What You Need to Know About Refinancing Your Car

By Upstart Content Team | Updated August 9, 2021
reading time 3 min read
Woman in a car with her dog - Upstart Personal Loans

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

If you’re considering car refinancing through Upstart, we provide a seamless application process that doesn’t require the information listed above. Upstart will handle paying off your previous lender to provide a simple and easy car refinancing experience. However, as you are considering refinancing your car, it’s important to check with your current lender to make sure you don’t have any prepayment penalties for paying your vehicle off early. 

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. Through Upstart, we pay off your existing auto loan and do the title transfer work so that you don’t have to worry about the hassle and can have a smooth ride into savings.

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. A benefit of refinancing your car through Upstart is that we take care of the fees.

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. 

Car refinance loans not available in IA, MD, NV, or WV. Car refinance loans in IL and MO are originated by Cross River Bank or Midwest BankCentre. Car refinance loans in CO, KS, and TX are originated by Cross River Bank or Rising Bank, Member FDIC. Car refinance loans in FL, GA, and AL are originated by Cross River Bank or Drummond Bank, Member FDIC. All other car refinance loans are originated by Cross River Bank, Member FDIC.

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

About the Author

Upstart Content Team

The Upstart Content Team shares industry insights, practical tips, and borrower success stories to help people better understand the important “money moments” of their lives.

More resources you may be interested in

The 4 Drivers Who Should Refinance a Car Loan
How to Get Out of an Upside Down Car Loan
What Can Personal Loans Be Used For?

See what you could save through auto loan refinancing

Check your rate lock Won't affect your credit score¹

1. When you check your rate, we check your credit report. This initial (soft) inquiry will not affect your credit score. If you accept your rate and proceed with your application, we do another (hard) credit inquiry that will impact your credit score. If you take out a loan, repayment information may be reported to the credit bureaus.