Should You Refinance Your Car?
Refinancing your auto loan can lower your monthly payment and save you thousands in interest—but it's not always the right move. Our Auto Refinance Calculator compares your current loan against a new offer to show you the exact financial impact. Whether your goal is to reduce your monthly burden or pay off your car faster, use this tool to make a data-driven decision.
When Does Refinancing Make Sense?
Refinancing is typically beneficial in three specific scenarios:
The Cost of Refinancing
Unlike mortgages, auto loan refinancing often has low or zero closing costs. However, watch out for these potential fees:
Refinancing Strategy: Rate vs. Term
You can pull two levers when refinancing: the Interest Rate and the Loan Term.
| Goal | Strategy | Pros | Cons |
|---|---|---|---|
| Save Maximum Money | Lower Rate, Same/Shorter Term | Huge interest savings, pay off car faster | Monthly payment might stay same or rise |
| Lower Monthly Payment | Same/Lower Rate, Longer Term | Improves monthly cash flow immediately | You pay more total interest long-term |
| Remove Co-signer | Refinance in your name only | Financial independence | Rate might increase if your credit is lower alone |
Real World Example
Imagine you have $20,000 left on a loan at 9% APR with 48 months remaining. Your payment is about $498.
**Scenario A (Lower Rate):** You refinance to 5% for 48 months. Payment drops to $460. You save $38/mo and **$1,800** in total interest.
**Scenario B (Longer Term):** You refinance to 6% for 60 months. Payment drops to $386. You save $112/mo but pay **$300 more** in total interest.
Use our standard car payment calculator to model simple new loans if you don't have current loan details.
**Scenario A (Lower Rate):** You refinance to 5% for 48 months. Payment drops to $460. You save $38/mo and **$1,800** in total interest.
**Scenario B (Longer Term):** You refinance to 6% for 60 months. Payment drops to $386. You save $112/mo but pay **$300 more** in total interest.
Use our standard car payment calculator to model simple new loans if you don't have current loan details.
Refinance FAQ
Q:Does refinancing hurt my credit score?
Temporarily, yes. Applying for a new loan triggers a 'hard inquiry', which typically drops your score by 5-10 points. However, this dip is temporary. Consistent on-time payments on the new loan will rebuild your score quickly. Rate shopping within a 14-45 day window usually counts as a single inquiry.
Q:Can I refinance if I am 'upside down' on my car?
It is difficult. Most lenders require a Loan-to-Value (LTV) ratio of 100-125% or less. If you owe $25,000 on a car worth $18,000 (138% LTV), you may need to pay cash to reduce the balance before a bank will approve a refinance.
Q:How soon can I refinance a car after buying it?
Technically, you can refinance as soon as your title work clears and you have a loan account number (usually 30-90 days). However, it's best to wait at least 6 months so you've built a payment history that lenders can see to offer you a better rate.
Q:Is it worth refinancing for a 1% lower rate?
It depends on your balance. On a $30,000 loan, a 1% drop saves roughly $15-20/month and $800+ in interest over 5 years. If there are no fees to refinance, even a 1% drop is 'free money'. If fees exceed $100-200, calculate the break-even point carefully.
Q:Can I skip a payment when refinancing?
Often, yes! The process of closing one loan and starting another usually results in a 30-60 day gap before your first payment is due on the new loan. This can provide a nice short-term cash cushion, though interest usually accrues during this time.