Refinancing Your Auto Loan: When to Pull the Trigger
Stuck with a high interest rate? You aren't married to your loan. Learn when refinancing makes sense, how much it costs, and the trap of extending your loan term.
Many people don't realize they can refinance their auto loan just like a mortgage. If your credit has improved or rates have dropped, refinancing could save you hundreds or thousands of dollars.
When Refinancing Makes Sense
Consider refinancing if:
- Your credit score improved: Going from Fair (640) to Good (700+) can drop your rate significantly
- You didn't shop around originally: Dealer financing often has markup
- Rates have dropped: Fed rate cuts affect auto loan rates
- You're paying over 8% APR: Today's good rates are 5-7% for qualified borrowers
The Lower Payment Trap
Lenders love to advertise "lower monthly payments!" But watch out—they often achieve this by extending your loan term.
Warning: Refinancing a 3-year loan into a 6-year loan might lower payments but cost you more in total interest. Always aim to keep the same term or shorter.
Costs to Consider
Auto loan refinancing is usually low-cost, but watch for:
- Title transfer fees: $15-$50 depending on state
- Prepayment penalties: Check your current loan—some charge for early payoff
- Application fees: Most reputable lenders don't charge these
How to Refinance
- Check your current loan balance and payoff amount
- Get quotes from 3-5 lenders (credit unions often have best rates)
- Compare APR, not just monthly payment
- Apply with your chosen lender
- New lender pays off old loan directly
Pro Tip: Multiple auto loan inquiries within 14 days count as one hard pull on your credit report. Shop around!
Disclaimer: This guide is for educational purposes only and does not constitute financial advice.