Does Refinancing a Car Extend Your Loan Term?

Q: What happens to your old loan when you refinance?

When you refinance an auto loan, the old loan is paid off with your new loan. The new lender usually takes care of this, but it’s wise to double check with them. Be sure to ask for confirmation that the original loan was repaid.

Q: What are the cons of refinancing a car?

Refinancing a car can extend the loan term, increasing the total interest paid over time. It may also involve fees, such as application or closing costs. Additionally, if your credit score has dropped, you might face higher interest rates, making the new loan less favorable than the original.

Q: Does refinancing replace your current car loan?

Yes, car loan refinancing replaces your current auto loan with a new one, and the old loan is paid off.

Does Refinancing a Car Extend Your Loan Term?

Austin KilhamUpdated June 25, 2025

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Refinancing your auto loan means replacing your old loan with a new one that, ideally, has better terms. Refinancing does not necessarily extend your loan term — that is, unless you choose a loan with a longer repayment term.Read on to learn how refinancing works, and when it might affect the length of your loan term by making it either shorter or longer.

How Refinancing Affects Your Car Loan

When you refinance an auto loan, you get a new loan to pay the balance of what you owe for the car. The new loan may have a lower interest rate, which could lower your monthly payment and save you money over the life of your loan. Refinancing could also extend the term of your loan, but only if you choose to make the loan longer. You may want a loan with a longer length in order to lower your payment. You could also refinance a car loan to a shorter term, which could help you qualify for a lower interest rate, but your monthly payments will be higher. You will, however, pay your loan off faster if the loan term is shorter. If you lengthen your loan term, it could result in a lower monthly payment. In this case, though, you’ll end up paying more in interest overall. A longer term can also make it feel like you’re starting your car loan all over again. If you only have a year or two left on your current auto loan, refinancing might not be your best option. That’s because you pay the most interest early in the life of a loan. The potential cost savings of refinancing is diminished the closer you get to paying off the loan. Recommended: What Is the Average Car Loan Length?

How Does Refinancing Affect Your Loan Term?

If you’re still wondering, does refinancing a car extend the loan term, it’s important to know that refinancing may not affect your loan term at all. Whether it does or not is up to you, and it depends what your objectives are. If you’re looking to save money with a lower interest rate on a car loan, you may be able to qualify for a lower rate without changing the term of your loan. This would lower your monthly payments and save money in interest over the life of the loan.However, as mentioned above, you might decide to shorten your loan term to pay off your loan faster. Or, you might choose to lengthen the loan to lower your monthly car payment. It depends on your goals and your budget.

When Is It a Good Idea to Refinance?

It may be a good idea to refinance your car loan when:You found a better deal. There is no specific length of time before you can refinance a loan. In fact, if you find a loan with better rates and terms, you can refinance almost immediately. As mentioned above, it may be best to refinance earlier in the repayment process to help make the most of potential savings. You can qualify for a lower rate. If you’ve built your credit since you took out the original car loan, you may be able to get a better interest rate with car loan refinancing. Your credit history has a big impact on the interest rates lenders will offer you. Borrowers with higher credit scores are typically offered lower rates. Lenders see these borrowers as less risky because they have a track record of paying their debts on time. Your monthly payments are hard to meet. If your car payments have become unmanageable, you could consider refinancing to a loan with a longer term. That can lower your monthly payment, making it a better fit for your budget. Later, if your financial situation improves, you could refinance the car loan to a shorter term to pay off your loan faster and save money on interest. Your car is worth more than you owe on it. It’s easier to get a loan when your car is high in value. If you owe more than your car is worth, a situation known as being upside down on your car loan, many lenders won’t approve you for a loan. That’s because they don’t want to finance a car for more than it’s worth. Recommended: Why Refinance a Car? 4 Reasons to Refinance

How to Refinance Your Auto Loan

When it comes to how to refinance a car loan, these are the steps you’ll need to take. 1. Gather the pertinent documents. This includes all the information about your current car loan, including the amount you borrowed, the monthly payment amount, the interest rate and terms, and the loan balance.You’ll also need the make, model, year, mileage, and vehicle identification number (VIN) for your car, as well as your auto insurance information. 2. Shop around with various lenders. Consider starting with your original lender. Not all lenders offer refinancing, but if yours does, it may make the process easier. Get quotes from other lenders, too, to make sure you’re getting the best deal for you.3. Apply for a loan. You’ll be required to submit proof of income and employment, along with personal information, such as your name, date of birth, contact information, address, Social Security number, and driver’s license number. Be aware that applying for a car loan refinance can temporarily lower your credit score since it will trigger a hard pull on your credit report. If you end up submitting a number of loan applications, as long as you do them within a certain time frame (45 days in the case of FICO®), it only counts as one credit check. 4. Accept the loan. Once you’re approved for a loan and accept it, the old loan is paid off with your new refinanced loan. Your new lender usually handles this, but double check to be sure. You’ll then begin making payments on the new loan. Recommended: Pros and Cons of Refinancing a Car

The Takeaway

Refinancing your car loan doesn’t automatically extend the term of your car loan. However, you can choose to lengthen — or shorten — your car loan if it makes sense for you financially to do so. If you’re exploring car loan refinancing, Lantern by SoFi can help you compare rates and terms from multiple lenders all at once. Just fill out one simple for, with no obligation to you.See what auto loan refinancing rate you might qualify for with Lantern.

Frequently Asked Questions

What happens to your old loan when you refinance?

What are the cons of refinancing a car?

Does refinancing replace your current car loan?

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About the Author

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.

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