how many times can you refinance a car

You can technically refinance a car as many times as you would like. Finder’s Consumer Confidence Index found that in 2023, about a third of people said they switched auto loan providers in the last six months.1

Your finances, income, car, and lenders will ultimately decide whether that is a possibility. Keep reading for more information on refinancing your vehicle multiple times and whether it is the right choice for you. 

How Does the Refinancing Process Work With a Car?

When you take out an auto loan to purchase your vehicle, that car is being financed. You can find auto loans (types of installment loans) through banks or credit unions, private lenders, or through car dealership financing.  When you refinance your vehicle you take out a new loan to pay off whatever amount you have left on your existing loan. With refinancing you’ll have different repayment terms and a new lender if you made that switch. 

You can complete the refinancing process more than once, but it may not be the best choice, and depending on your vehicle and credit score it may not even be a choice you can consider. 

Different Reasons People Refinance Their Vehicle

If you are thinking of refinancing for the first or even second time, here are some of the best and common reasons for refinancing:

Reasons for Refinancing Your VehicleDescription
Financial SetbackIf you cannot afford your monthly auto loan payments, refinancing can help.
Lower Interest Rates and Better TermsImproving credit can lead to better interest rates and more flexible terms.
Extended Repayment Timerefinancing can give you more time to pay off your car loan.

Below are more details on each reason from the table:

When Facing a Financial Setback You May Want To Refinance

If you cannot afford to make your monthly minimum payment on your auto loan then refinancing your loan with your current lender or a new one makes sense. Refinancing a loan can make repayment more manageable, by getting a new auto loan with lower minimum monthly payments. 

You Want Lower Interest Rates and Better Repayment Terms To Save Money

The interest, loan terms, and monthly payment of your auto loan will largely depend on your lender and your finances. Let’s say you take out a loan with bad credit, however overtime you work to build your score. With a better credit score that is good or excellent credit, you know that you could definitely get better interest rates and more flexible repayment terms. In that case, you may want to consider refinancing your loan.

You Need More Time To Repay Your Loan

Although an auto loan may seem like a good fit at first, when repayment starts you may realize you need more time to repay your loan. Auto loan refinancing can provide you more time to repay your loan by providing a longer loan term. With a longer loan your minimum monthly payments will go down, and you will have more time to repay your car loan. 

How Auto Loan Refinancing Multiple Times Can Negatively Impact Your Finances and Credit Score

Refinancing your loan multiple times can definitely have a negative impact on your credit score and finances. Here are some potential ways in which refinancing can hurt your finances:

Refinancing Your Current Auto Loan Could Mean Paying More

Switching from one loan to another will likely come with a cost. No matter what state you are in there will be title fees. When it comes to your existing lender there may be prepayment penalties and balloon payments. With your new lender there may be costs like origination fees you will have to pay up front. On top of that, even if you get lower monthly payments and better interest rates, having a longer loan will mean paying more interest overtime.

Now if you do this multiple times, you can double, triple or quadruple the cost which is the opposite goal of refinancing—saving money! This overall cost may not even be worth the cost of your vehicle! And so, really consider the overall cost of refinancing whether doing it for the first time or second.

The Search for a Loan Can Hurt Your Credit Score

Auto loans can come with hard credit checks. Each hard credit check that a financial institution performs will show up on your credit report and will have a small negative impact on your credit score. 

What Do Lenders Look at For Approval To Refinance Your Car Loan?

When you go to a lender for auto refinancing they will look at a few different things for approval. Because a car is involved with the process, lenders will also want to know more about the car. Here are some of factors lenders will consider for a new loan approval: 

The Value of the Car When Refinancing a Loan 

The value of your car will be based on the make, model, year, condition, and mileage of the car. Your lender will need to ensure that the car is worth at least the loan amount they are giving you, in the case that the loan is not repaid. 

Another major requirement for a lender when considering whether they want to give you a loan to refinance your car, is that you have a valid driver’s license, car insurance, and are ready to pay for a title transfer. Your car has to be road safe!

The Amount of Car Payments Due on the Original Loan

Another thing that lenders look for when you apply for refinancing is the amount of money you have left to pay on your previous loan. Sometimes there may be a minimum or maximum loan amount they give out, and if you don’t fall within that range with what is left on your initial loan you may not be approved. 

The Age of Your Original Car Loan

Some lenders may require that your first car loan is at least a year old, while others may want to work with a newer loan. And so, keep that in mind when searching for loan options.

Your Repayment History on Your Original Loan

Your payment history shows up when a lender pulls up a credit report. When you apply to refinance a car loan, your lender/financial institution will definitely pull it. If you don’t have the best payment history on your current car loan or with multiple lenders and other loan types, then your chances of approval go down. While positive monthly payment history and credit history can help your chances of approval. 

Your Income and Credit Scores

Your income and credit scores will also play a huge role in approval for refinancing a car loan. With a bad credit score the interest rate will go up, and loan amount will likely go down. Your monthly income will also be considered, as it gives a potential lender an idea of what kind of monthly payment you can afford. 

