How Many Times Can You Refinance a Car Loan?

Quick Answer

You can refinance your auto loan as often as you want (assuming you qualify), but it's important to check for prepayment penalties and to understand the potential credit and financial consequences of refinancing.

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There are several reasons to consider refinancing your car loan, but once you've done it, you may wonder whether you can do it again.

You can refinance a car loan as many times as you want—there's no set limit. That said, refinancing your car loan multiple times can have some negative consequences for your wallet and credit history. Here's what to keep in mind.

How Often Can You Refinance Your Car?

There's no legal or lender-based limit to how many times you can refinance a car loan. As long as you meet the creditworthiness criteria, you can refinance as often as you'd like.

If your credit has improved or market rates have decreased since you took out the loan or refinanced it, the refinancing process can potentially help you secure a lower interest rate. You can also opt for a longer repayment term than what you have left on your current loan, helping reduce your monthly payment.

If you have a lot of equity in your vehicle, you can even apply for a cash-out refinance and get a check for some of that money.

That said, some auto lenders charge prepayment penalties on loans of 60 months or less. If you pay off the balance before a certain date, the lender may charge as much as 2% of your remaining loan balance. On a $20,000 loan, for instance, that's a fee of $400.

Additionally, extending your loan term can result in more interest charges over the life of the new loan, even if you qualify for a lower interest rate.

When Should You Refinance Your Car?

Even if you've already refinanced your auto loan in the past, you may consider refinancing again in the following scenarios:

  • Your credit score has improved.
  • Market rates have decreased.
  • You need a lower monthly payment.
  • You have positive equity in the vehicle.
  • You've had a poor experience with your current lender.

That said, it might not make sense to refinance in the following situations:

  • Your loan includes a hefty prepayment penalty.
  • Your credit score has gone down.
  • Your vehicle is 10 or more years old or has more than 100,000 miles.
  • You have negative equity in the vehicle.
  • You took out or refinanced the loan within the last six months.

Does Refinancing a Car Hurt Your Credit?

Each time you apply for a loan, the lender runs a hard inquiry on your credit reports. On its own, a single inquiry won't impact your credit score by much, if at all.

In fact, when you incur multiple inquiries in a short period of time while rate shopping a new auto loan, all of the inquiries are typically combined into one for credit-scoring purposes.

However, if you apply for credit too often—including multiple refinances—the inquiries could have a compounding negative effect on your credit score. What's more, each time you open a new credit account, which includes replacing one auto loan with a new one, it'll reduce your average age of accounts, which can negatively impact your length of credit history.

As a result, it's generally best to wait at least six months between credit applications—excluding rate shopping for a single loan—to avoid too much damage to your credit profile.

Alternatives to Refinancing a Car Loan

Depending on your situation and needs, there may be other options available that can help you accomplish your goal:

  • Replace your car with a less expensive one. If you're having trouble keeping up with your payments, it may be a sign that your vehicle is too expensive. If you have some positive equity in the car, consider selling it or trading it in for a cheaper model.
  • Request a loan modification. If your credit is in poor shape and refinancing wouldn't help you save money, consider reaching out to your lender and asking for a loan modification. Options may include a short-term deferment of payments or an adjustment to your interest rate or loan term to reduce the monthly payment amount.
  • Other financing options. If you need some cash and you're considering a cash-out auto refinance, other affordable financing options may include a home equity loan or line of credit, a low-interest personal loan or an introductory 0% annual percentage rate (APR) credit card.

Check Your Credit Before Applying for an Auto Refinance

Regardless of your situation and reasons for refinancing your car loan, check your credit score and review your credit report before you take any other steps. Your credit score will give you a rough idea of your overall credit health, and your credit report will provide some insight into the factors that are influencing your score.

Unless refinancing—or seeking alternative options—is an urgent matter, look for opportunities to improve your credit before you apply to refinance your auto loan. Potential steps you can take include paying down credit card debt, getting caught up on past-due loan or credit card payments and paying off small loan balances.