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Is Refinancing a Car Worth It?

Finance | 07/21/2022 22:00

There’s so much to do every day, most of us want to avoid adding another thing to our to do list. Between work, home, and our families, there’s already a never ending list of things we should be doing. But when it comes to refinancing your car loan, there are a lot of benefits that may make it worthy of your to do list.

Here’s why refinancing a car loan is worth it.


When should you refinance your car loan?

Refinancing a car loan can save you a lot of money. But there are times when refinancing a car loan will make more sense than others. Here’s when you should think about car loan refinancing.

When market rates have decreased

Car loan refinancing saves you money by reducing your car loan APR, which reduces the overall amount you will have to pay back. It will also decrease your monthly payments. If the market rates have increased a lot since your initial financing, you might have a difficult time qualifying for a lower car loan APR. But if the market rates have decreased since your initial financing–and there’s a good chance they have–then you will most likely qualify for a lower car loan APR.

When your credit score has increased

If your credit score has increased since your initial financing, you will most likely get a much lower car loan APR. And that can translate to a lot of money in savings.

Your credit score is based on a number of factors. While some factors affect your score more than others, an increase in any area can cause an increase in your credit. The five areas that affect your credit score are: 

  • Payment History (35%) This looks at your history of making full and on time payments. 

  • Amounts Owed (30%) This looks at the amount of money you owe compared to how much credit you have available to you.

  • Credit History Length (15%) The age of your credit accounts. A longer credit history is more favorable to lenders.

  • Credit Mix (10%) Having a diverse assortment of accounts is beneficial to a high credit score. A healthy mix might include a mortgage, auto loan, student loan, and credit cards.

  • New Credit. (10%) The number of new accounts you have opened plus the amount of hard inquiries you have had on your credit account for 10% of your credit score. 

If you have paid off some debt since your initial financing, or have been more consistent with your payments since then, it could have a huge effect on your credit score. Your credit score is the biggest factor that you have control over when it comes to what car loan APR you will be offered.

When you need extra breathing room in your monthly budget

If you qualify for a lower car loan APR, your monthly payments will automatically decrease. But refinancing can allow you to decrease your monthly payments even if you are unable to qualify for a lower car loan APR. 

By lengthening your repayment period, you can stretch out the amount you have to pay back over a longer period of time. This will reduce your monthly payments drastically. Instead of dividing your payments up across 36 months, you can divide them up over 48 months. This can give you a lot of breathing room in your budget every month.

When you need to add or remove a cosigner

If you want to add or remove a cosigner, refinancing is the only way to do so. Let’s say you originally financed a car with a loved one because your credit wasn’t the best, but now you have increased your score through a lot of hard work and do not need any additional help. Refinancing can help you take ownership of your loan and let your loved one off the hook.

Conversely, if your credit score has slipped a bit but you really want to get a lower car loan APR, adding on a cosigner can help you do so. Lenders will look at your scores and credit history together, allowing you to get a lower car loan APR than you would be able to get otherwise.

Does refinancing a car hurt credit?

If you have worked hard to get your credit score higher, you may be anxious to refinance out of fear that it will lower your score. The good news is that there is only a small upfront dip on your score, and in the long run refinancing can actually help you increase your credit score.

Refinancing will affect two categories of our credit score, your credit history length and your new credit. A new account will negatively affect your credit history length, and the hard inquiries and new account will also affect the new credit category. Keep in mind that this will only affect your score for a year, as hard inquiries are erased after one year. 

Submitting all of your applications for car loan refinance at one time will help minimize any damage to your credit score. Credit agencies know that consumers need to shop around and submit more than one application, so they allow a fourteen day window where all credit inquiries will consolidate and count as one singular hard credit inquiry. This is another reason that using a company that specializes in car loan refinance, like Auto Approve, can prove advantageous. They can apply to multiple lenders in a short time frame so that everything will be considered as one inquiry. If you are trying to refinance on your own, you may inadvertently space out your applications too far and hurt your credit score.

But refinancing your car loan can help your credit score in the long run. It can help by:

  • Reducing your monthly payments. If your car payments are lower, you will have an easier time making sure you don’t miss any payments you can’t afford.

  • Helping you pay off debt. More money in your pocket means more money you can use to pay off other debts. Lowering your credit utilization ratio can have a very positive effect on your credit score.

Car loan refinancing might cause your credit score to dip slightly in the beginning, but it can be worth it in the long run and can help ease a tight financial situation.

How do you refinance a car loan?

If car loan refinancing seems like a good idea, there’s good news–refinancing a car loan is super easy. Using a company that specializes in car loan refinance, like Auto Approve, can make the process quick and pain free. 


Before you do anything, you want to be as prepared as possible. The biggest thing you want to be prepared with is your credit score. Request a copy of your credit report (you can do this once a year with each of the three major credit bureaus, so essentially three times a year). Make sure that your score is in good standing and that there aren’t any errors or inconsistencies on your report. 

You also want to be prepared with your existing loan. 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. If you are unsure about any of the fine print, it’s always a good idea to double check with your lender. 


Applying for a car loan refinance is similar to your original financing application. You will need the following to get started:

  • A Photo ID, such as a passport or driver’s license.

  • Your vehicle’s information, which may include the bill of sale, VIN number, make, model, and year of your car.

  • Proof of income and financial history, which may include pay stubs, banking information, and your credit report.  

  • Proof of residence, such as a mortgage statement, lease agreement, or utility bill. Note that PO boxes are not acceptable as proof of residence.

  • Proof of insurance. 

Gather all of your information and scan it so it is easy to attach to your online applications. If you use Auto Approve to refinance your car loan, they can handle all of the applications so you don’t have to.


Once your applications are submitted, it won’t take long for the offers to come rolling in. Compare all of your offers (Auto Approve can help you do this) and decide which lender is right for you

Sign and Start Saving Money

That's it! Once you have picked the best car refinancing option, sign on the dotted line and start saving money immediately. And if you use AutoApprove for refinancing, we will even handle the DMV paperwork so you don’t have to.

And that is why refinancing your car loan is worth it.

Refinancing a car loan may sound complicated, but it is actually really easy and can pay off tremendously in the long run. And if you use Auto Approve, refinancing is a breeze. So why wait?


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*APR and Fees Disclosure: Auto Approve works to find you the best Annual Percentage Rate (APR), which is based on factors like your credit history, vehicle and desired payment terms. Fees to complete your loan refinance vary by state and lender; they generally include admin fees, doc fees, DMV and title. Advertised 6.24% APR based on: 2019 model year or newer vehicle, 730 minimum FICO credit score, and loan term up to 72 months. All loans subject to credit and lender approval.
Auto Approve has an A+ rating with the BBB and is located at 2860 Vicksburg Lane North Plymouth, MN 55447. Auto Approve works to find its customers the best terms and APR, which are based on factors like credit history, vehicle, and desired payment terms. Loan amounts, costs, and fees vary by state and lender; they generally include admin fees, doc fees, DMV, and title fees, depending on the lender and period of repayment. There is no fee to obtain a quote and all refinancing-related costs are included in the amount financed so there are no out-of-pocket costs! For more information, please go to AutoApprove.com.