Refinance a Car

In the vast world of loan refinancing, some individuals and households trying to manage a monthly or annual budget can refinance a car loan to save money. People may typically associate refinancing with real estate, where high property prices can add up to astronomical sums in the form of total interest on a mortgage loan. But high-priced vehicles can also create high insurance costs, where drivers can save themselves money by refinancing to a lower interest rate. In order to refinance a car for a lower payment, try these simple steps.


Finding Out if Refinancing is Right for You

  1. Get current on your loan. Those who are behind on payments for an auto loan may find it more difficult to refinance a car or other vehicle. It sounds obvious, but it's worth stressing: Getting current sends lenders a signal that you're serious about repaying the value of your car loan.
  2. Ask about your current debt amount. Call the bank, dealer or other party who currently holds your auto financing loan and ask for the pay-off amount. This value will be part of the information that you give to other lenders in order to put together a refinancing package.
  3. Research your credit score. If it has improved, apply for refi. In many cases, a better credit score results in better offers for loan refinancing. Individuals with poor credit scores under 600 can have trouble finding good refinancing deals. But on the other hand, some experts say that these are the people who could benefit most from lowering their interest rates.
    • If your credit score has improved just 50 points from what it was when you agreed to the original car loan, you should attempt to get your loan refinanced.[1] An improvement of 50 points in your credit score can save you thousands of dollars over the life of the loan.[2]
    • There are many tips on how to improve your credit score, including reducing your debt to credit ratio, paying off other outstanding debts, getting rewarded for seniority, and disputing erroneous charges to your credit card.
  4. Investigate whether interest rates have come down. When you borrow money, you're expected to pay back the original sum of the loan plus a little bit of interest for the privilege of being given the loan. Interest rates are largely determined by a federal committee, depending on the current economic climate.[3] If interest rates have come down since you applied for your car loan, it's worth trying to refinance — chances are that you'll pay less money in interest payments if the interest rates have gone down.
  5. Consider refinancing if you're in a lengthy (5+ year) loan. Many people look at their monthly payment as the bottom line when it comes to their auto loan. They neglect to realize that the longer their loan, the more money they'll eventually pay in interest payments, even if their monthly payments are relatively low.[4] Be sure, therefore, to pay attention to the length of the loan in addition to the monthly payments.
    • If your loan is anywhere from 5 to 8 years long, it's probably a good idea to try to refinance and reduce the length of your loan. Even if refinancing only lowers your monthly payment by $10, paying off your loan two years earlier will result in significant savings over time.
  6. Consider refinancing if your car is relatively new. Lenders are weary of refinancing older cars because the car itself becomes less valuable as collateral if the loan isn't fully paid. For instance, a 2009 Jetta is much easier to refinance than a 2001 Camry, because the value of the Jetta is probably much higher than the value of the Camry. You're more likely to get good terms if refinancing a newer car than you will trying to refinance an older car.
  7. If other financial circumstances have changed, consider refinancing. If you've come on a rough spell lately and cash is tight, trying to refi is worth it. If you think the terms of your original loan make bad financial sense or are predatory, those are other good reasons to refi. Do not refinance your auto loan, however, if:
    • There are prepayment or other fees associated with paying off your loan early or switching over to a new lender. These fees make it financially onerous to refinance, which is why they exist in the first place.
    • Refinancing would extend the life of your loan. You may save a little bit of money in your monthly payments, but extending the life of your loan will cause you to pay more money in overall interest payments. This makes refinancing a bad idea if your aim is to save money.

Making a New Deal

  1. Shop around for refinancing deals. Ask potential lenders what kinds of interest rates they would be able to agree on if taking over your existing loan. The more lenders you look at, the better your chances of securing a better deal.
    • Some good sites to poke around on include:,,,, and Capital One Auto Finance.
    • Always evaluate fees versus savings. When it comes to a refinancing plan, there may be fees or other up-front costs. The borrower will have to weigh these against the eventual savings that they get from refinancing with a lower interest rate. In general, a refinancing deal should include at least 1 percent less interest in order to be financially beneficial for the borrower. However, this all has to do with the amount that needs to be paid off, the interest rate on that amount and other factors present in the agreement.
  2. Send approval to the appropriate parties. When you have agreed on a refinancing deal with a new lender, get that information to your old lender and any other involved parties. This allows you to get the lien on your vehicle transferred and effectively get free of your old loan.
  3. Pay off the old loan with a check from the new lender. Wait for a check from the new lender for the current debt amount of your old loan. When it comes it the mail, use it to pay off the old lender. Now you can begin paying off the new loan, which will be set at the same debt amount.
    • Pay any associated fees. In order to make the refinancing effective, you'll need to pay any costs associated with administering this deal. These include prepayment fees, especially.
  4. Try this refinance strategy if you can afford paying the extra money. Say that you close a deal on a refi to lower the monthly payment as well as the life of the loan. Instead of paying the new monthly payment, continue paying the old monthly payment. What this does is shorten your loan, ultimately giving you more savings on your car.[1]
  5. Watch out for shady auto refinancing lenders. Some firms may seek high up-front costs without actually sealing a refinancing deal. Hold your cards close until you see the details of a refinancing offer for a vehicle.

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