When Can You Refinance a Car Loan?

Gain value by refinancing when your credit or the interest rate has changed since your loan started.


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Refinancing your car loan can help you lower your monthly payment, pay less in interest overall, and more. However, it might not make sense to refinance at any time during the life of the loan. You want to time it well, which means it's critical to answer the following questions:

When Is It Too Soon to Refinance?

Technically, many car loans can be refinanced quickly, provided the contract doesn't have a stipulation that would keep you from doing so. For instance, some car loans require you to pay a prepayment penalty or pay the precomputed interest on the loan if you refinance or pay the car off early. These requirements may make refinancing a bad deal.

Loans also have fees — refinancing lenders charge you a fee to apply or originate the newly refinanced loan. These are often small fees and they may even be waived, but you need to know about them upfront. If interest rates haven't changed much or your credit score is the same, refinancing could incur at least some small fees and may not improve your loan's costs or monthly payments.

When Is It Too Late to Refinance?

It's never really too late to refinance, but if you're close to paying off your loan, it makes sense to see whether the effort — and the potential fees involved — will be worth the savings in interest from refinancing.

One exception might be if you've almost paid off your car loan but have fallen on hard times and need a lower car payment. You may be able to refinance in exchange for a lower payment over a longer time period. Take precaution to ensure you're working with a reputable lender and not a refinance scammer. This may cost more overall, but the cash flow in the moment may be just the breathing room you need to get back on track.

When Is a Good Time to Refinance?

So if there's no set time that's too early or too late, exactly when can you refinance a car loan? What makes it worthwhile to start the process? Three critical factors are great indicators that refinancing your car loan might make sense:

  1. Your credit score improved: If you've been working to bring your credit score up but obtained a car loan when it was much lower, you may qualify for a better car loan interest rate now. If you have reason to believe that not all of your efforts are in place yet, waiting until your credit score improves can be a good way to ensure you get the best boost possible
  2. You don't have upcoming credit inquiries: Because refinancing involves initiating a loan, it creates a hard inquiry on your credit. This temporarily drops your credit score; lenders don't want to see you requesting lots of credit all at once. For this reason, wait a little while after any major credit requests (like a new credit card or a mortgage loan) before initiating a car loan refinance
  3. Interest rates are down: When interest rates are falling compared to the original rate you received, it can be a good time to inquire about refinancing your car loan. If you can receive a lower interest rate, you may reap the benefit of paying less interest and having a lower payment for the rest of the loan

When Is Refinancing More Than Once a Good Idea?

Generally, refinancing comes with some fees and effort to apply for the loan. However, as long as there's no penalty associated with refinancing, doing it more than once is possible. The key factor is to make sure each refinance provides more value than any fees it incurs.

Timing a Car Loan Refinance

When you notice changes that look favorable for a car loan refinance, like dropping interest rates or credit score increases, you can shop around for quotes. Getting multiple quotes within 14 days typically counts as one hard inquiry on your credit, so be sure to group your quotes together in a two-week window.

Obtaining quotes can help you determine what the fees would be for your situation and how much you stand to benefit from the refinance. Looking at the numbers, you can make the best choice for your monthly payment, your overall costs, and any other unique circumstances.

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Laura Leavitt
I love a good spreadsheet and will happily calculate compound interest all day, but my biggest focus is helping people achieve their financial goals. That could be saving up for a dream car or calculating the right car payment for your budget so you can get a reliable daily driver. I research and write about personal finance so that making great financial choices becomes easier for us all.