How to Refinance Your Car Loan

If you’re currently in a high interest rate car loan, it may make sense to try and refinance before things get more expensive.

How to Refinance Your Car Loan

Auto loan rates have remained at some of the lowest levels in years since 2015, with rates currently hovering under the 3% mark. With the election of Trump to the White House, however, there is some well-informed concern that we could see interest rates skyrocket. That means that buying a car could get more expensive and reduce what you can afford to buy. If you’re currently in a high interest rate car loan right now it may make sense to try and refinance before things get more expensive. Here’s how to do it.

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A good way to think about refinancing an auto loan is that you are using the new loan to pay off and refinance the remaining balance you have on your car. You will need to pay off the current loan you have. That means that you will have to get the new loan and then use it to pay off the old loan.

The first step to refinancing is getting educated. First, figure out if now is the right time for you to refinance. Has your credit score improved? Have interest rates dropped since you financed your vehicle? Has your financial situation changed since you bought your car? It also makes sense to consider refinancing if you are having trouble making the payments or are looking to shorten the duration of your loan. All of these are crucial questions to ask yourself when you are deciding whether or not it’s right to refinance.

Second, know what you are getting into. Refinancing is not free and it will require the same amount of legwork you did when you first bought the car. You’ll need to go through the process of having your credit run which can and often does often reduce your credit rating.

You also need to know whether or not your current lender charges any kind of pre-payment penalties. These kinds of penalties can greatly impact the affordability of refinancing and need to be taken into consideration when you are looking at refinancing. The best way to find out if your current bank charges any penalty is to give them a call. They can tell you right away what your payoff amount is (the amount you’ll need to refinance) and whether or not you will have to pay additional cash to get out of your loan early. Most lenders don’t charge prepayment penalties but it’s worth asking.

Your car will also need to be under 10 years of age, have less than 125,000 miles on it, and you must refinance at least $5,000 to $7,500. Anything outside of those requirements and a lender probably won’t be able to offer you a loan. In general it is best to refinance a loan early on in its term because you will save more money.

Additionally, you’ll need to find out what your car is worth by looking up its value on a site like Edmunds or Kelley Blue Book. One common misperception is that you will need to have your car appraised. That’s not true. You can simply look up its worth on either of those sites instead.

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If what you owe on your car is more than what your car is worth, you won’t be able to refinance because the loan is upside down. If you do find yourself in this kind of situation it may make sense to try and renegotiate your loan with your current lender. The sooner you communicate with your bank about trouble making a payment, the better. Most lenders are open to talking about how to help you make payments on time and it’s worth asking.

One other thing to note—most lenders won’t refinance their own loans but they will put you into a different product or possibly renegotiate your current loan. So you probably can’t reduce your rate and your period of your loan directly at Bank A but if they offer another product that might be better for you (and do all the cost savings stuff you want it to do), then you could potentially simply apply for the other product.


First, just like when you first applied for a loan, gather all your documents and do your homework.

The best thing to do is pull your own credit report and make sure everything looks good. If it doesn’t take steps to get your credit cleaned up before applying for a new loan. It will help ensure that you get approved when you do go for it. You’ll also need to ensure you take steps to protect your credit while you are applying. For more on how to do this, check out our article, here.

Next, you’ll need to shop around various banks, just like you did when you were getting the loan the first time. Visit banks and credit unions and consider all your options. For more on whether to finance at a big bank or a credit union you can read this post here.

Once you’ve determined that its the right time for you to refinance your car loan, get your documentation in order. Common items you’ll need include:

  • Driver’s License
  • Current car loan information including your account number, interest rate, remaining balance, period and term etc.
  • Pay stubs
  • Bank account information
  • Your car’s VIN number, year, make, model and current mileage

Once you’ve gathered up these items, you can apply. Many banks offer online applications so you won’t have to physically show up at a branch to get a loan. One note of caution though--be sure to apply to all the banks you want quotes from within a 15-day period. Otherwise it could further negatively impact your credit rating. In general you will find out within 24-hours if your application has been approved or not.

Be sure to find out how the new bank will handle paying off the old loan. Most will take care of that part for you, but be sure to double check so that you don’t end up with any late fees or penalties for the old loan should it not be taken care of by the new bank.

Once you’ve been approved it’s time to sign the paperwork. Usually the loan paperwork will be sent to you. Be sure to read it all closely and be sure that it’s the right one for you. That means that you need to read all of the fine print. Sign the documents and send them back to the bank.

Once the loan is opened up, your new bank should send money to the old bank to pay off your old loan. You’ll start paying your new bank on the regular, going forward.


Sadly, simple clerical errors can and sometimes do completely derail a loan application. Did you spell your name, street, or city wrong? That could cause the bank to reject you. Do the names on the title and the name on the application not match? There’s a potential problem there, too. Is your car too old? Is it too high on mileage?

All of these factors could put a stop to your refinancing efforts so be sure to double and triple check these items before spending time and money going for a refinance.

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Valentin GuiValentin Gui

Founder and a car nut. Born and raised from Detroit, Michigan. Val managed 12 dealerships prior to founding Instamotor.