Unless you’re a neurosurgeon or a pop singer, making $1,000 in an hour is pretty challenging. However, saving $1,000 in an hour is much easier, and refinancing your auto loan is a great way to do it.

What is Refinancing an Auto Loan?

Refinancing an auto loan is simply taking out another loan from a new lender to pay off the original loan you took to purchase the car.

What are the Benefits?

The #1 reason to refinance your auto loan is to save money. However, refinancing also lets you shuffle around your interest rates and repayment period. You might choose new terms that may not end up saving money in the long run, but are a better fit your current financial situation.

When should I refinance my auto loan?

If one of these describes your situation, refinancing may be a big win:

  1. Your credit has improved. Many lenders reward prime (~660-679) and superprime (680+) credit scores with lower interest rates.  If you’ve improved your credit score into these ranges, refinancing may be a smart choice.
  2. You’d like to lower your monthly payments. Perhaps you’re in a job transition or have new expenses, like a mortgage or student loans. By refinancing, you can reduce your monthly payments by extending your repayment period.   
  3. Interest rates have improved. According to Bankrate, the national auto loan rates for a 36-month used car are around 5.6% as of November 2018. If this sounds lower than your current rate, consider refinancing. Don’t forget that you can always negotiate, as well.
  4. Your odometer is approaching 75,000 miles. Many lenders will not refinance cars over 75,000 miles or 7 years old, and refinancing a 100,000 mile/decade-old car becomes even more difficult.  If your car is approaching these figures, it may be worth at least exploring your options.

When shouldn’t I refinance my auto loan?

The following are reasons you may want to hold off on a refinance:

    1. If your first loan agreement included precomputed interest. Refinance fees, which typically include state re-registration and lien holder fees, are cheap (around $90 combined). However, don’t forget that your original lender will also charge you a fee for paying off your loan early. Before making the decision to finance, find out if your original loan agreement included “precomputed interest” – this means that in addition to the principal, you’ll have to pay off all of your interest. If your original loan included precomputed interest, refinancing probably wouldn’t save you much money. If it included the more common “simple interest”, however, refinancing might make sense.


  • You don’t want to take a hit to your credit. When you apply to a lender for a new auto loan, they’ll ask to make a “hard inquiry” of your credit. Also known as “hard pulls”, these are when financial institutions check your credit score before making a lending decision, and they usually result in a small ding to your credit. Thankfully, if you approve several hard inquiries within 30 days, they usually count as just one, resulting in just a few points lost to your score. However, if you refinance and extend your repayment period, you’ll raise your average age of accounts and slightly decrease your credit score. Avoid both issues by refinancing with a shorter loan period  than your first, and ensure you approve all hard inquiries within a short period of time.


I think refinancing is a good idea. What’s next?

If you’re ready to start shopping for a new auto loan, here are some tips for finding the best deal:

1. Learn the terms of paying off your original loan. Put your original loan agreement in front of you, get on the phone with your original lender, and learn what the process looks like to refinance. You may find that there’s a “cooling off” period before you can refinance, or your lender may even offer to recalculate a lower rate for you!

2. Start with your own bank. The representatives at your own bank can give you more tailored advice, insights, and recommendations of your best next steps.

3. Try an online lender. Before moving ahead with your bank loan, try your luck online. There are many companies offering cheap loans. Our favorite right now for auto refinancing is SoFi. Searching for a loan rate with them won’t affect your credit score, the process is quick and easy, there are no fees, and they offer some of the best rates on the market.

Wrapping up

Refinancing is a great way to save a few grand on your car loan, or even just alter your payment amounts and repayment periods to better suit your current financial situation.

It’s not for everyone, especially if you have precomputed interest or your car is reaching 100,000 miles, but if your credit has taken a leap in the right direction and you’re mindful of the steps and pitfalls, you may find that some savvy refinancing is a smart way to more quickly own your car.  

Though a professional speaker by day, Chris also nurses a fierce love of cars and car-buying. Since 2015 he's tested over 200 cars, from cheap Jeeps to $400k Aston Martins, and helped thousands of millennials get a great deal on a car they'll love.