Refinancing an Auto Loan (April 2024) (2024)

All APR figures last updated on 3/16/2024 – please check partner site for latest details. Rate may vary based on credit score, credit history and loan term.

Refinancing an auto loan replaces your existing loan with a new one, generally to save money overall by reducing your rate or to reduce your monthly payment by extending your loan term. You can apply for a refinance auto loan through a dealership, bank, credit union or other lender. If you’re approved, your existing loan will be paid off and you’ll receive a new interest rate, loan agreement and loan term.

Before you begin applying or searching for the best auto loan refinance providers, we recommend following these steps to ensure you’re ready for the application process.

1. Review your current auto loan: Gather all of your loan information, including the lender’s name, loan term, annual percentage rate (APR), monthly payment and payoff amount. This will save you time when you begin speaking with auto refinance lenders, who will ask for this information up front. You can also plug some of this information into an auto loan calculator or comparison tool to see how much money you could save.
2. Check your credit score: Find out if your credit score has improved. A higher credit score means you may qualify for more competitive rates that could help you save money long term.
3. Apply and compare offers: To get the best auto refinance rates, shop around and compare offers from lenders, and then pick the one that’s best for you. We recommend reaching out to at least five lenders so you can compare several offers.

Whether you should refinance your auto loan ultimately comes down to your unique situation. Consider all your options when deciding if refinancing is the best move for you right now. If you choose to refinance your car, be sure to get quotes from several lenders, check the disclosure statements and compare them carefully before making a decision.

Source: Capital One

When Should You Refinance Your Car Loan?

Auto loan refinancing isn’t always a smart choice, but there are many occasions when it makes good financial sense. Below we will go into more detail about when it is best to refinance your car and when you should stay away from vehicle refinancing.

When You Should Refinance Your Car Loan

Here’s when it might be a good time to refinance your existing loan:

• Interest rates dropped: Interest rates rise and fall over time. If rates are much lower now than when you got your existing loan, it might be a good time to refinance your auto loan.
• Your car is worth more than you owe: If you owe less than your car is worth, you might be able to secure lower interest rates.
• Your credit score improved: A bad credit score may have forced you to take a high interest rate on your original loan. If your credit score has improved, you may be able to secure a new auto loan with a lower rate and save hundreds or thousands of dollars. Below is a breakdown of some steps to improve your credit score:

When You Shouldn’t Refinance Your Car Loan

Here are a couple situations in which it’s not in your best interest to refinance:

• Your current loan has prepayment penalties: To make up for the interest they will lose, some lenders charge a fee if you pay off a car loan early. Even if you get a much better interest rate from a new lender, it may not be enough to make up for the fees you pay on your original loan.
• You owe more on the car than it’s worth: This is known as an “upside down” loan. While it may be tempting to try to lower your payments by refinancing your auto loan, you’ll have a hard time getting anything other than high interest rates in this situation — if you can get financing at all. It may be better to pay more toward your current loan each month to make up the difference before applying for a refinancing loan.

Interest rates for refinance auto loans, just like regular car loans, vary based on a variety of factors. Your credit score is one of the most significant. Credit scores are broken into five distinct categories called credit bands, and where you fall can drastically affect the rates you get.

The table below shows average auto loan rates by credit score for new and used vehicles. This data is based on Experian’s most recent State of the Automotive Finance Market report.

Average Auto Loan Rates

Factors That Affect Auto Loan Refinance Rates

A number of factors go into calculating your interest rate when you refinance your auto loan. Lenders use the following to determine the interest rate and repayment terms they offer you:

• Credit score: A higher credit score will result in lower interest rates. Borrowers with poor credit will receive much higher rates and may have trouble securing loans.
• Loan term: In most cases, the longer the loan term is, the higher your interest rate will be.
• Vehicle age: Some banks don’t offer loans for older cars. For those that do, borrowing money for a vehicle of an older model year will often come with a higher interest rate.
• Loan-to-value (LTV) ratio: Your lender may adjust its rate based on how much you still owe on the car compared to how much it’s worth. This is known as your LTV ratio.

Your rates will likely vary from what you see advertised. Only borrowers with the best credit can qualify for a lender’s starting APR or a rate near it. Most lenders offer free quotes online or over the phone. We recommend getting personalized quotes from several lenders and comparing them before making a decision.

An auto refinance calculator for loans can help you see the full cost of your loan. With our calculator, you can determine how much refinancing your car loan may save you. You can then use the payment estimate to compare offers from other companies to make sure you’re getting the best deal possible.

When comparing options to refinance your auto loan, consider more than just APR. There are a few other key aspects of a loan that can have a significant impact on its overall cost.

Interest Rate

Your interest rate is how much the lender charges you to borrow money, expressed as a percentage. While it’s not the only factor that affects the lifetime cost of your car loan, it’s one of the most important. In the graphic below you can see the difference between interest rate and APR.

