App version: 0.1.0

When Can You Refinance a Car Loan?

How Soon Can You Refinance Your Auto Loan?; How long do you have to wait to refinance an auto loan? Learn more, including when it's a good idea to refinance, from Lantern by SoFi.
Austin Kilham
Austin KilhamUpdated August 24, 2022
Share this article:
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.
After taking out a loan to buy a car, you may discover that there are better options available to you with better terms or lower interest rates. If this is the case, you can refinance your auto loan almost immediately.Keep in mind that you may have to wait a month or so while your dealer and the local department of motor vehicles (DMV) process your paperwork, which will impact how long it takes to refinance a car. But once that’s complete, you can pursue a new auto loan that better fits your financial situation.

What Is Auto Loan Refinancing?

When you refinance a loan, you are replacing your old car loan with a new one. Ideally, the new loan will have better terms and/or a lower interest rate, helping you improve your financial circumstances. (To learn more about interest rate and loan terms, check out this primer on auto refinancing terminology.)Your interest is included in your monthly payment, and a lower interest rate means your monthly payments will potentially be more manageable and you’ll pay less over the life of the loan.You might also decide to lengthen or shorten the time over which you pay off your loan. Lengthening this period can make your monthly payments smaller, but may mean you end up paying more interest in the long run.Typically you may want to consider refinancing when one of the following occurs:
  • You can’t afford your payments. If you’ve lost your job, or otherwise find yourself strapped for cash, your monthly payment or interest rate may become too expensive for you. Refinancing could help make your monthly payments more manageable.
  • Your credit score has improved. If your credit score received a boost since you took out your original loan, banks may be willing to offer you a cheaper loan than you’d previously qualified for.
  • You found a better deal. If interest rates drop, or a lender is offering a promotional deal, you may want to refinance simply to save a little bit of money you can then use toward other financial goals. 
No matter your reasons for considering a refinance, be aware that you are not eliminating your debt. Your original balance will stay the same, though the amount you pay over the life of the loan in interest and other fees may be different. What’s more, the refinanced auto loan may use your car as collateral, meaning your lender can seize your vehicle if you default on your loan.

How Long Should You Wait to Refinance an Auto Loan?

If you’re interested in car loan refinancing, you may submit an auto refi loan application with a lender whenever you’re ready. Waiting to submit an application may be right for you if you’re stalling to increase your equity stake in the car or waiting to see your credit score improve.Equity is the appraised value of your vehicle minus any outstanding loan balance you owe on the car. For example, having an $8,000 car loan balance on a vehicle worth $12,000 means you have $4,000 in equity. It might not be the right time for you to refinance if you have an upside down auto loan in which your car loan debt is greater than your car’s resale value.Borrowers with good credit may qualify for better interest rates than borrowers with bad credit. Refinancing when your credit score improves may qualify you for better auto refi loan rates.

When Should You Refinance Your Car?

There is no set amount of time you have to wait before you refinance your auto loan. Below we highlight different times when you may submit an auto refi loan application:

Immediately

Barring whatever waiting period there may be while your paperwork is sorted out, you may refinance a car loan immediately after buying the vehicle. This might be a suitable option for you if you’ve made a sizable down payment on the car and can qualify for better terms elsewhere. The initial financing you get from a bank, car dealer, or other source is not necessarily the best financing for you.

During the First 60 to 90 Days

You may apply for auto loan refinancing during the first 60 to 90 days into your auto loan contract agreement. This is the stage where you may have started making monthly payments on your loan. Refinancing at this stage may be right for you if you need a lower monthly payment.

6 Months Into the Loan

Refinancing your auto loan six months into your term may be right for you if you can lock in a lower interest rate at this stage. Securing a lower interest rate reduces the cost of borrowing money. This can translate into sizable cost savings over the life of your loan.Refinancing for a lower monthly payment in some cases may extend your term, and extending your term can saddle you with more interest charges over the life of your loan. A car refinance calculator can help you see whether a refinanced loan offer may increase or decrease your total interest costs.

2 or More Years In

You may pursue auto refinancing two or more years into your car loan. A lot can happen in two years. At this stage, your credit score may have improved, you may have more equity in your car, and you may prequalify for terms that work better for you. Or maybe you’re experiencing economic hardship and need a lower monthly payment. Whatever your circumstances, this may be an ideal time for you to explore whether auto refinancing is right for you.

When Is It Better to Refinance Early?

Generally speaking, the sooner you refinance, the better. That’s because the interest rates you’re likely to get are usually better for newer vehicles than for older ones. As your car ages, you may have access to fewer favorable loans. In fact, some lenders won’t even consider refinancing loans for cars over a certain age.

What Are the Pros and Cons of Refinancing an Auto Loan?

While there are some real benefits of refinancing a car, there are some drawbacks to consider as well. Here’s a look at some of the pros and cons of refinancing:

When Shouldn’t You Refinance Your Auto Loan?

