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How Much Does It Cost to Refinance a Car?

How much does it cost to refinance a car?
Susan Guillory
Susan GuilloryUpdated March 2, 2023
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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.
The true cost of auto loan refinancing can include transaction fees and other potential charges. While you may save money in the long run if you refinance at a lower interest rate, there may still be some hidden costs involved in refinancing your car loan. Read the fine print before signing any loan agreement so you’re fully aware of what those fees are.

What is Car Refinancing?

When you take out a loan to purchase a car with, you can, down the road, refinance that loan. That simply means that you take out a new loan to pay the remaining balance on the existing one, ideally at a lower interest rate.Here’s an example with more detail. Let’s say you currently owe $10,000 with Star Car Loan Company and have decided to refinance with Moon Auto Lenders. Moon Auto will send $10,000 to Star Car to pay off your loan balance. Moon Auto will then take over the lien on your car. That means that if you can’t pay your new refinanced loan, Moon Auto can seize your car to cover what you owe. You’ll then start making monthly payments to Moon Auto until your loan is paid off (with interest).

The True Cost of Refinancing a Car

Although you may save money if you refinance your car loan, you need to find out first whether refinancing your car will cost money. Some lenders charge transfer, exit, and/or upfront fees that can reduce the money you might save with that lower interest rate.Here are some potential charges to look out for as you’re trying to figure out how much it may cost to refinance your car:
  • Early Termination Fee. Some lenders may charge you this fee if you pay your loan off early. See if your current lender has such a policy and, if so, how much it will cost you.
  • Transaction Fee. Both your current and new lender may charge a processing or application fee. (Some new lenders may be willing to waive this fee, so ask.)
  • Late Payment Fee. If you make a late payment on your refinanced loan (or the current one, for that matter), your lender may charge a late payment fee.
  • Registration Fee. Some states may require you to re-register your car when you refinance. 
  • Title Transfer Fee. Some states may charge a title transfer fee as the title moves from your old lender to the new one.
If you owe more than your car is worth, it may be challenging to find a lender who will refinance your loan. Some lenders may be willing to do so with an upfront cash payment to make up for the difference between what your car is worth and the amount you’re borrowing.While these various fees and costs may not be large, they can add up, so read the fine print so that you know what added expenses your car refinance could involve.

Pros and Cons of Car Refinancing

There are many pros and cons to refinancing a car. The biggest benefit is the potential cost savings you could get if you refinance at a lower interest rate, but there’s no guarantee you’ll get a lower rate.Another benefit is that if you’re struggling to pay your monthly loan payments, you may be able to lower what you pay each month if you refinance for a longer period. The drawback here, however, is that you may not save in interest, since most car loans have higher interest rates for loan periods of 60 months or longer.Another potential drawback is the fees. Some refinancing lenders charge fees, and that can add to the cost of refinancing your car loan.Recommended: Can You Refinance a Car Loan With the Same Lender?

When to Consider Refinancing Your Car

Now let’s first talk about when to refinance a car.Interest rates go up and down with the economy. If current interest rates are lower than they were when you got your car loan, refinancing could save you money because you can likely get a lower rate now. Also, if your credit scores are now better than they were when you applied for your original loan, you may also qualify for lower rates. These are both great opportunities to refinance your car loan.Beyond those situations, you might dislike the lender on your current auto loan and might want to switch to a brand with better customer service. Or maybe you want to have a shorter repayment period with a lower interest rate so you can pay your car off faster without paying too much in interest.All of these situations may make it worth considering a car loan refinance. Auto loan refinancing may be right for you if you can secure a lower annual percentage rate (APR). Lenders calculating APR on a car loan may determine your finance charges.Recommended: Can You Refinance a Car Loan With Bad Credit?

When Not to Consider Refinancing Your Car

That being said, it’s not always a good idea to refinance your car. If you owe more on your current loan than your car is worth, you may not even qualify for a refinancing loan. Even if you do qualify, refinancing an upside down car loan may not be right for you.Or if you want to refinance $4,000 or less, some lenders won’t loan such a small amount to you. If your car is more than 10 years old, you probably won’t be able to refinance either. Refinancing a car with high mileage can be challenging at best.If you want to refinance, have a good reason and a plan to either save money by doing so or lower your monthly payments so you can afford them. Auto refinancing for a lower monthly payment may be right for you if you can’t find someone to take over your car loan.Recommended: Can Someone Take Over My Car Loan?

Will Refinancing Affect Your Credit?

You may also be wondering, does refinancing hurt your creditThe answer is that it can impact your credit, but there should be no long-lasting harm. Whenever you apply for an auto refinancing loan, there is a hard inquiry on your credit report as the lender does a credit check to see what your financial situation is.The good news is that if you apply or check to see if you prequalify with multiple lenders, credit bureaus see these as one inquiry rather than many. In other words: they understand that you’re shopping around for a good deal and they don’t penalize you for it.These hard inquiries may affect your credit score temporarily but will stop impacting it within a year.Recommended: What Credit Score Do You Need to Refinance a Car?

The Takeaway

Knowing all the facts can help you make the right choice for you. Once you understand the costs that can be involved in refinancing your car loan, you can make an informed decision about whether it’s the right move for you.Ready to start shopping for the best car refinance rate? Refinance your auto loan with Lantern by SoFi and compare auto refinance rates with multiple lenders.

Frequently Asked Questions

Does it cost money to refinance a car?
How much does it cost to refinance a car?
Are there closing costs to refinance a car loan?
How do I renegotiate my car loan interest rate?
Photo credit: iStock/hxyume

About the Author

Susan Guillory

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.
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