Key Takeaway: Refinancing a car loan replaces your current auto loan with a new one — usually to get a lower rate, a lower monthly payment or a different term. The biggest pros are interest savings and payment flexibility; the biggest cons are potential fees, a temporary dip in your credit scores and paying more total interest if you stretch out your term.
There are many reasons for considering refinancing. Maybe you’re working with a tighter budget than you did when you first got your auto loan, and you’d like to reduce your monthly payment. Or maybe you got your current car loan when your credit was less favorable than it is today, and you’d like to refinance at a lower rate.
Refinancing isn’t free, and it isn’t always the right move. Weigh the pros and cons below before you apply.
- Pros and cons of refinancing a car
- When should you refinance your car?
- When shouldn’t you refinance your car?
- Does refinancing your car hurt your credit?
- FAQs about auto refinancing
Pros and cons of refinancing a car
Refinancing can save you money on interest and give you more flexibility with your monthly budget — but it can also cost you in fees, added interest and a temporary credit score dip.
Pros of refinancing your car loan
- You could get a lower interest rate, which may save you money.
- You could decrease your monthly payment.
- You could shorten or lengthen your loan term.
- You can remove a cosigner if there was one on your original loan.
Cons of refinancing your car loan
- You may pay more in interest over the life of the loan, especially if you lengthen your loan term.
- You could end up owing more than your car is worth.
- You may have to pay additional fees, such as prepayment fees.
- You may experience a small dip in your credit scores.
- There may be limited options for older cars.
When should you refinance your car?
Refinancing may be a good idea when your credit scores have improved meaningfully or when auto loan rates have dropped since you first got your loan. It can also make sense when you want to shorten your loan term, reduce your payment or remove a cosigner.
- When refinancing your car loan, keep your eye on the bottom line. Refinancing makes the most sense when a rate or term change saves you more than the fees cost.
- Many lenders want to see at least six months of on-time payments before considering a borrower for refinancing. Waiting at least six months after purchasing your car can give you access to a wider pool of lenders. For a step-by-step walkthrough, see how to refinance a car loan.
How does refinancing a car work?
Refinancing involves replacing your current auto loan with a new one, ideally with better terms. Your new lender pays off the old loan, and you begin making payments on the new loan instead. Refinancing can lower your interest rate, reduce your monthly payment or change your repayment term. Keep in mind, though, that it may temporarily lower your credit scores, since lenders will likely do a hard pull on your credit when you apply.
When shouldn’t you refinance your car?
Refinancing isn’t advisable near the end of your auto loan or when you owe more than your car is worth. It also may not be the best choice if rates have risen since you got your loan, if fees outweigh the savings, or if your car doesn’t meet the age and mileage limits set by many lenders — for example, some banks won’t refinance cars that are older than 10 years or have more than 125,000 miles on them.
- It doesn’t make sense to refinance if it ends up costing you more money. If refinancing results in a higher interest rate and steeper interest costs over the life of the loan, it’s probably not the right move.
- It’s typically easier to find a lender when your car is worth more than your loan balance — and depreciation erodes your car’s value fast. A new car can lose 20% or more of its original value within the first year.
- It may be possible to refinance your car loan if you have bad credit. But going this route isn’t advisable unless your credit has improved since you got your original auto loan.
Does refinancing your car hurt your credit?
Yes — refinancing can cause your credit scores to dip, since lenders usually run a hard inquiry when you apply for a loan. The impact is typically minor — usually fewer than five points — and your scores will likely recover within a few months if you make on-time payments. Rate-shopping inquiries made within a short window generally count as just one inquiry.
If you’re approved for the new loan, your average account age will also decrease, which can cause another temporary dip in your credit scores.
Calculate your auto loan refinance
Use the auto refinance calculator to estimate your monthly payments and how much you may be able to save by refinancing your current auto loan.
Next steps
Refinancing can help you lower your monthly payment or reduce your overall interest expense, and you can also use it to shorten or extend your loan term. However, it can temporarily lower your credit scores, so be judicious — it might not be the best move right before applying for new credit, such as a mortgage. Read about how to refinance a car loan to learn more about the process, or see how to apply for an auto loan when you’re ready.
Auto refinancing FAQs
Many lenders want to see at least six months of on-time payments on your current auto loan before considering you for refinancing. To access the widest pool of lenders, it makes sense to wait at least six months after purchase.
You can refinance your car as many times as you like. However, doing so repeatedly may negatively affect your credit and trigger prepayment penalties.
Borrowers who refinanced their auto loans in the first quarter of 2026 lowered their monthly payment by an average of $81, according to Experian’s State of the Automotive Finance Market report. On average, those borrowers also cut their interest rate by about 2.2 percentage points — from 10.29% to 8.05%.