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A refinance auto loan can help you save money – but only if you get one at the right time and with the best lender for your financial needs. Our finance team took an in-depth look at the auto refinancing market to help guide you through the process.
In this article, you’ll find everything you need to know about auto loan refinance, including how rates work and how to apply. We also name five providers from our industry-wide review that offer some of the best auto loan rates for refinancing.
When refinancing an auto loan, you take out a new loan to pay off your existing one. Your refinance loan will come with a new interest rate, term length, and loan agreement. There are a few reasons why you might want to do this:
Lower monthly payments:Refinancing your vehicle loan to get a longer term can lower your monthly debt obligation.
Shorter loan term: On the other hand, you can choose to refinance to a shorter loan term. This will result in higher monthly payments, but you’ll pay off your loan sooner.
Better interest rate: For a variety of reasons, you may now have access to lower interest rates. Refinancing allows you to take advantage of that situation and save money.
Financial strategy: You can also use refinancing as a tool to help you achieve other financial goals, such as paying off another type of loan.
What To Look For in a Refinance Auto Loan
There’s more to auto loans than interest rates alone. When you’re shopping for a refinancing provider, you’ll also need to consider:
Annual percentage rate (APR):The rate you pay to borrow money, including fees, determines the overall cost of the loan.
Loan term:You can choose the length of time you have to pay back your loan. Lenders typically offer options up to 84 months.
Origination fee: Many lenders charge a fee to open, or originate, your loan.
Payment-related fees:Lenders charge different fees for late or missed payments.
Prepayment penalty:Some auto loans come with a penalty for paying them off early.
Types of Refinance Auto Loans
There are several types of auto refinancing for borrowers with different situations and goals. Before you start shopping for an auto refinance loan, decide which type of loan works best for you.
Standard Refinance Loan
The most common type of auto loan refinancing involves replacing your existing loan with a new one. The new lender pays off the principal with your previous lender, and you start to make payments toward your new loan balance.
Cash-Out Refinance Loan
With any refinance loan, you can choose to put down more money toward your principal. But you can also take money out of the principal as cash when you refinance. This is known as cash-out refinancing.
Lease Buyout Loan
When you lease a vehicle, the dealership gives you the option to buy it at the end of your lease agreement. In many cases, however, you can buy the vehicle before the end of the contract. Many providers offer a lease buyout loan that you can use in either situation. While not technically a refinancing loan, lease buyouts serve a similar purpose.
Where To Find Refinance Auto Loans
Auto refinancing is a common lending product. As a result, you have plenty of options when it comes time to refinance.
Commercial banks typically offer many refinancing options. Brick-and-mortar locations can provide in-person service for customers who prefer it.
In addition, many larger institutions have user-friendly online banking services. People who have other accounts at a certain bank may find it convenient to manage their lending and other online banking services in one place.
Credit unions are similar to banks, but they’re member-owned organizations instead of for-profit corporations. You may find lower interest rates at a credit union than you would at a bank, as well as fewer fees and penalties.
Credit unions do require membership. However, there are many national credit unions that offer membership to anyone – often for just a small charitable donation.
Online Lending Providers
It’s become increasingly common to find lenders that operate solely online without any physical branches. Some of these are direct lenders that serve as the online face of a larger bank.
However, you’ll also find auto lending marketplaces and auto loan brokers online. Rather than direct providers, these online services help line you up with lenders that offer competitive refinancing rates for your situation.
It’s not nearly as common to get a refinancing loan at a car dealership as it is to get a purchase loan on a new car, but that doesn’t mean it’s impossible. Since your car dealer regularly works with lenders, they may have access to refinancing options, too.
Auto Loan Refinance Rates
When you choose to refinance your vehicle, the rate you get on your new auto loan is one of the most important considerations. Across a multi-year loan term, even a slight difference in your rate can have a significant impact on how much interest you pay.
The table below shows how changes in your interest rate can affect both your monthly payments and the total cost of interest on a 72-month loan.
Total Interest Paid
Interest Rate vs. APR
It’s easy to confuse the terms “interest rate” and “APR” as the two are closely related. But there is an important difference.
Interest rate refers to the actual rate of interest charged on your loan. The APR in your lending contract includes not only the interest rate but also any additional costs and discounts. Ultimately, your APR reflects what you’ll actually pay to borrow money to refinance your auto loan.
Auto Loan Refinance Rate Factors
You can use guides and online tools to get a reasonable idea of what your refinance rates may be, but you won’t know for sure until you apply for a loan. That’s because financial institutions use a number of factors to determine the rates they charge you.
Credit score: Borrowers with good or excellent credit scores have access to the lowest refinancing rates. Those with lower scores on their credit report will see higher interest rates and may have a more difficult time finding a loan.
Market rates:The Federal Funds Rate is the rate at which lending institutions borrow money from the Federal Reserve. This rate has a major influence over the interest rates you pay to borrow money for an auto loan.
Loan term:Longer loan terms tend to come with higher interest rates.
Loan-to-value (LTV) ratio: How much you want to borrow compared to how much a vehicle is worth is known as the LTV ratio. Generally, the less you want to borrow against the value of the vehicle, the lower your interest rate will be.
Vehicle age: Lenders often charge higher interest rates on older model year vehicles and may have age restrictions on the vehicles they’ll finance.
Discounts:Discounts on your interest rate are also part of your overall APR. Many lenders offer discounts for setting up automatic payments, for example.
Average Refinance Auto Loan Rates by Credit Score
While several factors influence your auto refinance rates, your credit score is by far the single most important. Credit-scoring agencies like FICO® and VantageScore provide a rating ranging from 300 to 850 that indicates your creditworthiness – or, how likely you are to repay your loan on time – to lenders. Loan providers then use this information to calculate your rates.
Your credit score takes several factors into account, including:
Payment history: Any late or missed payments on your credit history can cause your score to go down.
Credit usage: Generally speaking, the less of your available credit you’re using, the higher your credit score will be.
Credit mix: Having a diverse mix of credit products such as a mortgage, credit cards, and personal loans can benefit your credit score.
Account age: The older the average age of your credit accounts, the better your credit score.
New credit: Opening several new credit accounts in a short period of time can negatively affect your credit score.
Your credit score has a profound impact on your refinance auto loan rates. Borrowers with lower credit scores pay significantly higher interest rates to refinance and may have a hard time finding credit approval. The table below shows the average auto loan rates for used cars based on different credit score ranges, using data from Experian’s latest State of the Automotive Finance Market report.
Credit Score Range
Average Loan Rate for Used Car Purchase
How To Get a Lower Refinancing Rate
Improving your credit score takes time, but there are still things you can do in the meantime to get a lower auto refinance rate. Here are some of the most effective:
Add a down payment:Putting down more money when you refinance lowers the LTV ratio even further. This can net you a lower interest rate.
Take on a shorter term:Refinancing to a shorter repayment term often means a higher monthly payment but also a better rate.
Add a co-signer:A co-signer is someone who agrees to take responsibility for your loan with you on a loan application. Having one can often get you lower rates.
How To Refinance an Auto Loan
The process for getting a refinance auto loan is very similar to getting a purchase loan. While there are some additional factors to consider, the steps you need to take are mostly the same.
Decide If It’s a Good Time To Refinance
The first step to refinancing your auto loan is deciding whether it’s actually a good idea to do so right now. Refinance auto loans can be a good idea in many situations, but refinancing is not always the right move.
When It’s a Good Time To Refinance
There are several scenarios in which refinancing can benefit you. These include:
Your credit score improved:If you’ve been making your monthly loan payments on time for a year or more, you may notice an increase in your credit score. A significant increase could mean a much lower interest rate when you refinance.
You want to shorten your loan term:If you can afford higher monthly payments, you can refinance your loan to pay it off earlier. In addition, shorter loan terms typically come with lower interest rates.
Interest rates went down:If market rates have gone down across the board compared to when you took out your current loan, it’s a good time to look into refinancing.
Your LTV ratio is lower:If you’ve paid off a significant portion of the principal on your auto loan, having a lower LTV ratio could unlock a lower rate.
When It’s Not a Good Time To Refinance
There are also times in which auto loan refinancing may not benefit you, or could even hurt you. These situations include:
You owe more on the car than it’s worth:If the amount you owe on your original loan is more than the vehicle is worth, this is known as being “upside down” or “underwater” on the loan. In this situation, it’s highly unlikely that you’ll get a more favorable rate.
Your existing auto loan has a prepayment penalty:If your lender charges a prepayment fee, it may cost you more to refinance than you’d save on interest over the life of the loan – even at a lower rate.
Consult an Auto Loan Refinance Calculator
A car loan calculator is a useful tool that can help you get a feel for what you can afford. To use one, you just need to input a few pieces of information to get an estimate of what your refinance budget is. You can also see what your monthly payments and total interest costs could look like with different loan terms.
Prepare Your Documents
To apply for auto refinancing, you’ll need to submit documents that serve as proof of your identity and your financial situation. Get these documents together before you start shopping to simplify the process.
Not all lenders require the same documents, but you’ll typically need at least a few of the following:
Proof of sufficient insurance
Proof of income
Proof of residence
Apply for Refinance Auto Loans
After you’ve gathered your documents, you can start to shop around for refinance auto loans. Many lenders have quick and easy ways to apply and get offers on their websites.
Applying for an auto refinance loan will temporarily hurt your credit score. However, applying for multiple refinancing loans in a short period of time counts as just one credit inquiry, meaning you don’t lose anything more by getting several refinance offers and comparing them.
Refinance Auto Loans: Top Providers
We recommend getting multiple refinancing offers to determine the best option for your financial situation. In our industry-wide study, our team found that these providers offer the best combination of rates, reputation, and customer experience.
Refinance Auto Loan Provider
Starting Refinance APR
Best for Refinancing
Best Loan Marketplace
Low Rates for Refinancing
Consumers Credit Union
Top Credit Union
Auto Credit Express
Best for Bad Credit
*The overall ratings in this chart reflect the company’s score in our industry-wide insurance study and are not specific to refinancing.
