The Ins and Outs of Refinancing Your Car

Everything You Need to Know About Refinancing.

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When you hear the term “refinancing,” it may conjure up images of endless piles of paperwork and a lengthy turnaround time. Generally speaking, refinancing a car loan is usually much easier than refinancing a mortgage. The process generally takes less time, doesn’t require an in-person appraisal, and depending on the lender may require few or no fees. Add the fact that you could save money over the course of your loan and/or lower your monthly payment, and a car refinance (or refi) may be a great benefit to your financial toolkit.


The most common benefits of refinancing your auto loan are receiving a lower interest rate or lowering your monthly payment. It’s important to understand that refinancing may lead to paying more interest over the life your loan. If you refinance with a lower interest rate the savings can be potentially quite large. For example, if someone has an auto loan of $18,000 at an 11% APR with 53 months left on the loan, then their savings could be as much as $1,828 if they refinanced their loan at a 7% APR over 53 months.


There are a few situations where refinancing could make a lot of sense and you may want to see if you can take advantage of refinancing your car loan:

  • When interest rates have dropped, finance companies may be offering lower interest rates for auto refinancing. Although it might not seem like it at first glance, lower rates can lead to significant savings over the life of your loan.
  • If your credit score has improved since you first bought the car, there’s a chance that you could qualify for a better interest rate.
  • Sometimes your financial situation takes a turn for the worse and you may have issues keeping up with the monthly payments. In this case, a refi could help lower your monthly payment. Extending the term of the loan spreads the remaining balance over more months, effectively lowering the amount you have to pay per month. However, you should keep in mind that lowering your monthly payment with a refi may result in paying more interest.


Although refinancing a car loan can have a lot of benefits, it’s not always an option. If you owe more on your auto loan than the car is worth some financing companies won’t offer you a new financing agreement. Each financing company may have their own eligibility requirements, as well. Some may use additional info such as your credit score, your income, and the age and value of the carto help make this decision. Keep in mind, a hard pull will likely occur when you submit a refinance application.

All in all, refinancing a car loan may lower your monthly payments and reduce the amount you pay over the course of a loan, but you should make sure these benefits apply to you and your individual financial situation.

This site is for educational purposes only. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
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Capital One
Banking should leave you with the same great feeling you get when you drive casually on a weekend afternoon. And that’s how I feel when writing helpful tips and reviews – passionate about cars and passionate about financing and everything in between when buying a new ride.