What Factors Should You Consider When Refinancing Your Car Loan?

Here is what you should consider before making your choice with refinancing itself, and the auto loan lender you choose to work with: 

The Overall Cost To Refinance a Car Loan

To determine whether a loan is worthwhile you should determine the overall cost of the process. To do so, add any fees from your previous lender and title fees with any costs with your new loan. Here are some of the key costs to run through with a potential new loan option.

The Actual Interest Rate vs. The Interest Rate Advertised

Most lenders may advertise a low interest rate, but your actual interest rate will be given to you after you apply. And so, make sure that you consider the interest rate you are actually going to pay when determining interest costs. If you need some help understanding interest types better you can ask your lender or do some research yourself. 

The Repayment Terms When Your Refinance Your Car Loan

Repayment terms or loan terms will encompass everything about loan repayment, i.e. your monthly payments, default terms, the length of the loan, conditions for fees and more will all play a huge role with your overall loan cost. Using a loan payment calculator can be a great tool when determining your car loan’s payment, you can then add that to other expenses.

The New Lender vs. Your Existing Lender

You will also want to compare your new potential lender with your existing one. Be sure to compare flexibility, terms, reputability, and past customer experiences before switching to another lender. 

Consider Other Methods of Paying off Your Loan, Especially if You Only Have a Few Payments Left

When refinancing a car loan most people will look at other car loans. However, if you only have a few payments left, or your car doesn’t qualify for a car loan, another loan option may work better. And you can definitely use a different kind of loan to refinance a car loan. Here are some other loan options to consider: 

  • A Personal Loan — A personal loan is an unsecured loan option repaid in steady monthly payments. These loans are extremely flexible and versatile even for borrowers with bad credit. 
  • Payday Loans — Payday loans are a bad credit loan option that make a small amount of money available. They are fast but they come with high interest rates and fees.
  • Title Loans — Title loans use the borrower’s vehicle as collateral. Funding is fast and bad credit is okay, but interest rates are usually high and there are a ton of fees.

Would Selling Your Car Be the Better Option?

In a general sense, there are many circumstances in which selling your car makes sense and others where it doesn’t. However, with car loans, there is really only one circumstance that makes sense. If refinancing is not an option or does not make financial sense, simply paying off your loan and selling your car may be a solution. Depending on your car’s value and the amount of money you have left on your loan you could even have money left over with this process. 

FAQS on How Many Times Can You Refinance A Car 

Here are some answers to frequently asked questions questions about the process to refinance your car and auto refinancing in general:

Is it better to refinance your car through a bank or credit union?

Both banks and credit unions offer advantages for loan refinance. Credit unions often provide lower interest rates and more personalized service, while banks might offer a wider range of loan products. It’s essential to shop around to find the best fit for your needs.

What are the signs that it’s the right time to refinance your car?

Key indicators include a notable improvement in your credit score, prevailing interest rates that are lower than when you secured your original loan, and a need to lower payment obligations due to personal finance challenges.

If I want a lower monthly payment, does that mean I’ll always save money with a refinance?

Not necessarily. A lower minimum payment might mean extending the loan term, which could result in paying more interest over time. Also, be aware of any prepayment penalty from your current lender.

Can I refinance my car loan if I have negative equity or if I owe more than the car’s current value?

Refinancing with negative equity can be challenging. Some lenders, whether a bank or credit union, might offer to refinance, but the terms might not be favorable. Always compare offers and consider the impact on your overall personal finance.

How do personal loans compare to auto loan refinance options when considering paying off my vehicle?

Personal loans are generally unsecured, meaning they might have higher interest rates than secured auto loans. However, they offer flexibility and can be used for various purposes. If considering a personal loan, weigh the interest rates, terms, and monthly payments against an auto loan refinance.

Is there a legal limit to how many times you can refinance your car loan?

While there isn’t a strict legal limit on how many times you can refinance a vehicle, frequent refinancing might not make financial sense due to associated fees and potential impacts on your credit score. You also risk having an upside down car loan. 

Are there any age or mileage restrictions on the vehicle for refinancing with a credit union or bank?

Some lenders, be it a credit union or a bank, may have age or mileage limits on vehicles they’re willing to refinance. It’s essential to check individual lender requirements when considering refinancing.

If there’s a prepayment penalty on my current loan, is it still worthwhile to refinance my car?

Prepayment penalties can add to the cost of refinancing. If considering loan refinance, you should factor in this penalty and any other associated fees to determine if the refinance will be beneficial in the long run.

The Bottom Line With CreditNinja

Technically you can refinance a car multiple times, however, that may not make the most financial sense. When considering refinancing a car loan, CreditNinja urges you to make sure to review the overall cost of the process, and repayment terms.

References: 

  1. Car Loan Statistics: What Americans Owe Updated Quarterly | Finder.com
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