What You Need to Know About Refinancing Your Car

Refinancing your car can help lower your monthly car payments and save you a little extra each month. Car refinancing could help you save if you still have a lot left to pay off on your car, as refinancing lowers your interest rate, potentially helping you save money in the long run.

Refinancing is similar to how it works for other types of loans, such as a student loan or a mortgage. Auto refinancing is taking out a new loan with lower interest to pay off your old one. The new loan is usually issued from a new lender.

Here’s what you need to know about refinancing your car.

Reasons why people refinance their car

Perhaps you purchased your vehicle at a time when your credit wasn’t the best and you had to get a cosigner to help you secure the vehicle. If your credit score has improved significantly, you’ll likely qualify for better loan offers, so don’t forget to shop around for the best rates.

It’s also ideal to potentially refinance your car if you’re one or two years into a five-year auto loan and would like to refinance for a lower rate and remove the cosigner or co-borrower.

Besides lowering your monthly payments and interest rate, another reason why people refinance is to adjust the length of their loan term. Going from a 36-month to 72-month auto loan term may not save you money in the long term, but it could save you money each month. This helps if you’re struggling to keep up with bills monthly and provides more wiggle room in your budget.

How does car refinancing work?

To refinance your car, you should have all of your personal and financial information ready for your lender. The process isn’t as tedious as refinancing a mortgage, but you should have all of the necessary information ready such as but not limited to:

Current loan
Monthly payment
Interest rate
Terms of your loan

It’s a good idea to shop around and compare the rates you receive. Most banks and lenders allow you to see what interest rate you qualify for online.

Once you choose the loan that best suits your needs, you sign the new agreement and the loan will then pay off your existing auto loan.

Auto Refinancing fees

The fees for auto refinancing are usually minimal. The most important thing to check is that your existing loan won’t charge you a prepayment penalty if you decide to pay it off early. Besides that, you may need to pay small fees for re-registering your auto loan with the state, lender fee (around $10), and title fee (usually under $75). Fees may vary by state.

When it doesn’t make sense to refinance your car

If you’re almost done making payments on your car, it may not make sense for you to refinance, since you’ve already paid most of the interest off. Also, keep in mind that lenders typically won’t refinance older cars and may have restrictions on lending if your vehicle has a certain number of miles or is more than 10 years old.

When you refinance your car, you’re essentially taking out a new loan, which means a lender will do a hard pull on your credit, which means your score may get dinged temporarily. Keep in mind that you can still shop around for the best score within a certain time frame (usually 30 days) and the hard pull will only count as a single inquiry. This is referred to as rate shopping.

Bottom line

If you’re saving $100 a month from the refinance, you may want to consider using those funds to make larger monthly payments to pay down the debt or perhaps use it to pay down credit card debt, or throw it into a savings account for a rainy day.

As with any loan, be sure to make on-time monthly payments to continue strengthening your credit score.

*This content is general in nature and provided for informational purposes only. This content is not specific to Upstart, except where explicitly stated. This content may contain references to products and services offered through Upstart’s credit marketplace. Upstart is not a financial advisor and does not offer financial planning services.

About the Author

Upstart Content Team

The Upstart Content Team develops educational content grounded in research and real-world financial experiences. By breaking down complex topics into clear, actionable insights, the team helps readers navigate important decisions—so they can feel confident in the money moments that matter.

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