Should I Refinance My Car?

When Is the Best Time to Refinance a Car Loan?

The best time to refinance a car is when you can qualify for better terms or a lower payment. Here are some scenarios when refinancing may make sense.

Lower Interest Rates Are Available

If rates have fallen since you bought your car, refinancing could save you money. Even a drop of 1 or 2 percentage points can add up to hundreds or even thousands of dollars in savings over the life of your loan.

Your Credit Score Has Improved

Refinancing also makes sense if your credit scores have improved enough to qualify you for a lower interest rate. For example, if you've been making consistent, on-time payments or negative credit marks like late payments have aged off your report, your score may now be higher.

Tip: Credit score requirements vary by lender, but you may qualify for better rates and terms on a car loan if you have a 661 or higher VantageScore^® credit score or a 670 or higher FICO^® Score^Θ. Check your credit and compare it against the lender's minimum credit score requirement to gauge your odds of approval before applying.

Your Income or Debt-to-Income Ratio Has Improved

Your income and debt-to-income ratio (DTI) are also important factors lenders look at when considering approval of your loan application because they demonstrate your ability to afford the loan's monthly payments. If your debts are lower or your income is higher since you took out your current loan, you may be in a stronger position to qualify for better terms.

You Need a Lower Monthly Payment

Refinancing your car loan may be worth it if you need a more affordable payment. Even if current interest rates aren't lower or you don't qualify for a better rate, you may be able to reduce what you owe each month by refinancing into a longer repayment term. However, by extending your loan term, you'll likely pay more in total interest over the life of the loan, unless the interest rate savings is significant.

When Refinancing May Not Make Sense

Refinancing can help you save money on your car loan, but not always. Here are some situations where you may be better off with your current loan.

You're Near the End of Your Loan Term

If you only have a year or two left on your loan, refinancing usually doesn't make financial sense. The closer your loan gets to the end, the more of your payments are going toward the principal instead of interest. A lower rate isn't as impactful when there's not much interest left to pay.

Current Rates Are Higher Than Your Existing Loan

If rates have gone up since you originally financed your car, refinancing will generally increase both your rate and your total interest costs. Check your current rate against what many lenders are offering and hold off on refinancing if the numbers don't make sense.

You Have Negative Equity

If you owe more than your car is currently worth, many lenders won't approve a refinance—or will require you to pay the difference to your lender first.

Fees Outweigh Your Savings

Some lenders charge a prepayment penalty of roughly 2% of your outstanding balance for paying off your loan early. If the penalty plus any refinancing fees eat up most of your projected savings, it may not be worth it.

How Soon Can You Refinance a Car Loan?

You may be able to refinance your vehicle once your original lender receives the car title, but some lenders require you to wait at least six months.

It's recommended to wait at least that long before refinancing so your choice of lenders isn't limited. Six months also gives your credit some time to recover from any hard inquiries that resulted when you applied for your current loan. Hard inquiries can cause a minor and temporary dip in your credit scores. A few months of on-time payments can strengthen your credit profile before you apply again.

Be careful not to wait too long before refinancing. Many lenders won't refinance vehicles older than 10 years or with more than 100,000 miles, and some require at least two years remaining on your loan term.

How Much Can You Save By Refinancing?

How much you can save depends on where your rate started. According to Experian's latest State of the Automotive Finance Market report, borrowers who refinanced in the Q4 2025 saved an average of $84 a month. You may save more or less than that, depending on the loan amount, interest rate and terms of both your current and new loan.

If you originally financed with good credit and qualified for a decent rate, refinancing may not move the needle much. A half-point drop on a five-year $27,500 loan saves less than $10 a month. Here are a few examples showing savings rates with various refinance rates:

On the other hand, if your credit wasn't ideal when you first financed but has improved in the meantime, refinancing can make a meaningful difference. For example, you might qualify for a prime rate and save around $62 to $88 a month on a $27,500 loan and thousands of dollars in total interest:

Extending your loan term can lower your monthly payment, but if your new rate isn't substantially lower than your current one, you'll end up paying more in total interest over time. In that case, refinancing may not make financial sense. If you can secure a significantly lower rate, you may get the best of both worlds: a lower monthly payment and savings on total interest, as the following table illustrates:

Refinancing to a Longer Term

Note: All examples based on a $27,500 loan balance with a 60-month term. Use the auto loan calculator to run your own numbers. Figures are rounded.

Does Refinancing Hurt Your Credit Score?

Refinancing can negatively affect your credit score, although the impact is usually minimal and temporary. The lender checks your credit when you apply to refinance a car loan, which results in a hard inquiry on your credit report. This stays on your credit report for two years, but only lowers your credit scores (usually less than five points) for a year. Opening a new account can also reduce the average age of your accounts—a factor that makes up 15% of your credit score.

Your credit should recover in a few months as long as you continue to make on-time payments on your new loan.

Learn more: How Does Refinancing Affect Your Credit Score?

How to Refinance Your Car Loan

Refinancing your car loan is a relatively straightforward process. Take the following steps:

1. Check your credit. Before you apply, check your credit report from all three credit bureaus (Experian, TransUnion and Equifax) for free at AnnualCreditReport.com or review your Experian credit report and FICO^® Score for free anytime. You'll see what lenders see when they pull your credit to help them determine the rate you qualify for. If there's room to improve it, a few months working on your credit health might help you secure a meaningfully lower rate.
2. Compare lenders. As with any loan, it's smart to get prequalified with multiple lenders to compare rates and terms and find the best offer.
3. Calculate your savings. Run the numbers using an auto loan calculator to make sure the monthly savings justify any fees involved.
4. Apply for a new car loan. Once you've narrowed your choices to one lender, submit your application online or in person at a local office. Your loan could be approved the same day you apply, or it could take several days.

Is Now a Good Time to Refinance Your Car?

Auto refinance rates have been gradually declining since peaking at 9.89% in December 2023, according to Experian data, so it may be a good time to refinance your car. Many borrowers are doing just that, as refinances are up nearly 70% year-over-year in Q2 2025, with borrowers lowering their rate 2% on average.

Whether it makes sense for you depends on your current rate, credit, your current loan amount and how much time is left in your repayment term. As a rule of thumb, if you financed at a high rate and your credit has improved, the savings could be meaningful. But if you already have a low rate, it may not make financial sense.

The Bottom Line

You might consider refinancing your auto loan if you can secure a lower interest rate that reduces the total amount you pay in interest over time. Crunch the numbers to determine your monthly payments and how much you might save.

If you're planning on refinancing your car in the next few months, focusing on strengthening your credit now could help you qualify for a lower rate. Consider monitoring your credit for free with Experian to track your score progress over time and get alerts about new inquiries and changes to your credit.