When should you refinance your car loan?

In a nutshell

Ideally, you should refinance your loan if the new interest rates are low, you can qualify for lower monthly payments, or you can qualify for more favorable terms. There are several reasons why you should refinance your car loan.

• You're not completely satisfied with the rates and terms of your current loan.
• You've taken on additional financial obligations, and there's been a shift in your money situation.
• Keeping up with your monthly payments has become challenging, and you don’t want to fall behind on your monthly payments.

Caribou Auto Loan Refinance

View Offer

Caribou Auto Loan Refinance

Title

Caribou Auto Loan Refinance

Loan amount

Up to $125,000

Term

36 to 72 months

Min. credit score

620

Why should you refinance your car loan

First, here are some situations where it might be a good idea to refinance your auto loan.

Your credit has seen a boost

If you've taken steps to improve your credit score, you may qualify for lower interest rates than on your current loan. In turn, which could save you money on interest payments.

You can get a lower monthly payment

If you can get a lower monthly payment by stretching out the life of the loan, it could help you stay on top of your payments. It can also free up money to put your funds toward other financial obligations and goals.

Interest rates have dropped

If market conditions have changed, and interest rates are lower since the last time you took out a car loan, you could qualify for a lower rate. A lower rate means you’ll be doling out less money paying for interest.

Interest rates for car loans can vary based on whether it's a new or used car, your state, and the type of car you own, like a sedan, SUV, truck or electric car.

You have positive equity in your car

If your car is worth more than what you owe on it, you have positive equity in your car. If that's the case, it might make sense to refinance your car for lower interest rates or better terms.

You're not happy with your current lender

It might be a good idea to refinance if your current lender is hard to get a hold of, or you've had a less-than-satisfactory experience with them. If you're seeking a lender that offers a smoother, more positive experience, you could refinance your existing car loan with a different lender.

When you shouldn't refinance your car loan

Here are some instances when it might not make sense to refinance your car:

You're upside-down on your car loan

If you're upside-down on your car loan (or you owe more than the car is worth), you might be wasting money by refinancing your loan. Not only will you continue to have negative equity, but you could be dinged with a prepayment penalty.

Your credit score is less-than-stellar

Is your credit score hovering in the poor or fair range? If so, you'll likely have a tough time getting approved for a new car loan with more favorable interest rates and lower interest terms. Combined with the fact that the lender will need to do a hard pull on your credit, plus the additional fees you'll need to pay, a refinance in this case doesn't add up financially.

You have an older car

If your car is 10-plus years old or has over 100,000 miles on the odometer, you might have difficulty finding a lender willing to extend credit. Each lender has different lending requirements, and some might not offer refinancing for cars over 8 years old or with more than 80,000 miles.

Interest rates are high

If current interest rates are higher than the rate of your original loan, you likely won't be able to secure a new loan with a lower rate. It won't make financial sense to jump through the hoops to refinance your car if you’ll end up paying more in interest.

You just got a car loan

Is the ink on your first car loan still wet? If it's been six months or less since you got your car loan, you might want to wait a little longer. Applying and re-applying for large loans can adversely affect your credit, and chances are you won’t get a better deal on a loan, though you will have to pay more in fees for the new loan.

Some lenders might not let you refinance your car until a set amount of time has passed. For instance, they might require you to wait six or 12 months before you can apply to refinance your car loan.

You're almost done paying off the loan

Sure, you might be able to land lower interest or better terms. But if you're pretty much near the finish line on your car loan, refinancing will lengthen the loan term and will cost you more in interest. Plus, it might not be worthwhile to pay another round of loan fees.

How to refinance your car loan

If refinancing your car loan is a solid choice for you, here are the steps to take to get a new loan:

Review your current loan

For you to compare loans and gauge what might be better for you financially, you'll need to know the details of your current loan. To start, log onto the lender's website or mobile app.

Then check the remaining balance on the loan, interest rates, remaining number of payments, and how much you pay each month. It's also a good idea to check whether there's a prepayment penalty or any other fees.

Know where you stand financially. To best prepare you for shopping around for a car refinance, get your head around your credit and finances. A few things you should know include:

• Your credit score.
• Your debt-to-income ratio.
• Your monthly debt payments.
• Your cash flow (monthly income, living expenses).

You can get an idea of where you stand credit-wise by checking your credit score on a free credit monitoring service. Many credit card issuers also offer free credit scores.

Check the value of your car

Next, you'll want to see what your car is worth. Generally, lenders will offer you refinancing on your car if the loan-to-value (LTV) on your car is around 120% to 125%. The LTV on your car is the total dollar value of your car loan against the actual cash value (ACV) of your loan, and it is expressed as a percentage.

You can check the value of your car through guides, like the Kelley Blue Blue (KBB) or J.D. Power.

Get quotes on a car refinance

Now, you're ready to shop around for a new car loan. You can get a quote from your current lender and new lenders. Some lenders let you prequalify and get an estimated quote for free. They'll run a soft credit check, which won't hurt your score.

Prequalification is an estimate, and it doesn't guarantee the same rates or terms when you do apply. Nor does it guarantee that your loan will get approved.

When shopping around for quotes, it's important to get quotes for loan lengths and amounts. That way, you can more accurately compare quotes, side by side.

When shopping around for quotes to refinance your car, multiple inquiries can count as one, as long as you're shopping for rates in a 14- to 45-day window. This signals to creditors that you're likely looking for a new loan, and it won't count as multiple inquiries.

Review your quotes

Once you've gathered your quotes, it's time to pour over the details, including the rates, terms, and fees to see which one will offer the most savings. See how much you can save on interest if you refinance at a lower rate. Remember, extending the term of your loan means you'll likely be paying more in interest.

See what will make the most financial sense for you and your particular situation.

Brand	Caribou Auto Loan Refinance	RefiJet Auto Loan Refinance
Loan amount	Up to $125,000	Up to $100,000
Term	36 to 72 months	48 to 84 months
Min. credit score	620	550
	View Offer	View Offer

Apply for refinancing on your car loan

Once you've decided which lender you'd like to refinance through, follow these steps to submit your application. You'll need to provide:

• Current loan information.
• Information on your car.
• Proof of insurance.
• Basic information, such as your name, mailing address.
• Proof of residence (e.g. a utility bill).
• Proof of income (e.g. recent paystubs, W-2s, or the previous year's tax returns).

Refinancing your car loan makes financial sense if it helps you save money or eases your money stress right now. Before you decide to refinance, do your research. It’s important to know when it's a good idea to get a new car loan, and the steps involved in applying for a loan.

Frequently asked questions (FAQs)

Is it ever a good idea to refinance your car?

Refinancing your car can be a good idea if you can secure a lower interest rate than your current auto loan, or if the new loan offers greater flexibility. It might not be a good idea if refinancing means higher interest rates or lengthening the life of the loan. In these cases, you'll likely be paying more in interest.

Does refinancing your car hurt your credit?

Refinancing your car loan could hurt your credit in a few ways. First, when you apply for a car loan, the lender will do a hard credit inquiry.

This typically brings down your credit score by a couple of points, and it'll usually linger on your credit report for two years. However, they usually only impact your score for one year. And if you fall behind on your car payments, this can also negatively affect your credit.

Is it better to put money down when refinancing a car?

While a down payment isn't required with refinancing a car, putting some money down can benefit you financially. It means you'll owe less on the car, which either shortens the life of the loan or lowers your monthly car payments. In turn, you'll owe less in interest fees throughout the life of the loan.