Can I refinance my car loan?

Young woman leaning out of her car window and thinking about whether or not it's worth it to refinance an auto loan Image:

In a Nutshell

When refinancing a car loan, you’ll replace your current loan with a new loan. An auto refinance can be a simple way to save money by getting a better interest rate, or to lower monthly payments by choosing a longer term. But as with your initial auto loan, your desired loan amount, your credit and your vehicle could all affect your ability to qualify for refinancing.

Louis DeNicola is a personal finance writer and has written for American Express and Discover. Editorial Note: Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors' opinions. Our marketing partners don’t review, approve or endorse our editorial content. It’s accurate to the best of our knowledge when it’s posted.
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Refinancing your auto loan can save you money by lowering your interest rate, or it can lower your monthly payments to help free up your budget.

When you decide it might be time to refinance your auto loan, perhaps because you’ve improved your credit or noticed interest rates have dropped, you can start by comparing lenders.

Before starting an application, review each lender’s general requirements for refinancing auto loans to get an idea whether you’re eligible to apply before starting an application. These might include a minimum credit score, or restrictions on your current lender and vehicle age and mileage.

Here’s an overview of what some lenders look for along with common information needed to apply.


Qualifying to refinance a car loan

As part of the underwriting process, the lender might review your income, other debt obligations, and credit scores or credit reports. Your approval, loan terms and loan amount may depend on their findings.

Contrary to popular belief, low credit scores may not necessarily exclude you from refinancing. That’s not to say good credit isn’t important, though, as higher credit scores could lead to better terms, such as a lower interest rate.

Specific requirements vary from one lender to another, but here are some factors lenders may consider when deciding whether you can refinance with them.

  • Your vehicle’s age — Vehicles depreciate (lose value) over time, and you may not be able to refinance older vehicles. For example, Capital One won’t refinance a vehicle that’s more than seven years old, while Bank of America will go up to 10 years.
  • The mileage on your vehicle — Mileage can also affect a vehicle’s value, and you may not be able to refinance a high-mileage car or truck. That cutoff is fewer than 125,000 miles at Bank of America, while online lender OpenRoad Lending will refinance a vehicle that has up to 140,000 miles.
  • The value of your vehicle — If the vehicle is worth less than the amount you owe, that means you’re upside down on your loan. You might still be able to get your auto loan refinanced, but you may have to pay the difference between what you owe on your loan and the car’s value
  • The type of vehicle — You may not be able to refinance commercial, delivery or so-called lemon law vehicles. Motorcycles and RVs also might not qualify for standard auto refinancing, and salvage or rebuilt vehicles are often disqualified.
  • The loan amount — Lenders may have a minimum loan requirement, such as $5,000 or $10,000, and may require that you refinance your entire loan.
  • Your current lender — Some lenders won’t refinance a loan that you initially took out with them and may only refinance loans from lenders that meet their requirements.
  • Where you live — Some lenders don’t offer auto refinancing in every state.

Applying to refinance a car loan

If you and your vehicle meet a lender’s criteria for applying to refinance and you decide to apply, you’ll need to provide some information. It varies by lender, but you’ll often need to share some, or all, of the following information on your loan application:

  • Personal information —This may include your name, address, previous address, date of birth, contact info, citizenship status, Social Security number and the co-applicant’s information, if you have one.
  • Financial details —This may include your current employer, former employer, total income, housing status and monthly mortgage payments.
  • Loan information —This may include your current lender’s contact information, current loan balance and term, loan account number and information about any other auto loans you’re paying off.
  • Vehicle information —This may include the make, model and trim of the vehicle, as well as any special features or options. You may also need its vehicle identification number (or VIN), mileage and state of registration.

Once you submit your information, the lender decides whether to approve the loan. This can be an automated process that takes just a few minutes.

If approved, you’ll receive a loan offer or several offers with different terms. After picking one of the offers, you’ll then need to submit any required verification documents, such as proof of income and insurance.

FAST FACTS

If I refinance my car loan, how is my original loan paid off?

Once approved, your new lender may make a payment directly to your current lender. Or they might send the loan money to you by direct deposit or check, which you’ll then be responsible for using to pay off your original auto loan. And be sure to check with the lender of your original auto loan to see if a prepayment penalty applies.


Next steps

Refinancing your auto loan could result in a lower interest rate or lower monthly payments — though you should be aware that lower payments are usually the result of a longer repayment period, which likely means you’ll pay more interest overall.

Getting quotes from several lenders can help you find the best terms for an auto refinance loan for you, but check to see if your vehicle meets the lender’s requirements before taking the time to fill out an application. And if you’re struggling to get approved for a refinance loan, consider getting a co-signer or waiting until you build your credit.