If you are like most people, you are more than likely overpaying on your car loan.
But is refinancing the right choice for you? How do you when and where to refinance?
Refinancing is a good way to lower your APR, if you’re eligible.
There are other potential benefits to refinancing, including lowering your monthly payment, paying your loan off sooner, getting up to 3 months off from making car payments, and adding or removing a co-borrower.
Millions of Americans are eligible for a beneficial refinance as of 2026, due to changing rates, shifting vehicle values, and dealership markups. Those who have improved their credit are also typically eligible for a better car loan rate.
The best time to refinance is when you’ve had your loan at least 6 months to a year and have at least 2 years left on the loan. The other key things to track for refinancing are your credit (and any upcoming credit checks) and trends in interest rates.
The best way to refinance is to gather several quotes in a short period of time to limit any hit to your credit and give you options to ensure you find the best deal available to you.
When you refinance with Auto Approve, you get access to our network of 50+ trusted lenders, so you find your best deal quickly and easily,
Read on for a more detailed breakdown of refinancing FAQs.
Whether you got talked into a high APR at the dealership, the market has shifted, or your credit has simply improved, chances are there are lower rates out there that could be saving you loads of money every month. But don’t just take our word for it—in this article, we’ll look at how auto refinance works and discuss why you should consider refinancing your vehicle.
In this guide, we’ll answer:
What is refinancing?
When is the best time to refinance an auto loan?
What are the benefits of refinancing?
Are there risks to refinancing?
Who has the best auto refinance rates?
Refinancing is when you pay off your existing loan with a new loan that ideally has better terms. Auto refinance will get you out of the current financing relationship that you are in and let you start over with different terms that can change your APR, repayment terms, penalties, and other miscellaneous conditions of your loan. There are many reasons that auto refinance can benefit you.
Like a lot of things in life, timing is everything. It is important to keep this in mind when you are thinking about refinance. Auto loan refinancing is certainly more beneficial at certain times than at others.
You are allowed to refinance at any point in your loan. You will however need to wait for any paperwork to be finalized on your initial loan, which can take anywhere from 30 to 90 days. But once everything is signed and filed, you are able to refinance.
Experts recommend waiting 6-12 months before refinancing. There are a few reasons for this. First of all, this will give your credit score a chance to recover from the hard inquiries of your initial loan. When you apply for a new line of credit, your score will take a slight hit. It is best to wait until your score recovers from this. The better your credit score is, the better APR you will be offered. The second reason you should 6-12 months is to give yourself time to make consistent, on-time payments. If you can make full and timely payments on your auto loan, this will help improve your credit score. Again, the better your credit score, the better the APR you are offered will be.
There is definitely a sweet spot in your car financing timeline to think about auto refinancing.
Car loans are amortized and “front-loaded”, which means that in the beginning your payments aren’t split evenly between your interest and your principal. Instead, you pay off more of the interest in the beginning than you do the principal. Let’s look at an amortization schedule to see how the first four monthly payments are divided.
As time goes on, you pay less and less towards the interest and more and more towards the principal.
This means that towards the end of your loan, you are mostly paying the principal and little of the interest. When you refinance, the money you are hoping to save comes from the savings in interest payments. So it is more beneficial to refinance when you have at least a year (preferably two years) left on your loan payments. This will make it the most beneficial for you.
The top benefit of refinancing is saving money. Depending on your circumstances and needs, refinancing can help you get a lower APR, lower monthly car payment, or both.
For many, reducing monthly payments is a huge benefit. Even if you do not secure a substantially lower APR, refinancing allows you to change your repayment plans and stretch your payments over a longer period of time, which can loosen up your monthly budget significantly.
Refinancing is also the only way you can add or remove a co-borrower from your vehicle. For example, you might want to add your child on as a co-borrower to help them build credit, add your spouse who has better credit to qualify for a lower rate, or remove a co-borrower because you no longer need their financial assistance. Regardless of the reason, refinancing is the way to achieve this.
When you decide to pursue an auto loan refinance, you may be wondering what the risks are. Just as there are good times to refinance, there are also times when it will not make as much sense for you. So when is it a bad time to refinance, and when do the risks outweigh the benefits?
Think carefully about refinancing if…
If your credit score has recently decreased, there’s a good chance you won’t be eligible for a lower APR. Maybe your credit score dropped because you have recently opened other accounts or you hit a rough patch and were not able to make consistent on time payments. No matter what the reason is, a lower credit score may make refinancing less beneficial.
The APRs that are offered are dictated in part by the market rates. If your prevailing interest rates are higher than when you originally financed your vehicle, you will most likely not find a better APR.
A major risk of refinancing is the prepayment penalties to which you may be bound. Read your loan contract carefully to determine what penalties you may have to pay if you choose to leave your lease early. The amount you will pay in penalties may outweigh your savings.
As you near the end of your loan your payments will go against the principal more than the interest. You will ultimately not save much by lowering the APR, and you may not qualify for refinancing if the repayment term left is short.
If you are trying to apply for a mortgage or need a high rating for another reason, remember that refinancing will cause a slight dip in your score. Refinancing will cause a hard inquiry into your account as well as change your credit history. While these shouldn’t be drastic hits, if you are applying for a mortgage it may cost you a slightly higher APR for that account.
If your car has depreciated a good deal, you may not qualify for refinancing. Depreciation can occur for a number of reasons:
Mileage. The more you drive your car, the more it depreciates. High mileage shortens the amount of usable time left on the car.
Age. The older a car is, the less it’s worth. Even if it still drives perfectly, the fact that it is an older model will reduce the value.
Make and Model. If you are driving a more popular model, your car will depreciate slower. Value is based on how much someone is willing to pay. The more people want your car, the more they will pay for it. If you have a less desirable car, expect your car to depreciate at a faster rate.
Condition. If your car has been in a few accidents or hasn’t been consistently maintained, it’s value may be depreciated.
If depreciation lowers your car value significantly, refinancing might not be an option for you.
If auto refinance sounds like it might be a good option for you, you’ll need to figure out when you can find the best auto refinance rates. It is incredibly important to shop around for the ideal rates and terms when you are looking to refinance. You should do research to determine what your options are, trying to select at least 3-5 lenders to apply to. You will not have a good idea of what the terms are or what APR you qualify for until you actually apply.
The most efficient way to shop around and find the best auto refinance rates is to use a company that will do the legwork for you. Companies that specialize in auto refinance, like Auto Approve, have relationships with lenders and can streamline the application process for you. By simply filling out an online quote form, Auto Approve can get you a quote in minutes. Then, we’ll handle all of the paperwork (even the DMV forms!).
When looking for a lender, you want someone that you can trust. With an A+ rating from the Better Business Bureau and a 96% would-recommend rating from TrustPilot, you don’t need to take it from us. Our customers know that we find the best auto refinance rates and never markup the prices—we pass your savings directly on to you.
There are so many benefits to vehicle refinancing, especially lowering your APR and reducing your monthly payments.
To find out what rate you might be eligible for, start with a free, no-commitment quote, no hard credit check required, and one of our agents can help you figure out how much you could save and whether a refinance is right for you.
