Can you refinance a car loan?

You can refinance your car loan as long as you meet certain requirements set by the refinancing lender. Lenders often have refinance requirements for a car's age and miles and the current loan's balance. Popular reasons for refinancing a car loan include getting a better interest rate, a lower payment, better loan terms, or a shorter loan. Before you decide to refinance a car, factor in any prepayment penalties, loan fees, and the impact to your credit.

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What happens when you refinance a car?

When your new, refinanced loan is approved, your new lender will pay off your old loan, and you'll start making loan payments to your new lender. If the lender is the same, they'll retire your old loan and issue a new loan that you'll start making payments on instead. If you are thinking of trading in your car, learn more about trading in a vehicle with a loan.

Can I refinance my car with the same lender?

Yes, many lenders will allow you to refinance your existing car loan. Keep in mind that lenders may not offer refinancing as an option. Especially if your vehicle is in poor condition, has low value, or you have few payments remaining on your existing loan.

How does refinancing a car work?

Refinancing means getting a new loan to replace the loan you already have. Refinancing a car loan is typically straightforward and may save you money. It works almost the same way as the original loan process; you start by shopping around for the best offer. In fact, you can get multiple offers within about two weeks, and it will only count as one inquiry on your credit history.

The application process is pretty quick. You just need the same documents you provided for your first loan, including a government-issued photo ID and proof of income. Learn more about the documents you need for an auto loan.

Is refinancing a car worth it?

Although everyone's situation is different, these are the common reasons why you might refinance a car loan.

  • Better credit

    If your credit score and credit history have improved since your car loan, refinancing may provide lower interest rates. You may also get shorter loan terms, which would reduce the total amount you'll pay for your car.

  • Better interest rate

    Generally, interest rates change over time. Also, some lenders make limited-time offers with special rates for refinancing. A lower interest rate means you'll pay less money in total over the life of the loan.

  • Better income circumstances

    Maybe you're making more money, you've paid off debts, or both since you first got your car loan. You may be able to get better loan terms from a lender by refinancing as a result because of your improved debt-to-income ratio.

  • Protecting credit

    If you find yourself in a situation where it's harder to pay your bills on time, you may be able to refinance to get a lower monthly payment. It may extend the loan term, which means you'll pay more for your car. But refinancing can help prevent the potentially more significant issues of late payments or defaults on your credit history.

When can I refinance a car loan?

Lenders have different requirements for when you can refinance an auto loan. For example, your lender may have minimum and maximum loan balance requirements, i.e., your loan balance can't be too high or too low. Additionally, If your loan was recently issued, such as less than a month ago, then you may have to wait a bit before you can explore refinancing options.

Lender requirements aside, the best time to refinance is when interest rates are low. If your quoted rates are all higher than the interest rate on your current loan, then you're probably better off waiting for interest rates to come down before refinancing.

When refinancing a car loan may not be a good idea

  • Your current car loan has a prepayment penalty: A prepayment penalty is a fee charged when you pay off a loan early. If your current auto loan has one, you'll need to determine whether the savings of refinancing outweigh the penalty you'll pay.
  • Your lender charges additional fees: They may charge specific fees to get a loan going — origination fees and title transfer fees, to name a few possibilities. You'll want to get a clear picture of the total costs of those fees to ensure you'll still come out ahead.
  • You're about to apply for another major loan: The credit inquiries for refinancing a car loan will reduce your credit score by a few points for a while. If your current score is between a higher and lower tier of credit, the effect of the car refinance may prevent you from getting the best terms on that other loan. And paying higher interest will cost you more money in the long run.

When will a lender refuse to refinance a car loan?

A lender might refuse to refinance a car if your current loan is too new, if your car is too old or has too many miles on it, or if your current loan balance is too low or too high. Car age and mileage considerations may differ by lender depending on the make and model of your car. Find out the lender's specific car refinancing requirements so you don't apply for a loan you can't qualify for.

While checking your car refinance rate with Upstart won't affect your credit score,* make sure you meet Upstart's requirements before you apply:

  • Your car: Should be under 10 years old and have less than 140,000 miles on it

  • Your current loan: Should have been in place for more than a month and have a balance between $9,000 and $60,000

How to refinance your car

Check your car loan refinancing rate online through Upstart today, or call 1-866-399-1085 to talk through your options.

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