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When to Refinance Your Car Loan

Finance | 06/22/2021 22:00

Too many people assume that their auto loan is something they are locked into forever. They assume there is no wiggle room or alternative financing options that may make more sense down the line. When things and situations change in your life, the monthly auto loan payment you were once making may no longer be something you can afford. That’s when car refinancing comes into the picture.

If you borrow money to purchase a vehicle, it’s always wise to check that you are not paying more than you need to pay. Given that rates are at historic lows, and auto values are at historic highs, it is almost a certainty that you can lower your monthly car payment. In most situations, even if your life situation hasn’t changed, you can save money by refinancing a better loan. But before you can do that, we want to provide you with a general overview of when you should refinance your car.

When Should I Refinance My Car Loan?

Contrary to popular belief, you are not obligated to wait any amount of time before refinancing your car loan. You have to, instead, meet the requirements for the new loan to refinance it. Time is not part of those requirements – you can refinance immediately after buying the vehicle if you want. You need to just be sure that you are pursuing a better deal, in the end, one that requires the least amount of money to be paid towards the vehicle.

Note: in some states, you only need your new registration before refinancing. This may slow down the process by 4 to 6 weeks, which is why we recommend you engage in this part of the equation starting today.

What Do I Need for Refinancing My Car?

Generally, you are going to need to collect the following:

  • Information about the current loan and lender, your account number

  • Your current total loan balance

  • Vehicle information including the make, model, year, and VIN

Why Should I Refinance?

The two main reasons why people refinance their vehicles are to lower their monthly payment or lower their interest rate. The ability to borrow at a lower interest rate means you will pay less for your car after taking all of your borrowing costs into account. Since an interest rate is part of the monthly payment you agree to in the loan, it’s something that you should consider changing if interest rates change over time. Since interest rates are currently at historic lows, the time has never been better to refinance your car.

When you replace the current loan with a lower rate, you will want to engage in this change as soon as possible. In some cases, you can skip 2 monthly payments as the loan is being transferred from one lender to a more favorable one. Note: most auto loans are amortizing loans, which means you pay a fixed monthly payment with interest that is already built into that payment. A lower interest would mean a lower monthly payment.

When Should I Try to Refinance My Car Loan?

NOW! Now is always the best time. The refinance process is simple, there is no risk for you to find out your available options, and in most cases, you will be very glad you elected to move forward. You will save money immediately, and even potentially receive a few month’s reprieve on making any car payments at all. 

If you have significantly improved your credit score since obtaining the original loan, you may be able to negotiate a lower rate or remove a cosigner from the loan. 

How can I improve my credit score?


This happens when you make on-time loan payments for multiple months – or years. About 10-12 months is enough time to see a change in your credit score, which you can use as leverage to negotiate a better loan rate.

Refinancing Mistakes to Note

Refinancing is tempting at times, but can also be a poor decision if you don’t follow the details mentioned above. Here are some of the most common pitfalls to avoid when refinancing an auto loan:

  • Prepayment penalties do exist, which means you may have to pay extra if you pay off a loan before a term is up. Look up the details of your loan and inquire what this fee is going to be.

  • Waiting too long to refinance. The longer you wait, the less sense it makes to refinance. 

  • Lastly, don’t miss any payments. If you think that the refinancing process has paused your payments, think again. You want to triple-check before you halt payment for the previous loan. 

We hope this has solved any problems related to your question: when should I try to refinance my car? As always, do your due diligence and call up your lender with questions before you make any decisions. Hidden fees, contractual obligations, and the actual value of the car should all be factored into any refinancing agreements. But, if the stars align, then there is no reason why you should not allow yourself to benefit from auto refinancing. It always makes sense to check your options and see how low you can get your monthly payment or your interest rate.


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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.