Key takeaways:
Refinancing can be a smart way to save some money, if it’s right for you given your current loan and financial picture
Refinancing the right way means: doing your research, getting your paperwork in order, knowing what you’re looking for, and shopping around to find your best offers
Common refinancing mistakes include: being underprepared, and trying to refinance too early or too late
Today we are talking all about car loan refinancing—the when, what and why—and what’s considered “the right way” to refinance a loan.
Prices are up nationwide, with essentials becoming expensive enough that many households are feeling the squeeze of a tighter budget. That means a lot of people are looking to save money. Fortunately, for many vehicle owners, refinancing a car loan is a great way to quickly save some money and make more financial wiggle room.
Refinancing can help you secure a lower APR (annual percentage rate), lower monthly payment, or both, especially if:
Interest rates have dropped since your originally got your auto loan
Your credit or financial picture has improved
You got your car loan from a dealership
In 2025, research from TransUnion found that at least 18 million American vehicle owners qualified for a lower rate than they were paying, meaning they were in a good position to save money simply by refinancing.
Refinancing a car the right way is easy!
Here’s a quick and easy rundown of how to get the most out of your refinance:
Do your research
Check your credit
Review your current contract
Gather your documents
Compare offers
Sign and save!
Let’s break these steps down.
Being prepared is the key to getting the most out of refinancing.
Make sure you understand how refinancing works and know what benefits you want to get out of it.
Research which lenders might be a good fit for you. While you will not have final offers to compare until you actually apply to refinance and get your credit checked, you can get a sense of who has the best rates, get preliminary quotes, and get a sense of how different companies operate to decide whose customer service works best for you.
Talk to friends and family to see if they have trusted lenders. And make sure your car is eligible for refinance—some lenders will not refinance cars if they are over ten years or have a lot of miles on them.
Your credit score is incredibly important in the refinance process.
Request your credit report and make sure your score is in good standing. Be sure that everything is accurate on your report. If there are any inconsistencies or errors, you can petition the credit bureau.
If your score is lower than it was during your initial financing, it might be a good idea to put off refinancing until your score is in better standing, but if it’s gone up, all the better!
Look at your current loan contract and make sure you are aware of any penalties for which you may be responsible.
Call your lender directly if you have any questions or want to review any of the fine print. When you compare your new rates, be sure that any savings will outweigh the prepayment penalties.
Gather all documents you will need for your applications. You’ll want to be able to get offers from several companies in a short period of time to protect your credit.
You will most likely need the following to get started:
A photo ID (such as a passport or driver’s license)
Your vehicle’s information (including the bill of sale, VIN number, make, model, and year of your car)
Proof of income and financial history (like pay stubs, banking information, and your credit report)
Proof of residence (such as a mortgage statement, lease agreement, or utility bill)*
Proof of insurance
*Please note that P.O. boxes are not considered acceptable as proof of residence.
Put all of your documents in one secure place. Better yet, scan them all onto your computer so you can easily upload them when you make your applications.
Apply to the list of lenders that you shortlisted—or make the process easier by having Auto Approve gather quotes for you from our network of 50+ trusted lenders.
When the offers come in, start comparing. The most important thing to compare is the car loan APR, but be sure to take other factors into consideration, like:
Prepayment penalties. You can refinance your car multiple times, so keep in mind that there might be another opportunity to refinance. You don’t want to be held to your new loan if a better deal comes along.
Fees. Do the lenders charge additional fees?
Customer service. What are their current customers saying about their customer service? Are issues quickly resolved, or do people seem unhappy?
When you decide on the best car refinancing deal, sign on the dotted line and enjoy the benefits of refinancing. (If you use AutoApprove for refinancing, we will even handle the DMV paperwork for you!)
The new lender should handle paying off your previous loan, but be sure to check there are no additional steps you are required to take.
There are a lot of benefits to car loan refinancing, but the main draw of refinance is saving money. Get started today with a free quote from Auto Approve.
Still have more burning questions? Here are the answers to a few refinancing FAQs:
What is car loan refinancing?
What are the benefits of refinancing a car loan?
Is there a wrong way to refinance a car?
Car loan refinancing is when you pay off your existing car loan with another loan. When you refinance, you should look for a new loan that has a lower car loan APR and/or better terms for your current financial picture.
Yes! Key benefits include:
Saving money on interest
Lowering your monthly car payment
Changing other terms (like adding or removing a co-borrower or paying off the loan sooner)
Here’s a closer look at a few reasons refinancing your car loan might be a good idea.
By refinancing your car to a lower car loan APR, you can save a lot of money in interest—hundreds or even thousands of dollars.
You can reduce your monthly car payment in two different ways when you refinance:
First, refinancing to a lower APR will result in lower monthly payments.
Second, even if you don’t qualify for a drastically lower car loan APR, refinancing your car loan will allow you to choose to repay your principal over a longer period of time, reducing the amount you have to pay every month.
A warning: If you extend your loan term, you will end up paying more over the length of the loan.
However, if your monthly budget is stretched too thin for comfort, this may be a trade off you want to consider—it’s better than missing a payment and risking losing your vehicle.
If you want to either add someone to your loan or remove someone from your loan, your best option is car refinance.
When lenders determine the terms of a loan, they consider the finances of the applicant along with everything else. They are ultimately trying to determine one thing: How likely is this person to repay their loan?
If there are two people on a loan, they consider the credit of both applicants. That means, if you want to change the borrowers listed on the loan, you will most likely need to refinance your car loan.
There is an upside to this: Removing someone with lower credit can score you a better car loan APR, and adding someone with good credit might help you score you better terms if you’re looking to lower your car payment.
In short, yes, there is a wrong way to refinance a car loan.
The most common mistakes when refinancing a car loan are:
Waiting too long
Not checking your credit score
Not understanding your loan terms
Not comparing options
Car refinancing becomes less and less rewarding as you near the end of your loan. This is because refinancing ultimately saves you money by reducing your interest payments, so the less time you have left on your current loan, the more interest you’ve already paid and the less money you can save.
Your credit score is the most important contributor to the car loan APR and terms that you are offered, so you want to be sure that it is in good standing and that you know how your credit looks relative to when you initially got your financing.
It’s always a good idea to keep tabs on your credit to catch any errors added to your credit report or course correct if something you’re doing is negatively affecting your credit. You may want to work to actively improve your score ahead of applying for a refinance or other major financial move to give yourself the most and best options you can.
When you refinance, it is critically important to understand the terms of your current loan.
This is especially important when it comes to prepayment penalties. Many lenders put prepayment penalty clauses in their contracts. This is meant to dissuade people from leaving their loan early (after all, if you leave your contract early for a better deal, your lender will make less money in interest).
So, when you refinance your car loan, you have to be sure that the savings outweigh any prepayment penalty fees. In order to be certain, always do the math to determine how much you can save and how much you will have to pay.
Unsure what a word or phrase in your contract means? Use our refinancing glossary to learn more about refinancing.
You should always shop around when looking for refinance rates.
Experts suggest applying to four or five different lenders to get a range of car loan APRs and payment terms to pick from. While this can seem daunting, using a company that specializes in refinance, like Auto Approve, can make this process much easier. We handle all applications and paperwork for you, so you only have to fill out your information one time. Then, our refinance experts can help guide you to understand your options.
If you do not compare refinance options, you might miss out on your best available offer.
