5 car refinancing tips

car refinancing tips

Learn more here about the following five helpful car refinancing tips: applying with a cosigner, knowing your credit score, considering alternatives to refinancing, looking at options, and factoring in fees. Refinancing can help with finances when done right!

What Is an Auto Loan Refinance?

An auto refinance is when you apply for a new car loan to replace the existing one. Suppose your current auto loan is challenging for you to pay. In that case, auto loan refinancing can help you get a new financial contract that offers more affordable terms.   

These are a few reasons why borrowers choose to refinance auto loans:

  • To get a lower interest rate.
  • To switch from a variable to a fixed-interest rate or vice versa.
  • To get an extended loan term.
  • To remove a cosigner or co-borrower. 
  • To get a lower monthly payment, those who refinance an auto lend tend to most consumers save between $10 and $30 per month.1

The approval process for auto refinancing is similar to applying for a new auto loan. You can refinance a car loan with your current lender or choose to work with a new lender. Qualifying for a new car loan typically depends on your credit score, income, and vehicle information. 

Reasons Why You Should Refinance Your Car Loan Now

If you are considering refinancing your car loan, keep in mind that it may not always be an ideal time. The best time to apply for an auto refinance is when any of the following situations apply to you:   

Your Credit Score Has Improved

You might be struggling to pay your car loan if you got it when you previously had bad credit. While many lenders extend approval to borrowers with bad credit, you may not get decent repayment terms if your credit history is poor. If you have worked hard to rebuild your credit, then you may be able to get a better auto loan now!         

You Want an Extended Loan Term

Monthly payments on auto loans can be difficult to pay when the loan terms are short. Auto loan refinancing can extend your payoff date and lower your monthly payment amount. When your monthly payments are smaller, you can keep more money in your bank account. Refinancing can make it easier to start saving and stop living paycheck to paycheck. However, keep in mind that you will pay more interest fees if you extend an auto loan.   

You Want a Lower Interest Rate

When your interest rates are too high, car loan refinancing may be the right decision. Interest rates determine how much you will end up paying to borrow money. You may lose hundreds or thousands of dollars annually if your rate is higher than the national average. High rates result in increased monthly payments, which can make loan repayments a financial struggle.

You Want a Fixed Interest Rate

While most car loans have fixed interest rates, you may currently have a variable interest rate. Variable interest rates constantly change because they depend on an underlying benchmark or index rate. Variable rates make it hard for borrowers to budget because monthly payments are unpredictable. Refinancing your car loan allows you to switch to a fixed interest rate.     

You Want a New Lender

Some auto loan lenders provide subpar customer service, excessive fees, and unaffordable loan terms. If you hate dealing with your existing lender, remember that you can work with a new lender when you refinance your car loan. Switching to a new financial institution can significantly improve the repayment process.     

Does Refinancing a Car Loan Hurt Your Credit?

Refinancing a car loan can help you get a better loan agreement that works with your finances. But does refinancing a car hurt your credit? Refinancing a loan means applying for a new loan, which can cause your credit to dip. Hard credit checks can decrease credit scores by as much as five points, and they remain on credit reports for two years. 

Applying for loans does decrease your credit temporarily, but is there a limit to how many times you can refinance a car? Technically, you can refinance auto loans as many times as you like. Still, you are subject to a lender’s qualification requirements. 

Once you have a new car loan, you can start building a better score by paying every monthly payment on time. Payment history counts for 35% of your credit score. Late payments will decrease your credit score and result in a sizable late fee. If you experience financial issues during repayment, speak to your lender about an extension or deferment plan. If a loan payment is more than 30 days late, it will appear on your credit report and negatively affect your credit. 

What Is a Cash-Out Auto Refinance?

You may come across a “cash-out auto refinance” when exploring your refinancing options. A cash-out auto refinance means getting a new, larger auto loan so that you can get the difference in cash. A cash-out refinance can help you get fast cash and a new loan agreement if you need financial relief. However, you will be increasing your existing debt amount. Taking on more debt than you need can result in more financial struggles. If you fail to keep up with your new auto loan contract terms, you risk losing your car and severely damaging your credit score.     

5 Tips To Refinance Your Auto Loan

Refinancing your current loan can help you save money when you obtain new loan terms. If you qualify for auto refinancing, you could get low loan payments, extended repayment lengths, and fewer fees.  

Tip 1: Consider Applying With a Cosigner 

If your credit score has decreased since you applied for your current car loan, you may need financial support to refinance. Borrowers with bad credit stand a better chance of refinancing an auto loan by applying with a cosigner. Using a cosigner with a good credit rating or higher can help you get better loan terms because the lending risk is lower for the financial institution.    

Tip 2: Know Your Credit Score

Checking your credit report before you apply for a refinanced loan can help you know what loan offers to expect. If your credit score is higher than 670, you can expect an easy qualification process and better interest rate offers. But if your credit score is low, you may have to shop around with multiple lenders to find a decent offer or consider using a cosigner. 

There are loans designed for people with bad credit scores, so don’t think qualifying for a new car loan is impossible. You stand a good chance of getting approval if you can provide proof of your ability to make loan payments on time.   

Tip 3: Consider Alternative Loan Options

If you want to replace your original car loan, you may be looking for new car loan lenders. But you don’t have to refinance with a car loan! You can refinance with alternative loan options, such as installment loans or personal loan options. You may be able to get better rates with personal loans, and people from various financial backgrounds often qualify for a refinanced loan. There are even bad credit loans! Consider all available options before signing any loan paperwork. 

Tip 4: Don’t Accept the First Offer

Never accept the first loan offer you receive when you want to refinance. Although it’s tempting to sign loan paperwork immediately to get better terms, settling for the first offer can prevent you from scoring a better deal. 

Inquire with multiple lenders and take time comparing loan terms. Ask questions about fees, rates, repayment lengths, and loan amounts. An online loan calculator can help you determine how much a loan will cost you in interest fees, which can help you save money!

Tip 5: Consider the Fees

Some financial institutions have more fees than others. If you are comparing lenders, ask about their fees before making a final financing decision. 

These are standard auto loan fees many lenders charge borrowers:

Applying for a loan should not cost you money, but many lenders charge application fees. Application fees go towards processing costs, and you may still be ineligible despite providing payment. A prepayment penalty is another standard fee to watch out for. Lenders make money by charging borrowers interest, so if the loan is repaid early, they lose money. To ensure they don’t lose additional income, lenders charge fees for early payments. The fewer fees a lender charges, the less you have to pay!

The Bottom Line With CreditNinja: Car Refinancing

Refinancing makes sense when you are struggling to keep up with the demands of your current loan contract. Suppose you have issues making payments on time or affording other monthly bills. In that case, it’s time to consider working with another lender or applying for a different type of loan. 

Refinancing your auto loan can help you get new terms that work better with your finances. For example, you can get a lower monthly payment when you secure a decent interest rate and an extended repayment length. Even if you have a bad credit rating, there are financial options available to inquire about. Refinance a car loan today to keep more money in your pocket and reduce your financial stress! To learn more about car refinancing and refinancing in general, check out CreditNinja’s blogs. 


  1. A closer look at the auto refinance market for lenders | Wolters Kluwer
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