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How to Refinance a Car Loan in 5 Steps

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Updated September 30, 2023

When you refinance a car loan, you’re actually taking out a new loan that will be used to pay off your existing car loan. Reasons to refinance include a lower interest rate or a shorter loan term–or both. Of course, you will start making payments on your new loan immediately.

RateGenius

RateGenius

RateGenius

Lender
RateGenius
Loan amount
$8,000 to no-max
Term
36 to 72 months
Min. credit score
550

Pros:

  • Aggregates 150+ lenders
  • Discounted rate when enrolling in autopay
  • All states are eligible

Cons:

  • Potential hard credit pull for pre-qualification (depending on the lender)
  • Potential $495 origination fee (depending on the lender)

Disclosed qualifications:

  • Debt-to-income ratio: 60% max
  • Annual gross income: $30,000 minimum
  • Mileage: 150,000 max
  • Loan-to-value ratio: 150% max

What are the 5 steps you should take to refinance a car loan? 

As with any financial decision, you should carefully consider whether refinancing makes sense for you. These five steps may prove helpful.

1. Use a car loan refinance calculator

Fabien Thierry, head of consumer vehicle lending products at Bank of America, suggested using an auto loan refinance calculator to get a better understanding of whether refinancing makes sense for you. It will calculate your monthly payments on the proposed new loan and is available on most lending websites.

2. Obtain quotes and find a lender you trust  

Having a trustworthy professional lender to help you navigate the process will make a significant difference and could save you money, says Thierry.

3. Explore available bank benefits

When doing your research, Thierry recommends checking with your bank to see if it offers rewards or benefits for being an existing client, as you might be able to reduce fees or related loan costs. For example, Bank of America’s Preferred Rewards members may receive an interest rate discount of up to 0.50%.

4. Gather your paperwork 

You will need to submit personal information. Per LendingClub, documentation requirements may include:

  • Driver’s license
  • Proof of insurance
  • Vehicle registration
  • Vehicle VIN and/or license plate number
  • Social Security number
  • Payoff amount of your current loan

Proof of income—such as a recent pay stub, a W-2, or an income tax return—may also be requested.

5. Apply for a new loan

For instance, Bank of America’s digital car shopping tool provides an easy way to refinance online. It only takes minutes for most customers, there’s no fee to apply, and applicants typically get a credit decision in 60 seconds. 

What are the top tips for someone considering refinancing?

Tip #1: Decide whether to keep your  lender or choose a new one

It’s vital to work with a lender you trust when refinancing your car loan. “Doing your research by shopping around for auto loan rates is the best way to see considerable savings,” says Thierry. If you like a lender, but its offer is missing something you saw in another lender’s offer, say so. “In most cases lenders want your business and will be willing to work with you,” Thierry explains.

Tip #2: Understand the impact on your credit score

Car refinancing, like any type of refinancing, has the potential to affect your credit score. “If you qualify for and accept a loan offer, you'll typically see another small score dip,” says Thierry.  However, as refinancing replaces an existing loan with another of roughly the same amount, he says that its impact on your credit score should be minimal.

Tip #3: Weigh the benefits and drawbacks

According to Thierry, the potential benefits of refinancing can include:  

  • A lower interest rate. It can save enough in interest over the life of the loan to make refinancing worthwhile.
  • A reduced monthly payment. Refinancing can reduce a monthly car payment that’s too large for your budget.
  • A shorter loan term. If you’ve had an increase in income since buying your car, you could consider refinancing your car loan to a shorter term ato pay it off sooner.

Thierry mentioned  one possible drawback: 

  • A longer loan term. If needing to reduce your monthly payment means that you have to choose a longer loan term than you have now, you may actually pay more overall because of the additional months of interest you’ll be charged..

Which are the best auto loan refi lenders?

Finding the perfect lender takes research, as each offers varying terms and fees. Time Stamped researched dozens of auto loan refi lenders, and here are four who stand out.

RateGenius Auto Loans Refi
Caribou Auto Loans Refi
Refi Jet Car Refi
LendingClub Car Refi
Brand
RateGenius Auto Loans Refi
Caribou Auto Loans Refi
Refi Jet Car Refi
LendingClub Car Refi
Loan amount
$8,000 to no-max
Up to $125,000
Up to $100,000
Up to $55,000
Term
36 to 72 months
36 to 72 months
48 to 84 months
36 to 60 months
Min. credit score
550
620
550
600
View OfferView OfferView OfferView Offer

TIME Stamp: A car loan refinance is not difficult and can really help your pocketbook

You may think that refinancing your car loan is a complex and complicated process, but it’s not. In general, you can complete the process in an hour or two. Having the correct documentation on hand is important. Banks, credit unions, finance companies, and loan brokers all offer auto loan refinancing, as do online-only platforms such as RateGenius and Caribou. Compare several to get a grasp on their interest rates and how they compare with the rate on your existing car loan.

RateGenius

RateGenius

RateGenius

Lender
RateGenius
Loan amount
$8,000 to no-max
Term
36 to 72 months
Min. credit score
550

Pros:

  • Aggregates 150+ lenders
  • Discounted rate when enrolling in autopay
  • All states are eligible

Cons:

  • Potential hard credit pull for pre-qualification (depending on the lender)
  • Potential $495 origination fee (depending on the lender)

Disclosed qualifications:

  • Debt-to-income ratio: 60% max
  • Annual gross income: $30,000 minimum
  • Mileage: 150,000 max
  • Loan-to-value ratio: 150% max

In addition, consider the overall savings during the life of your loan. For example, a monthly payment reduction of $40 to $50 may not seem significant, but over the life of the new loan it can result in saving thousands of dollars.

Frequently asked questions (FAQs)

How do you decide if a car refinance is the right choice for you?

Many factors can determine whether a refinance is the right choice for you. If your credit has improved since you took out your original loan—or your research indicates that you were not given the best deal at the dealership—chances are you can get a better deal by refinancing, says Adam Crossan, vice president, head of auto with LendingClub.

Alternatively, if you have experienced a reduction in income or your budget is getting tight, he says you may be able to improve your monthly cash flow by refinancing to a lower payment.

When is not a good time to refinance your car loan?

According to Crossan, vehicle values begin to decrease the moment you drive off a dealership lot. He explains that when the vehicle’s value falls below the amount remaining on the existing loan, you have “negative equity” in the car, making it difficult to get approved for a refinance or qualify for a competitive rate. “Also, if you received an at- or below-market rate when you took out your loan, it may be difficult to improve your rate and payment via refinance,” said Crossan.

Additionally, check to see whether your current lender charges a prepayment penalty for paying off your loan early. If you're subject to one, do the math. “If the amount you save by refinancing is significantly greater than the penalty, refinancing may still be a good idea,” Thierry says.

How do you know if your car loan qualifies for a refinance?

Most car loans may be eligible for a refinance. However, lender guidelines on mileage limits, maximum and minimum loan amounts, vehicle value, and other factors can vary, said Crossan. Many lenders list these restrictions on their website or in marketing materials. Some lenders, such as LendingClub, also offer a quick prequalification process via their website that won’t impact your credit score. “This can be a good way to evaluate your options and see if you qualify before committing to an offer,” says Crossan.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

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