Auto Approve: Best for Refinancing
Loan amounts: $5,000 to $85,000
Loan terms:12 to 84 months
Availability: 50 states
Minimum credit score:None
What Stands Out
In addition to low rates for refinance auto loans, Auto Approve is one of the most flexible refinancing providers on the market. If you need to get a new loan for something other than your car or SUV, the company also allows you to refinance your ATV, boat, motorcycle, RV, and more.
Auto Approve Pros & Cons
Auto Approve Pros
Auto Approve Cons
Low starting refinance loan rates
Charges an origination fee
Easy online application process
No auto refinancing for commercial vehicles
Financing available for alternative vehicles
myAutoloan: Best Loan Marketplace
Starting APR: 1.99%
Loan amounts: $5,000 minimum
Loan terms: 24 to 84 months
Availability: 48 states (not available in Alaska or Hawaii)
Minimum credit score: 575
What Stands Out
As a loan marketplace, myAutoloan allows you to get offers from lenders and compare them all at once in the same place. This is one of the easiest ways to find the lowest refinance rates for your situation.
myAutoloan Pros & Cons
Simple, efficient online process
Not available to borrowers in Alaska or Hawaii
Marketplace model lets you get multiple offers easily
Has several vehicle restrictions
Available to people with lower credit scores
iLending: Low Rates for Refinancing
Starting APR: 1.99%
Loan amounts: Varies
Loan terms: Up to 84 months
Availability: 50 states
Minimum credit score: 560
What Stands Out
iLending is a versatile online refinancing loan broker that works with a multitude of lenders. This allows iLending to find competitive rates for a wide range of borrowers – even those with lower credit scores.
iLending Pros & Cons
Helpful customer service
Not a direct lender
Refinancing options for lower credit scores
Limited details available online
Low rates for good credit borrowers
Consumers Credit Union: Top Credit Union
Starting APR: 3.49%
Loan amounts: No minimum or maximum
Loan terms: Up to 84 months
Availability: 50 states
Minimum credit score: 640
What Stands Out
As member-owned organizations, credit unions give borrowers alternatives to commercial lenders. Consumers Credit Union offers highly flexible refinance auto loans with no minimum or maximum at reasonable rates. To join, you only need to make a $5 donation to the organization’s charitable fund and maintain a $5 minimum balance in a savings account.
The reason you don’t see much specific information for Auto Credit Express is that it’s a specialty loan broker that deals primarily with bad credit and no credit borrowers. It’s a good option for those who may have trouble securing a refinance auto loan elsewhere.
Auto Credit Express Pros & Cons
Auto Credit Express Pros
Auto Credit Express Cons
Good options for borrowers with bad credit
Must work with a car dealer in the company’s network
Offers financing options for people with bankruptcies
Loan rates and terms are highly variable
Special rates for military
Refinance Auto Loan: Conclusion
Taking out a refinance auto loan can be a smart, money-saving move for many people. However, it’s not always the right time to do so. Before attempting to refinance your vehicle loan, make sure it will work out in your favor. You can use tools like car loan calculators to help you determine whether it’s a good choice.
When it comes time to apply, remember that shopping around will help you find the best rates, terms, and conditions for your situation.
Refinance Auto Loan: FAQ
When should you refinance your car loan?
Most experts suggest waiting at least six months to a year before refinancing your car loan. This allows time for your credit score to recover from taking out the initial loan and improve from making regular monthly car payments.
Is refinancing a car worth it?
Refinancing a car is worth it in many situations. If you can afford to take on higher monthly payments with a shorter term or you have access to a lower interest rate, you could save money over the life of the loan. However, auto refinancing won’t always save you money and could cost you in some situations.
Does refinancing a car hurt your credit?
Refinancing a car loan may hurt your credit score temporarily, as does taking out any kind of loan. However, this effect is temporary. Your credit score should bounce back after a few months and could improve after an extended period of making regular payments.
What’s a good score to refinance a car?
A good score to refinance a car is any score that’s significantly higher than the score you had when you took out your current auto loan. A score above 700 is likely to get you access to the lowest rates.
What are the disadvantages of refinancing a car loan?
The disadvantages of refinancing a car loan include any loan origination fees or one-time costs, additional interest if you extend your loan term, and a temporary negative impact on your credit score.
Our expert review team takes satisfaction in providing accurate and unbiased information. We identified the following rating categories based on consumer survey data and conducted extensive research to formulate rankings of the best auto loan providers.
Industry Standing:Trust and reliability are two of the most important qualities in a lender. Our team considers current industry ratings from organizations such as the Better Business Bureau (BBB) along with factors such as a company’s age.
Availability:We examine how easy it is for borrowers to get a loan from each provider. Lenders that offer loans to meet a variety of customer needs receive high ratings.
Loan Details:Our researchers comb through the fine print to learn about the loan amounts, term lengths, and types of loans each provider offers.
Rates and Discounts: We take an in-depth look at the range of rates each provider offers for borrowers of different credit scores. Our team also factors in the discounts available with each lender.
Customer Service:Our team considers customer reviews and complaints when determining this score. We also consider the ease and availability of help online, over the phone, or in person.