, higher-rate debt. It can also help you through times of financial difficulty, like a sudden drop in income.
A refinance occurs when the terms of an existing loan, such as interest rates, payment schedules, or other terms, are revised. Borrowers tend to refinance when interest rates fall. Refinancing involves the re-evaluation of a person or business's credit and repayment status.
Can you refinance a car and get cash out? You can take equity out of your car in the form of a cash-out auto refinance loan that's up to the current value of your vehicle. You'll get cash back as a lump sum over the amount of your original loan balance.
Refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run. On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
- Extending the Loan Term Too Long. ...
- Not Shopping Around for the Best Offer. ...
- Not Checking Your Credit Score. ...
- Being Upside Down on Your Loan. ...
- Refinancing Too Early or Too Late in the Term of Your Existing Loan. ...
- Getting Stuck with Penalties from Your Existing Lender.
Refinancing also comes with the risk of higher interest rates. If your credit has dipped or interest rates have gone up, you may find interest rates higher than your current one. In the current market, steep interest rates aren't uncommon. Recent Fed rate hikes have driven interest rates up to record highs.
Refinancing a car loan may save you money overall and help you pay off your loan faster. It's generally best to refinance your car loan when market rates are low and you can qualify for lower monthly payments or better terms.
Why do I owe more after refinancing my car?
If interest rates are higher than they were when the former loan originated, it may lead to owing more than you did under the previous loan. Refinancing may involve fees such as origination or document fees and prepayment charges, which can add to the overall amount you owe on the loan.
You can expect your credit score to go down by five to 10 points when you refinance, but this change is not permanent. If you apply for many loans and receive many hard inquiries, your credit could take a bigger hit, but the effect will still go away after a year at most.

What is a good interest rate for a 72-month car loan? An interest rate under 5% is a great rate for a 72-month auto loan.
With a standard rate-and-term refinance, you get a new interest rate or mortgage term without changing the balance of the loan. You might do this because rates have gone down, for example, and you want a lower monthly payment or because you need to add or remove a borrower.
A cash-out refinance allows you to convert your home equity into cash by borrowing more than you currently owe, paying off the old loan balance and pocketing the difference. You can use the money however you'd like, from paying off credit cards to remodeling an outdated kitchen.
When the time is right, refinancing is a great way to use your home as a financial tool. You can adjust your loan term, get a better interest rate and change your loan type to save money in the long term. You can even cash out your home's equity and use the money as you need it.
Generally, your first payment is due 30 days after formally accepting the loan. Remember that deferring any payments will likely lead to incurring extra interest.
In most instances, you will not need a down payment when refinancing your car loan.
Refinancing a car loan is typically straightforward and may save you money. It works almost the same way as the original loan process; you start by shopping around for the best offer. In fact, you can get multiple offers within about two weeks, and it will only count as one inquiry on your credit history.
While interest rates aren't at historic lows anymore, other market factors like car values could make this a good time to refinance your car. However, whether it's a good time to refinance heavily depends on your credit situation. If you can get a lower interest rate, it's a great time to refinance.
Does refinancing mean starting over?
Refinancing is an opportunity to start over with your loan, so take the time to apply with several auto loan refinancing lenders. Once you have all of your offers, you can use our auto loan refinance calculator to compare and find the auto loan that will benefit you the most.
You have too much debt
The most common reason why refinance loan applications are denied is because the borrower has too much debt.
Don't refinance if you have a long break-even period—the number of months to reach the point when you start saving. Refinancing to lower your monthly payment is great unless you're spending more money in the long-run.
Key takeaways. There is not a legal limit on how many times you can refinance your car. It can make sense to refinance again if you can get better rates, lower payments, better terms or other perks like cash back.
Company | Forbes Advisor Rating | Minimum rate |
---|---|---|
PenFed Credit Union | 4.7 | Starting at 5.94% |
Consumers Credit Union | 4.2 | Starting at 6.84% (with autopay) |
Digital Federal Credit Union (DCU) | 3.7 | Starting at 6.74% (with autopay) |
USAA | 3.7 | Starting at 6.14% (with autopay) |
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