How to Refinance a Car Loan

You bought a new or used car and you’re strapped with a hefty monthly car payment. That note is weighing you down, making it hard for you to balance your budget each month. Fortunately, a car loan — just like a home loan — can usually be refinanced. If you have several years left on your note, obtaining a new loan can save you a lot of money.

auto loans

1. Get your credit score. Every lender will be obtaining your credit score and using that three digit number to determine the interest rate on your auto loan. Before you apply for a loan, visit to get your score; a small fee applies. If your score is 700 or above, then you have good credit and should be able to obtain a new loan at a lower interest rate. Move to the third step for good credit, but follow the second step if your credit rating needs improvement.

2. Repair your credit. With a lower score, you’ll be hard-pressed to obtain a new loan and one with a favorable interest rate. You’ll want to raise your score, something that will take several months or longer to accomplish. Visit to obtain copies of your three credit reports. Examine each report with care and notify the respective credit bureau of any mistakes or old information you have found. Experian, Equifax and TransUnion are the three major credit reporting bureaus, and are governed by the Federal Trade Commission. The FTC requires the bureaus to issue one free copy annually of their credit reports to you via the website. They’re also required to repair incorrect or outdated information on your reports when you bring this information to their attention. Wait 30 days for your information to be updated and ask for a corrected copy of your report. Wait 30 days more and your credit score should improve, maybe enough to move it into favorable lending territory.

3. Shop for a lender. When seek to refinance your car loan, you aren’t required to stay with your current lender. You can ask your lender for a new loan, but you can also shop around for a new loan. Not every lender will be interested in providing you with a loan even if you have good credit. Cars depreciate in value and homes generally appreciate, thus the former can be much less profitable than the latter. Still, you will want to check with banks, credit unions and online lenders to see if you qualify for a loan and one that comes in at a rate lower than your current loan. Compare each offer and apply only for a loan that is right for you. Multiple loan applications will hurt your credit and, if a fee is involved, cost you extra money. If you’re approved for a new loan, then your new lender will pay off your current lender and assume title to your car.

4. Sign the contract. Avoid any loan that extends your payments out further to lower your monthly payment. You’ll end up paying more in interest even if the loan shaves $10 or $20 off your monthly payment. Instead, choose a loan that keeps or shortens your repayment time and lowers your interest rate. Before you sign your loan contract, make sure you understand what your monthly rate will be. Use an auto loan calculator such as one found on to help you calculate your payments. Keep a copy of your contract handy and know when your first auto loan payment is due.

Further Considerations

If you are turned down for a new loan, you can still make payments on your current loan. You can also reapply for credit in six months, ideal if your credit picture improves considerably. Your credit score or FICO score is comprised of five components — your payment history, the amounts owed to creditors, length of credit history, new credit and the types of credit used. Greater weight is put on the first two categories, but problems in any one can drag down your score. Fix your credit today and you may be able to obtain refinancing in a few months.


  1. says

    Sarah, you raise some good points about car financing. It doesn’t always work out as the value of a car may have fallen considerably making it impossible to refinance. Some lenders charge an application fee too, another expense to add to financing.

  2. says

    Before you consider refinancing you need to make sure your car will qualify. The value of the car needs to be more than what you owe on the current loan. Also, do the math and make sure it is worth your while. Sometimes it is just necessary to lower that monthly payment, but in the end you could be paying much more for the car.

  3. says

    Thanks for the above information ie how-to-refinances-a-car-loan by giving abrief description and letting the customer know about the loan product.