Below we highlight several cases where refinancing may not be right for you:

Longer-Term Loans

Refinancing may not be ideal for borrowers with longer-term loans. If you’ve bought an exotic car with a 144-month auto loan, refinancing might not make sense under those circumstances. Refinancing for a longer term may replace your existing loan with a more expensive loan product.Meanwhile, replacing a longer-term car loan with a short-term auto refi loan may substantially increase your debt-to-income ratio. If your car loan term is seven years or longer, making extra payments on your existing loan may be a better option for you than refinancing it.

Going Upside-Down on Your Loan

As mentioned earlier, it might not be the right time for you to refinance if you have an upside down auto loan in which your car loan debt is greater than your car’s resale value. It’s generally better to have positive equity in your car rather than negative equity that leaves you underwater. Replacing your existing auto loan with an underwater auto refi loan may not be right for you.

Prepayment Penalties and Fees

Another time when refinancing might not be right for you is if your existing car loan includes a prepayment penalty clause. A prepayment penalty is a fee that lenders may charge if you pay your loan off early.Getting a refi loan in some cases may trigger a prepayment penalty. That’s because refinancing pays off your existing loan and replaces it with the terms and conditions of a new financing agreement. You can check your original loan agreement to see whether it includes a prepayment penalty disclosure.

Missing a Payment

Refinancing may not be the solution you need if you’ve missed a payment and find yourself delinquent on your existing car loan. Missing a payment can leave a derogatory mark on your credit report, and lenders at that point may be reluctant to offer you auto loan refinancing on terms that are right for you.

Refinancing Too Late in the Loan

Refinancing too late in the loan may put you at risk of replacing your existing loan agreement with a more expensive loan product. Be sure to calculate the total price to refinance a car and determine whether refinancing saves you enough money to make the process worth it.Refinancing isn’t necessarily cheap. Lenders may charge origination and processing fees, and states may charge a new title fee.

How Difficult Is It to Refinance?

Refinancing is typically a relatively simple process. The path on how to refinance an auto loan begins with finding the right lender for you. After comparing your options and getting your paperwork ready, you can submit an application with the lender of your choice.Once you’ve submitted your application and the required information, lenders may provide loan approval as soon as the same day. Online lenders in particular may offer a quick turnaround time, and subprime borrowers may qualify for bad credit refinancing.

How Long Does It Take to Refinance a Car?

In general, you can expect the refinancing process to take about two weeks, or up to 15 business days, depending on the lender and whether any additional information is needed to review your application.The process may take longer if your previous lender takes a little while to apply the funds to pay off your loan. Or, the process could be dragged out if your application is incomplete or inaccurate, which is why it’s so important to make sure you’re organized and ready when you start applying.

What Are the Procedures in the Refinancing Process?

Here’s an overview of what you can typically expect in the process of refinancing an auto loan:

1. Supply Necessary Documents

The first step in the refinance process is to gather the necessary information and documents. Typically, you’ll need to provide the following:
  • Information about your existing loan, including recent statements
  • The make, model, year, and unique VIN for your vehicle
  • Proof of income
  • Proof of insurance
  • Your legal name and address
If you’re doing a same-lender refinance (which is possible), your lender may already have some of this information. Still, it’s a good idea to verify that it’s all correct to make sure your application — and the resulting offer — reflect your current situation.

2. Prequalify for Auto Loan Refinance

Next up, take some time to shop around for refinancing offers from various lenders and consider applying for prequalification. While prequalifying for a loan doesn’t guarantee approval, it can give you a better picture of what loan terms you may be able to get without dinging your credit score in the process.That’s because prequalification only requires a soft credit inquiry — though keep in mind that once you actually do go forward with applying for a loan that will require a hard credit inquiry, which can lower your score a bit.Loan preapproval is another option as you’re shopping around for loans, as it can offer more concrete information on what loan terms you’re eligible for. However, it will require a hard credit pull and the process is generally more rigorous than it is for prequalification.

3. Apply for Auto Loan Refinancing

Once you’ve checked out your options and decided on the lender that’s the best fit for you, it’s time to apply for auto loan refinancing. You will need to complete an application, which is where the documents you collected at the start of the process will come in use.As mentioned above, this process will include a hard credit check. However, if you’re submitting multiple applications and submit them within a certain window of time — usually 14 to 45 days — they will typically only count as a single inquiry.If you’re approved, you’ll sign the paperwork and receive details on the terms of the new loan.

4. Pay Off Existing Car Loan Debt

From here, you’ll need to make sure your old loan is paid off. While this is typically taken care of by your new lender, it’s smart to check in with your old lender to make sure everything is paid off in full before you quit making payments.Once that’s taken care of, you’ll start making payments to your new lender. Make sure to mark down payment due dates — or consider setting up auto pay — to make sure you make your payments on time.

The Takeaway

There are no hard and fast rules about when to refinance, and you may choose to follow this path as soon as you find a loan that meets your needs. If you need help finding the loan that’s right for you, visit Lantern by SoFi. You can fill out one simple form and see multiple auto refinancing offers from our lending network.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.LCAU0522011

Frequently Asked Questions

How long after getting an auto loan should you wait to refinance?
What are the pros and cons of refinancing?
Will refinancing hurt my credit?
Can you refinance a car within six months?
Is it possible to lower car payments without refinancing?

About the Author

Austin Kilham

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.
Share this article: