Can Refinancing Save Me Money on My Car Loan?

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Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


, Contributing Writer - April 6, 2020

The short answer is … yes! Refinancing can save you money on your car loan – it just depends on how you refinance. Let’s go over how refinancing works and if it's right for you.

How Refinancing Can Save You Money

You can refinance an auto loan in two different ways: lengthen the loan term or reduce the interest rate. You can work with your original lender, or find a different one.

When refinancing, you’re replacing your original loan with one that has more favorable terms to fit your current financial situation. It’s done by paying off the original loan and financing your vehicle with a new one.

If you lengthen your loan term, it can give you more disposable income each month because it lowers your monthly payment, but you pay more in interest charges because the loan is longer. By lowering your interest rate, you decrease the interest charges and lower your monthly payment.

You can also do both. But to refinance in any way, you need to meet the lender’s requirements.

Requirements for Refinancing a Car Loan

While the conditions vary depending on the lender, most have similar requirements when it comes to refinancing. Here is a basic checklist to go through before you jump into refinancing:

  • Your car loan is at least a year old – Most lenders won’t refinance a loan that’s less than one year old, since your payment history on that loan hasn’t been fully established yet.
  • You’re caught up on the loan payments – Lenders won’t refinance your loan if you’re behind or you’ve missed payments.
  • Your vehicle meets the requirements – Many lenders won’t refinance a loan if the car is over 10 years old or has more than 100,000 miles, though this can vary.
  • Your credit score is good – A good credit score is typically required for refinancing, but if you originally took out a bad credit auto loan and your credit score has improved since, you may be able to qualify.
  • Your vehicle has equity – Lenders won’t refinance a car with negative equity, also called being upside down on your loan. Simply waiting and paying down the loan can help with this.
  • Your loan amount isn’t too high – This is going to largely depend on the lender, but most have limits on the maximum amount they can refinance.

If you don’t meet most of these basic requirements, refinancing may not be right for you – right now. Time and patience, keeping up on monthly payments, and improving your credit score, are the best ways to increase your chances of qualifying for refinancing.

Again, all lenders and situations are different, and it could take time to find a lender that’s willing to work with you. Rate shopping can also take time, but if you’re looking to lower your monthly payment, discussing your situation with a few lenders can be of help. And if you rate shop within 14 days to apply with different lenders, your credit score only reflects one hard inquiry. So, don’t be afraid to weigh all your options when shopping for refinance rates.

If You Can’t Refinance …

If you find yourself in a situation where you can no longer afford your monthly payment and you aren’t able to refinance, it might be better to trade in your current vehicle for something more affordable.

We want to help with that. At CarsDirect, we‘ve teamed up with dealerships nationwide that work with subprime lenders. Subprime lenders work with bad credit borrowers with unique credit situations. If your current car is too expensive, or your credit score is stopping you from getting another auto loan, subprime financing could be for you.

Getting started is easy – we have a free, online car loan request form that you fill out. After you submit it, we'll work to find you a dealer in your local area with subprime options.

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, Contributing Writer

Bethany Hickey is a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. She is a content writer for Auto Credit Express, CarsDirect, and many other automotive blogs, as well as the Poetry Editor for UM-Flint’s writing magazine.


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