Everything You Need to Know About Refinancing an Auto Loan

Looking for ways to save money? Refinancing your car loan could save you 1000s of dollars, and applying with our recommended partners only takes minutes, but there are many things to consider.

This guide will go through what you need to know about refinancing a car loan and recommend a couple of our preferred car refinancing companies.

Is Refinancing a Car Worth It?

Refinancing a car takes time and energy.

You must research different lenders' interest rates, terms, and conditions and complete some paperwork. So is it worth it?

It depends on your situation. Refinancing can save you money if any of the following points apply to you:

• Have you improved your credit score since taking out the loan?
• Find a lender with better interest rates.
• Are you able to negotiate a lower interest rate with your current lender?

What is the disadvantage of refinancing your car?

There are a few potential disadvantages of refinancing your car loan, which include:

• Paying fees to refinance (usually between $100-$300)
• Shortening the length of your loan and thus increasing your monthly payments
• It may be difficult to refinance if you have a low credit score.

What fees do you need to pay when refinancing a car loan?

The fees you need to pay when refinancing a car loan are typically:

1. Origination fee: This is a fee charged by the lender for processing the loan. It is usually a percentage of the total loan amount and can range from 0.50% to as high as $100.
2. Appraisal fee: You may need to get your car appraised in order to refinance it. The appraisal fee is usually between $50 and $100.

Does refinancing your car loan affect your credit rating?

A common concern is that refinancing a car loan will significantly negatively affect your credit rating.

Refinancing your car loan will result in a hard inquiry on your credit report, which could temporarily lower your credit score by a few points.

However, if you shop around for rates within a 14- to 45-day period, the inquiries will be treated as a single inquiry.

Bonus: Both of our partners, Upstart and Caribou, start with a soft credit inquiry, which will not affect your credit rating. They do a hard check only once you have agreed to a loan. Skip below to learn more.

What are the advantages of refinancing your car?

There are a few different ways refinancing your car loan could work to your advantage.

You can lower your monthly car payment by reducing your interest rate and/or increasing the loan term.

Inversely, you can save money by shortening the loan term and making slightly higher monthly payments.

You can also use refinancing to get cash out of your equity. This can be helpful if you need money for a down payment on a house or to make repairs on your car.

Can you refinance a car loan that's paid off?

Yes, you can refinance a paid-off car.

This is called an auto equity loan, which allows you to borrow money against the value of your car.

The advantage of an auto equity loan is that it usually has a lower interest rate than a personal loan or credit card.

The disadvantage is that if you default on the loan, you could lose your car.

Are down payments not required for an auto refinance?

No, down payments are not required when refinancing a car loan. However, if you have equity in your car, you may be able to use it as collateral for a lower interest rate.

Is there a limit to how many times you can refinance your car?

No, there is no limit to how many times you can refinance your car. However, when you refinance, fees will also be involved, and you should also be aware that your credit score may be impacted each time you refinance.

What is the best place to refinance your car loan?

There are many places you can refinance your car loan. However, we recommend shopping around for the best interest rates and terms. Some good places to start include your current lender, credit unions, and online lenders.

How to Refinance a Car Loan?

Now that we have gone over some basics and possible advantages and disadvantages of refinancing a car loan let's get to how to refinance a car.

Here are the steps you need to take in order to refinance your car loan:

1. Check your credit score: You will need a good credit score in order to get approved for a loan with a good interest rate.
2. Research lenders: Compare rates, terms, and conditions of different lenders. Be sure to check if the lender offers pre-approval.
3. Get approved for a loan: Once you have found a lender with rates, terms, and conditions that you are happy with, you will need to fill out a loan application and provide the necessary documentation.
4. Close on the loan: Once you have been approved for the loan, you will need to sign the loan agreement and pay any closing costs.
5. Make your first payment: Congratulations! You have now refinanced your car loan. Be sure to make your first payment on time.

As you can see, there are a few things to remember when considering refinancing your car loan. Be sure to research and compare different lenders' rates, terms, and conditions before making a decision.

How To Refinance a Car Loan With Bad Credit?

What if your credit rating is bad?

There are a few things you can do to improve your chances of getting approved for refinancing a loan:

Get a cosigner: A cosigner is someone who agrees to sign the loan agreement with you and is responsible for making payments if you default on the loan.

Choose a shorter loan term: A shorter loan term will result in a higher monthly payment, but it will also increase your chances of getting approved for the loan.

Refinancing a car loan with bad credit is possible, but it may be more difficult to get approved.

If you have bad credit, try to get a cosigner and choose a shorter loan term.

Where To Get Your Your Vehicle Refinanced?

Now that we have gone over the basics, advantages, and disadvantages of refinancing a vehicle, let's look at a couple of our recommended online lenders.

Autopadre has partnered with online lenders, Upstart and Caribou, to provide our visitors with two excellent options to quickly get an online quote, either on desktop or mobile.

Caribou

Caribou is a good option for those who have a good credit score.

According to Caribou's homepage, the average customer will save over $100 a month by refinancing with Caribou.

Caribou will make a soft inquiry for the first credit inquiry that will not affect your credit score. After that, only once you have accepted a loan will Caribou make a hard inquiry, affecting your credit rating.

Caribou recommends applying with them if at least one of the following conditions is met:

1. Your current interest rate is too high
2. Your current loan term is too long
3. Your current credit score is 650+
4. Mileage on your vehicle is below 120k

According to caribou.com, the average customer saves an average of $101.54 per month².

Upstart

Upstart is an excellent option for those with bad credit or no credit history.

Like Caribou, Upstart's initial credit check is a soft inquiry, so it won't affect your credit score. Only once you have accepted a loan will they make a hard inquiry.

Upstart recommends applying for their refinancing if your vehicle is less than ten years old, has under 140,000 miles, and is an insured, personal use car.

Your current loan should have an outstanding balance of $9,000 - $60,000 and was initiated at least one month ago.

According to upstart.com, the average customer saves an average of $1,147 per year.¹

Caribou vs. Upstart: Who To Choose?

We recommend getting quotes from both lenders to see which offers you the best rate. Make sure to compare interest rates and things like fees and loan terms.

Applying takes minutes, and you have nothing to lose because the initial credit checks are soft inquiries, so your credit rating is not affected.

Notes:

¹Borrowers have saved hundreds by refinancing their car loan - This information is estimated based on all consumers who were approved for an auto loan through Upstart and accepted their final terms. As of 6/1/2022, the average yearly savings amount is $1,147. To evaluate savings on a loan you are considering refinancing, it is important to compare your APR and remaining term from your existing automotive loan to the APR and term offered through Upstart.

²This information is estimated based on consumers who were approved for an auto refinance loan through Caribou on or after 1/1/2022, had an existing auto loan on their credit report, and accepted their final terms. As of 4/30/2022, borrowers who refinance save an average of $101.54 per month. Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.