How Soon Can You Refinance A Car?

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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You recently purchased a new ride and would like to know when it’s a good time to refinance. There’s no rule set in stone that dictates when you can move forward with a refinance. But it could be sensible to wait until the time is right. 

In this guide, you’ll learn more about how refinancing works, if it’s a smart financial move when it’s best to apply for a new loan or how often you should refinance your car loan. You will also learn about mistakes to avoid when you refinance your vehicle and how to get started to help you lower your car monthly payments.

Lower Your Interest Rate & Monthly Payments

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How Does Auto Refinancing Work?

When you refinance your car, you apply for a new loan to replace the one you currently have. Upon approval, the lender pays off your existing loan, and you resume payments, but on the new loan. 

Most borrowers refinance to lower their interest rate and save money or get a lower payment by stretching out the repayment term. 

Should You Refinance Your Car?

It depends on your financial situation and reasons for wanting to refinance. Here are some reasons to consider getting a new loan: 

  • Your credit score has improved since you applied for your current loan.
  • The average interest rates on car loans have dropped over time, and you believe you could qualify for a better rate. 
  • You want to reset your loan term to get a lower monthly payment and free up funds for other financial goals. 
  • You’re experiencing financial hardship and desperately need a lower payment to avoid serious credit consequences and repossession. 
  • You accepted a rebate from the dealership in exchange for a higher interest rate. 
  • You want to remove a co-borrower from the current loan. 
  • You want to get a lower interest rate and continue making the same payment to pay the loan off sooner.

It is important to weigh your options, so using an online service like Auto Approve to refinance your vehicle may be a good place to start getting free quotes from a number of lenders.

Reasons Not Refinance Your Car

Unfortunately, there are also potential drawbacks to vehicle refinancing: 

  • You could pay more in interest over the life of the new loan.
  • The new lender may charge steep loan origination fees. 
  • Your current lender could penalize you for paying off the loan early.
Lower Your Interest Rate & Monthly Payments

Get a quote to refinance your auto loan in minutes with no credit check. See how much you can save with historically Low Rates! Skip Up To 3 Payments. A+ Rating From BBB.

How Soon Can You Refinance Your Car?

You can refinance your car once your lender obtains the title from the previous owner or manufacturer. But it may not be a good idea as your credit score could still be recovering from the hit it took when you opened the loan. 

If possible, wait at least six to twelve months before refinancing to give yourself the best chance at getting a new auto loan with favorable terms. 

But if you’ve had your car for some time, refinancing may not be worth your while. For starters, your vehicle may not qualify if it’s more than seven years old or has over 100,000 miles on it. Or you’ve already paid a bulk of the interest since you’re nearing the end of the loan term. 

Does It Hurt Your Credit To Refinance Your Car?

When you apply for an auto loan, a hard credit inquiry is generated and could drop your credit score by a few points. Furthermore, opening a new loan may lower your score again as your average age of accounts will decrease (if you’ve had your current auto loan for some time). The good news is your score will start to improve sooner than later, assuming you manage your outstanding debt obligations responsibly. So make sure you understand how your credit will be affected before entering the refinancing process.

Mistakes to Avoid When Refinancing Your Car

You want to avoid these mistakes when refinancing your vehicle: 

  • Getting a new auto loan when your current lender charges prepayment penalties if you pay off your loan early 
  • Accepting an extended loan term that drastically reduces your car payment but costs you a fortune in interest over the loan term and puts you upside down in the loan
  • Securing a loan with more favorable terms too close to the end of your repayment period on your current loan

Where To Refinance Your Car

Before moving forward with vehicle refinancing, you want to shop around to ensure you get the best deal. Use an online lender matching platform like Auto Approve to simplify the process.

It lets you view potential offers from banks and credit unions in its extensive network of lenders to gauge if refinancing your car is a smart financial move. Here’s how Auto Approve works: 

Take the first step today towards securing a more affordable loan payment or lower interest rate. Complete the online form to explore your options in minutes.

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