Top Auto Loan Refinancing Lenders

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When you refinance a car loan, you replace your current auto loan with one that lowers your interest rate, reduces your monthly payment or cuts the total amount you pay for a car — or possibly all three.

Whether you qualify to refinance your car and at what interest rate depends on many factors, such as your credit history and credit scores. It also depends on where you apply to refinance, because auto refinance requirements vary by lender.

NerdWallet’s auto loan refinancing calculator can help you compare lender offers and determine the best place to refinance your car loan.

Should you refinance your car loan?

Borrowers refinance auto loans for different reasons, and you most likely have a specific goal in mind. You may want to refinance to a lower interest rate to save money or shorten your loan term to pay it off sooner.

If you’re having trouble making your monthly car payment, you might want to extend the loan term to lower the payment. But be aware that this can result in paying more interest over the life of the loan.

An auto loan refinance calculator can help you try out different rate, term and payment scenarios.

When does it make sense to refinance a car loan?

If your credit has improved. If you’ve made consistent, on-time payments for six to 12 months since getting your car loan, and the lender has been reporting these payments to the credit bureaus, you might now qualify for a lower interest rate.

If a car dealer marked up your interest rate. When you got your original loan, the car dealer might have charged you a higher interest rate than you could have qualified for elsewhere — or can still qualify for with refinancing.

If you can’t keep up with payments. Refinancing to extend the length of the loan can lower your car payments, but don’t take this step lightly. Extending the loan term means you will pay more interest and more in total over the life of the loan, but that’s still a better option than missing payments or facing repossession.

If interest rates drop. If auto loan rates in general fall lower than when you first got your car loan, refinancing could be an opportunity to take advantage of these lower rates.

Another reason for refinancing a car is to remove a co-borrower from an existing auto loan.

What happens when you refinance a car loan?

The process to refinance an auto loan is simple. You apply for an auto refinance loan, or auto refi loan, just as you would any other type of auto loan. Typically, you will have to apply with a new lender, because few lenders will refinance their own loans.

You will be able to choose the term for the new loan. This can be the same as the number of months remaining on your current loan, or you can shorten or extend it. Terms available from auto refinancing lenders vary, but a range of 24 to 84 months is the most common.

Extending the length of your car loan when you refinance will lower your monthly payments, but you will pay more interest over the life of your loan. It can also put you at risk of owing more than your car is worth, which is called being upside-down on your auto loan.

When you’re approved for an auto refinance loan, it provides funds to pay off and replace your current vehicle loan. In most cases, your refinance lender will take care of paying off your current loan. You then start making monthly, and hopefully lower, payments on the new loan.

The final step when refinancing is having a new car title issued to replace the lienholder (lender that has your loan) with the new lender. Many lenders will handle the title transfer for you. In some states, you may also need to re-register the car.

Refinancing may lower your credit scores if the lender uses a hard credit inquiry, but the drop is temporary and won’t have a long-term effect on your credit.

» MORE: Requirements to refinance a car loan

When is the best time to refinance a car loan?

Some lenders will refinance an auto loan as soon as you can provide information about your existing loan and lender. If you settled for an extremely high auto loan rate to escape a dealership, and you have good credit (FICO score of 690 and up), then refinancing to a lower rate as soon as possible may be a good idea.

On the other hand, if your blemished credit history resulted in a high auto loan APR, you might wait six to 12 months and keep paying on your existing loan. You generally need a history of six to 12 months of on-time payments, with no new negative items on your credit report, to make auto refinancing worthwhile or even possible with some lenders.

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