Can You Refinance Your Auto Loan?

A car loan can open many possibilities but also eat up your budget. According to data from automotive company Edmunds, the average car loan payment for new vehicles was $734 in November 2023.  

One way to make your car payment more affordable is by swapping it out with a new loan, ideally with a lower interest rate—in other words, refinancing. 

This can help you achieve other goals, such as paying off your car sooner and saving money on interest.

Can you refinance your auto loan?

If you have an auto loan, you may be able to refinance it with a new lender for a different term length or a different interest rate. The process works the same as when you took out your first car loan.

You’ll need to apply for the new loan, and in doing so, you must meet your new lender’s qualification requirements, which may differ from your last lender. If approved, your new lender will pay off your old loan and transfer the car title. Your previous lender will close out your old loan, and you’ll start paying your new lender. 

The reasons borrowers choose to refinance their auto loans include to:

• Get a shorter-term length, which can help you pay it off sooner.  
• Get a longer-term length, which can help lower your monthly payments. 
• Remove someone else from the car loan, such as an ex-spouse or cosigner. 
• Get a lower interest rate, which can help you save money and pay it off sooner.

Here are several scenarios in which you might be able to refinance versus when you likely won’t.

Scenario	Can you refinance?
You just got the loan	✅
You have bad credit	✅
Your car is older	✅
You can’t make your monthly payments	❌
Your income is higher than when you took out your original loan	✅
You got your original loan from a dealership	✅
You’re financing a big purchase soon	❌
You don’t have proof of residence	❌
You’re upside-down on your original loan	✅

“The rule of thumb is to pay no more than 10% of your monthly after-tax take-home pay toward an auto loan payment. So, for example, if your auto loan payment is $750 per month, your after-tax take-home pay should be no less than $7,500 per month.”

Erin Kinkade

CFP®

Can you refinance your auto loan if you just got the loan?

You could refinance your auto loan as soon as you want—even if you just took it out. 

But most auto refinance lenders won’t approve you until they receive the car title, which can take a few months to transfer from the previous owner to your current lender.

Can you refinance your auto loan if you have bad credit?

Getting approved for an auto loan refinance will be more challenging if you have bad credit, but it’s possible. Certain lenders specialize in bad-credit refinance loans, but you’ll often pay higher fees and interest rates. Refinancing a car loan if you have bad credit may not make financial sense. 

Can you refinance your auto loan if your car is older?

Lenders often have age and mileage restrictions for auto loan refinances. Restrictions vary, but many lenders won’t refinance cars older than 10 years or with over 100,000 miles. That can limit your options. Sometimes, you may be unable to find a lender to refinance an old car. 

Can you refinance your auto loan if you can’t make the monthly payments?

You must show you can afford the monthly payments on your new loan to qualify. You should also be up to date on your current car loan’s monthly payments to refinance. Being behind on payments could make you ineligible to refinance. 

Can you refinance your auto loan if your income is higher than when you took the loan?

Yes. Income is one of the biggest factors lenders consider when deciding whether you qualify for a loan. Earning more money now could increase your chances of approval, provided you meet your new lender’s other requirements.  

Can you refinance your auto loan if you got the loan from a car dealership?

Yes. As long as you can find a lender that will approve you for an auto loan refinance, you can refinance the debt no matter where you got your original loan. It’s wise to check whether your current loan has a prepayment penalty, as this could be an added cost. 

Can you refinance your auto loan if you make a big purchase soon?

It’s possible to refinance your auto loan if you’re making a big purchase soon, but we don’t always recommend it. 

For example, if you want to refinance your car loan but you’re applying for a mortgage soon, it’s wise to space out loan applications by at least six months so you don’t jeopardize your chances of approval. 

Can you refinance your auto loan if you don’t have proof of residence?

You’ll need proof of residence to qualify for a car loan. However, depending on the lender, your driver’s license may be all you must show for proof of address. 

Can you refinance an upside-down auto loan?

Yes, you can often refinance your car loan even if it’s upside down, meaning you owe more on the loan than your car is worth. Be careful, though. This can be a risky financial move, especially if you refinance for a longer term. 

Should you refinance your auto loan?

There’s no right answer regarding whether you should refinance your auto loan. Instead, it depends on your situation. But if it’s the right call, it could help you budget. As you determine if refinancing is the best choice, consider the following. 

Question	Context
How much time do you have left on the loan?	Refinancing offers the most interest savings if you’re early into or halfway through your repayment.
What are the markets doing?	Interest rates constantly change, affecting whether refinancing makes financial sense.
Has your credit score changed?	If your credit score has increased since you took out your car loan, you may qualify for lower rates—but the opposite is true if your credit score decreased.
Has your income changed?	As with your credit score, if you’ve seen a significant bump in income, you may qualify for better terms on a new loan.
Have your expenses changed?	If your budget’s recently changed, refinancing can help wedge your monthly payments into a better fit.
Can you afford the new payments?	Borrowers often refinance because they can’t afford their payments, but ensure you can make the new one too.
How much will it cost?	Although rare, your current loan may have prepayment penalties. Your new loan may come with origination fees or other expenses too.
Are you comfortable with the total interest costs?	Refinancing changes the total interest you’ll pay, which you can calculate with a refinancing calculator.
Are you comfortable with your new loan term?	Refinancing for a longer term means you’ll be in debt for longer, putting you at a higher risk of being upside down on your loan.

Ask the expert

Erin Kinkade

CFP®

“In addition to the reasons listed in this article, it could be advantageous to refinance if you have gone through a divorce and you want to remove your former spouse or remove or add a cosigner. For example, if you cosigned with your child to help them get a favorable rate on their automobile, as the child’s financial condition improves and credit history is established, it would be a good time to refinance to remove yourself as a cosigner.”

What if you decide to refinance your auto loan?

If you decide refinancing is a wise move, the next step is to research how to refinance your auto loan to set yourself up for success. Generally, the process looks something like this:

1. Review your current auto loan balance, APR, and term. 
2. Use Kelley Blue Book to determine your car’s current value.
3. Review your credit. 
4. Gather necessary documentation.
5. Compare lenders and choose one. 
6. Apply for an auto loan refinance. 

To help simplify your search, we’ve compiled a list of the best lenders offering auto loan refinances. These lenders include LightStream, Autopay, and more.