Next to your home mortgage loan, your car loan would probably be one of your biggest loans that you pay each month, averaging anywhere from $400 to $600.

When you take on a car loan, your payment terms span for about five years at least. With this timeline, it is hard to predict what direction your overall financial condition might go. Not to mention that the value of your car significantly depreciates by the 3rd year, so refinancing your auto loan will score you lower interest charges and lower monthly payments.

But be careful, refinancing your car loan may come with disadvantages too.


What are the Pros and Cons of Auto Loans Refinancing?

Car loan refinancing is a process of applying for a new loan, typically with more favorable terms, to pay off your current car loan. Experts agree that this is a sound approach in managing your debt, especially when you begin to struggle with monthly payments because of an unexpected negative financial event that may happen to you.

Let’s weigh on the advantages and disadvantages of refinancing your car loan.

when to refinance your car loanAdvantages

  • Lower interest rates will save you more money and make it easy for you to pay off your loan much faster.
  • By refinancing, your loan is stretched out by a few more years, significantly easing your burden of paying high monthly amortizations.
  • Your cash flow improves, allowing you more available funds to finance other personal projects.


  • If your timing is off, for instance, the going rate for loans is higher or about the same as your current loan. Then, you will not reap enough benefits from refinancing.
  • Because your car depreciates, you may owe more than what your car is worth by the time you apply for refinancing. In such a case, you may be asked to pay a certain cash amount to cover for the difference.
  • Like most loans, there is a prepayment penalty when you decide to pay off your loan too early than on a set date in your contract.


When is a Good Time to Refinance Your Auto Loan?

Timing is crucial in auto loan refinancing. In order to reap its benefits, you must be strategic with your plans. 

Refinance When Interest Rates are Down

Interest rates on loans go up or down depending on the federal prime rate. By keeping yourself informed on the trend of loan rates, you will be able to set the right time to apply for a refinance.

To Raise your Credit Score

A high credit score will allow you bargaining power for loan rates negotiation. Allow yourself ample time to learn and work on the sure-fire ways to improve your credit score.

Refinance When you Have not Paid off Most of your Loan

Interest in most long-term loans is front-loaded. It means you pay more of the interest at the beginning of the loan term. Later, your monthly amortization tapers off, representing most of it as your loan principal. If you’ve paid off most of your loan, you may not be able to save much on interest when you refinance.

Refinance Within the First few Years of Owning your Car

Because cars depreciate quickly, some lenders won’t refinance cars that are over 7 years or have more than 90,000 to 125 miles on them.


refinancing your auto loan


What is a Good Rate to Refinance Your Auto Loan?

When you refinance your auto loan, you’ll go by the process of credit analysis by your prospective lender. In this process, your lender will consider your credit score to determine the rate that applies to your loan.

Here is a table of auto loan refinancing that gives you an estimate of how much interest rates are charged based on the borrowers’ credit score. 

Lender APR Range Minimum Requirements
Light Stream 3.49% – 8.34% (includes autopay discount) Min. credit score: 660

Min. loan amount: $5,000

Max. vehicle age/mileage: No restrictions

Lending Club 3.99% – 24.99% Min. credit score: 510

Min. loan amount: $5,000

Max. vehicle age/mileage: 10 yrs/120,000 mi

Tresl 2.49% – 23.99% Min. credit score: 500

Min. loan amount: $5,000

Max. vehicle age/mileage: 10 yrs/150,000 mi

Refi Jet 2.70% – 17.99% Min. credit score: 580

Min. loan amount: $10,000

Max. vehicle age/mileage: 10 yrs/200,000 mi

My Auto Loan 2.49% – 29.4% Min. credit score: 525

Min. loan amount: $7,500

Max. vehicle age/mileage: 8 yrs/100,000 mi

CarFinance.Com 7.99% – 21.9% Min. credit score: 525

Min. loan amount: $7,500

Max. vehicle age/mileage: 8 yrs/100,000 mi

Open Road Lending 2.9% – 24.9% Min. credit score: 500

Min. loan amount: $10,000

Max. vehicle age/mileage: 10 yrs/140,000 mi

Rate Genius 3.49% – 25.87% Min credit score: 550

Min loan amount: $10,000

Max vehicle age/mileage: 7 yrs/100,000 mi 

AutoPay 1.99% – 17.99% Min. credit score: 600

Min. loan amount: $2,500

Max. vehicle age/mileage: 11 yrs/125,000 mi

Clear Lane 3.99% – 7.74% Min. credit score: 600

Min. loan amount: $5,000

Max. vehicle age/mileage: 10 yrs/100,000 mi

Consumers Credit Union 2.99% – 21.99% (includes discounts) Min. credit score: 640

Min. loan amount: $250

Max. vehicle age/mileage: No restrictions


Can I Refinance My Auto Loan Even With Bad Credit?

Just like in any type of loan, there is a minimum credit score required by lenders to consider your application. For auto loan refinancing, a good score starts at 600. But, some lenders may also consider those with scores below that number.

If you want to learn more about the credit score you need to get approved for an auto loan click here. 

Borrowers with bad credit are referred to as subprime credit. Lenders predict them to come with a risk of credit default, thus weighing carefully on charging higher interest or just disapproving the loan at all.

If you are on the side of bad credit, consider these tips when applying for auto loan refinancing.

Get Clear on your True Financial Situation

You need to determine your actual financial ability to repay the loan. One perspective is that as your loan gets stretched out in refinancing, you may end up paying more money in the long run. With your future potential sources of income in mind, find out if the true cost of refinancing is something you can really afford.

how bad credit affects auto loans

Get Clear on your Credit Situation

Review your credit report and make sure everything is in order. Also, check on your credit score by using the many free credit monitoring tools available.

Negotiate with your Current Lender

Seek with your current lender and see if you can refinance with them. If you have a good payment record with them, even with an overall bad score, they may be able to reconsider your refinancing application.

Look for Refinancing Lenders that can Consider your Credit Score

Credit unions and community banks are good options that you may look at for refinancing. Most of these financial institutions have loan programs that are open to anyone with a bad credit score.

Consider Having a Cosigner in your Loan Application

If you have a family member or close contact with a high credit score, ask them to cosign a refinancing loan with you. Be careful in managing a cosigned law, as default in the loan will also significantly impact the cosigner’s credit score.

If you’re certain that refinancing your auto loan is the direction you want to take, just be careful about hard inquiries every couple of months with multiple lenders that can cause a hard pull on your credit report. This will create a negative impact on your credit score. Instead, do all your applications within a 45-day period so that credit bureaus will consider these hard pulls as one instance only.


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