When Should I Refinance My Auto Loan?

Refinancing your auto loan can be a smart way to save money, but timing is everything. Whether you're looking to lower your monthly payments or secure a better interest rate, knowing when to refinance is key. So, how do you know when the time is right?

Let’s break it down so you can make the most informed decision.

here's a closer look at what we'll cover

when is the best time to refinance?

The common recommendation is to wait 60-90 days from getting your original auto loan to refinance. That’s how long it may take to get the title for your vehicle to transfer correctly. Although this is true, if you’ve had your auto loan for more than 3- months, then the best time to refinance depends on your auto loan balance. If you have 6-months left, most of the payments may be going to your principal balance, so it may not be beneficial to refinance. 

Here are reasons why you should and shouldn’t refinance to help determine the best time to replace your current  auto loan:

 you may want to refinance your auto loan if:

• You Didn't Get the Best Interest Rate the First Time Around: It’s common for consumers to quickly jump into a financing option that’s available to them.  Jumping into a loan with a low credit score where you’ll receive a high interest rate is what we call subprime lending. This can lead to missing loan payments due to a high interest rate or high monthly payments. 

• Your Credit Score has Improved: If you haven’t noticed already, your credit score is significant when financing. Having an improved credit score determines how much you’ll save when financing and gives you better lending power.

• Want to change the loan term: Changing the loan term makes sense if
  
  • You’re either ready to lower the monthly payment to save money
  • You want to increase the monthly payments to repay the full loan amount sooner   
    
• Interest Rates are Down: First, credit union loan rates are lower than traditional banks and dealerships most of the time.   Second, if consumer loan rates dropped since you originally financed your auto loan, then you may qualify for a lower interest rate. 
• You have Financial Setbacks.  Life can be full of financial surprises, from pay cuts to an unexpected trip to the hospital or an unexpected trip.  Refinancing can help put cash back into your pockets by lowering your monthly payments.       
  
• You’re Not a Fan of Your Current Lender: This may be an option if you really can’t stand your current lender because of the way they’ve conducted business. You may have experienced horrible customer service reps or poor financial security. Refinancing with a new lender may help ease some frustrations.

YOU SHOULDN'T refinance your auto loan if:

• You Have an Old Car: Some lenders refinance vehicles older than ten years, but it’s preferred if the vehicle is no more than ten years old.  Not all lenders have refinancing limits like the vehicle age and mileage, so make sure to contact your preferred lender and ask!

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• You've Paid-Off Most of Your Loan: As mentioned above, you won’t benefit from an auto loan refinance if you have 6-months or less left to pay off your auto loan. 

• You're Behind on Payments: Lenders review consumers’ credit reports and will notice if you’re a risky borrower. It will be hard for a lender to trust you with their loan if you’re behind on other loan payments. 

your auto loan refinance checklist

Before you apply to refinance, make sure you:

• Check Your Credit Score: If you’ve improved your credit score since your first auto loan, then the chances to score a lower interest rate will be more likely. Don’t have the best credit score? Use our credit score resource to help you reach your credit score goals here.
• Estimate Your Car’s Loan To Value Ratio (LTV): To lower your car payment, you should know your vehicle's LTV which is expressed as a percentage and consists of two factors: (1) your loan amount and (2) the value of the asset that secures the loan ( your car’s value). If your loan is the same as the value of the car, then your LTV is 100%. If your LTV is over 100% then you owe more than what your car is worth. Try the LTV calculator here.
• Check for Prepayment Penalties: Check if your loan agreement prohibits you from paying off your auto loan early. If it does, your lender can charge a fee. Not all lenders have prepayment penalties but it’s worth checking your loan agreement before refinancing.
• Consider the Time Remaining on Your Current Loan: You want to make sure that it makes sense to refinance your auto loan. It may be pointless to refinance and extend your loan term when you have less than six months before your current auto loan is fully repaid.
• Shop Around for the Best Auto Loan: I recommend conducting your own research to find a lender that offers the best auto refinancing rates. You can start with us - you’re already on this blog. Check out our auto loan interest rates, where you can refinance here. 

got all that?!

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are you ready to refinance your auto loan?  

here's what's next

Now that you know when to refinance your auto loan, do you know where to go and which refinancing option is best for you? It’s time to explore your choices. Let’s compare offers and find the refinancing solution that fits your needs and financial goals.

If you need help with some auto loan terms or need ideas with some auto loan questions to ask a lender or dealer you can also grab the free Auto Loan 101 Guide.

Need additional help with refinancing? 

Our Customer Service Representatives are here for you and ready to assist! You can send an email or give us a call at 704.375.0183.