Loans Car Loans How to Save Money by Refinancing an Auto Loan By Erin Huffstetler Erin Huffstetler Website Erin Huffstetler is an expert on budgeting whose advice has been featured in The New York Times, Chicago Tribune, Forbes, and many other publications. She founded the My Frugal Home blog, and has also been published by The Spruce, TripSavvy, and Byrdie, among others. Huffstetler has a bachelor's degree from Maryville College. learn about our editorial policies Updated on February 27, 2022 Reviewed by Cierra Murry Reviewed by Cierra Murry Cierra Murry is an expert in banking, credit cards, investing, loans, mortgages, and real estate. She is a banking consultant, loan signing agent, and arbitrator with more than 15 years of experience in financial analysis, underwriting, loan documentation, loan review, banking compliance, and credit risk management. learn about our financial review board Fact checked by David Rubin Fact checked by David Rubin Facebook Instagram Twitter David J. Rubin is a fact checker for The Balance with more than 30 years in editing and publishing. The majority of his experience lies within the legal and financial spaces. At legal publisher Matthew Bender & Co./LexisNexis, he was a manager of R&D, programmer analyst, and senior copy editor. learn about our editorial policies In This Article View All In This Article When to Refinance Your Auto Loan How to Prepare for Refinancing Determine Whether Your Car Qualifies Compare Rates Applying for an Auto Refinance Loan Final Tips for Auto Loan Refinancing Photo: XiXinXing/Getty Images Refinancing an auto loan is far easier than refinancing a mortgage. It can save you thousands of dollars in interest, and you may be able to pay off your car sooner. Before you get started, it's important to know what is involved in the refinance process and whether this is a good option for you. When to Refinance Your Auto Loan Every situation is different, and the first step to determine whether refinancing is right for you is to take a quick look at the current market and your financial position. Consider refinancing your auto loan if: Interest rates have dropped since you bought your car. Your credit score has improved, which could mean you qualify for a better rate. You financed your car through a dealership. The rates are often higher through dealer financing, so it's good to look at other sources when you can. How to Prepare for Refinancing Unlike a mortgage, auto refinancing should only require a few documents. Gather the following information before you begin, so you'll have all the facts when asked about them: A copy of your current loan papersInformation about your vehicle, like the VIN and current mileage Next, before you start shopping for a new loan, you need to know where you stand with your current loan. Consider the following questions: What are you paying in interest? How many months do you have left on the loan? What is your current payoff amount? (This is the amount you would pay the lender if you were to pay the entire bill today.) Is there a pre-payment penalty in place? Some lenders only allow borrowers to pay off a certain amount of their loan each year without a penalty. It is more common with a home mortgage, though it may apply to some car loans. Determine Whether Your Car Qualifies While each bank has its own qualification requirements, most banks will not refinance a vehicle if it, or the loan, meets certain conditions, such as the following: Your current loan has less than $7,500 remaining.Your car is over seven years old.Your car has 100,000 miles or more—some banks set the cap at 70,000.You use the car commercially.Your car has a salvage title. You also won't have much luck refinancing a motorcycle or RV. Some banks may even rule out certain vehicle makes. Compare Rates Call a few banks in your area to get a feel for what the current interest rates are. You can also use a site like bankrate.com to look up the national averages. Tip Be sure to go by used car interest rates. When you refinance, that's the rate you're likely to pay, even if you have a new car loan now. You can use an online auto refinance calculator to estimate how much a refinance will save you. Applying for an Auto Refinance Loan If refinancing still seems to make sense after you run your calculations, it's time to dig into all of the details. Question the banks that you're considering about any fees that you'd be expected to pay. A small fee to transfer the title and re-register the vehicle is to be expected, but some banks may also tack on a processing fee. Ask whether there is a pre-payment penalty built into the loan. If so, avoid it. Once you've compared all of your options, submit your loan application to the bank with the best deal. Final Tips for Auto Loan Refinancing Compare the rate that your current bank might offer with rates from other lenders. Don't be surprised if your current bank turns you down. Avoid cash-out refinance offers (i.e., refinancing for more than the amount owed so you get the difference in cash). They may be a good option for home mortgages, but they're not the best when it comes to cars, as they add to the length and cost of your loan. Cars lose value quickly, so a cash-out refinance is not likely to save you any money. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Experian. "Will Refinancing My Auto Loan Hurt My Credit?" Consumer Financial Protection Bureau. "Can I Negotiate the Interest Rate on an Auto Loan With the Dealer?" Consumer Financial Protection Bureau. "Can I Prepay My Loan at Any Time Without Penalty?"