A small difference in your interest rate can have a significant impact on what you pay over the life of the loan because it will accrue over time. The table below shows how interest builds over the life of your car loan.

Loan Term

Most lenders offer flexible loan terms, usually ranging from about 12 to 84 months. Extending your loan payments over a longer period of time will result in lower monthly payments, but you’ll pay more in interest over the life of the loan. In addition, longer terms typically come with higher interest rates.

Discounts

Some lenders offer discounts on their auto loans that can help borrowers save significantly. One common discount is a reduction in your APR — usually by around 0.5% — for enrolling in autopay. Some larger financial institutions offer discounts if you use their other banking and financial products, such as checking or savings accounts.

Fees and Penalties

Even if they offer attractive rates, some lenders tack on fees and penalties that can make a refinance vehicle loan more expensive. Some lenders charge origination fees to cover the cost of processing the loan. Missing a payment could result in a one-time fee, but some lenders will raise your interest rate for doing so. Read the fine print with every loan offer to fully understand what you may be charged for.

Our 2023 auto loans survey included 2,000 respondents. Most of those surveyed financed between $5,000 and $50,000, with $20,000 the most common amount packaged into a loan.

In terms of APR, 8.85% of respondents had a 5% annual percentage rate on their loans. That was the most common APR in the survey, with 3% following close behind.

APR was also the most important factor in choosing a lender for our survey respondents. Nearly three quarters of those surveyed (71%) said that a good APR was the key driver of their loan company decision.

We found that the best auto refinance companies are Auto Approve, PenFed Credit Union, myAutoloan and Bank of America. Our experts compared some of the top auto loan refinance companies in the country to see which lenders offer the lowest rates. We also examined the fine print for hidden fees, vehicle restrictions and other issues worth considering.

Best Lenders To Refinance a Car

Below, we break down our top picks for the best lenders to refinance a car. Our overall scores out of 10 are calculated based on each provider’s reputation, rates, availability and customer reviews:

*Bank of America’s starting annual percentage rate (APR) may vary by state. The APR shown here is for New York.

The ratings in this table reflect our overall review scores for each company and are not specific to refinance auto loans. The order of providers in this article, however, is based on car refinancing specifically. While provider APRs start at the figures noted in the table, only borrowers with excellent credit will be eligible for those starting rates.

#1 Auto Approve: Top Choice for Refinancing

Starting APR: 2.94%
Loan amounts: $5,000 to $85,000
Loan terms: 48 to 84 months
Availability: 50 states
Minimum credit score: 580

Unlike the other lenders on this list, Auto Approve doesn’t finance new car purchases. Instead, the company specializes in refinancing auto loans. However, when it comes to the type of vehicle you can refinance, Auto Approve offers much more flexibility. The company works with a network of lenders to offer refinancing for motorcycles, ATVs, boats and RVs in addition to cars, trucks and SUVs.

Auto Approve’s auto loan refinancing rates begin at 2.94% APR, which is toward the lower end of the rates we saw in our research, but note that only the most qualified borrowers will likely get a rate this low. The company doesn’t charge an application fee or a prepayment penalty.

Auto Approve is also accessible to those who don’t have the best credit history since it has a minimum credit score of only 580. However, borrowers with lower credit scores should expect to pay higher rates than the minimum APR featured here.

Auto Approve reviews

Auto Approve has a stellar reputation within the auto loan industry. The company is accredited by the Better Business Bureau (BBB) and has an A+ rating from the organization.

Customers on the BBB website also rate Auto Approve highly — the company has a nearly 4.4 out of 5.0-star customer review rating. The positive reviews extend over to Trustpilot, where the lender has a 4.7 out of 5.0-star rating from consumers.

The overwhelmingly positive reviews about Auto Approve tell us that customers consistently have good experiences with the company, which is why we named it our Top Choice for Refinancing. Those who leave positive reviews tend to mention an easy process and professional service.

Not every customer has a positive experience with Auto Approve. Those who report negative experiences with the company tend to mention communication issues and misunderstandings about fees and recurring payments. Our team reached out to Auto Approve for comment on these negative reviews but did not receive a response.

Read more: Auto Approve review

#2 PenFed Credit Union: Most Cohesive Process

Starting APR: 5.19%
Loan amounts: $500 to $150,000
Loan terms: 36 to 84 months (72 months max for used cars)
Availability: 50 states
Minimum credit score: 610

Pentagon Federal Credit Union, or PenFed, is a military credit union that typically offers competitive auto loan and auto refinance rates. Although it was designed for military members and their families, it’s also open to people who work for certain government agencies and nonprofit organizations, as well as those who make a donation to an approved charity to join.

Despite its generally competitive rates, the lender has a slightly higher minimum credit score requirement than some of its competitors. You may not be eligible to refinance your auto loan balance with PenFed if you have a low credit score.

PenFed Credit Union reviews

PenFed Credit Union’s A+ rating from the BBB indicates that the lender has a positive standing within the industry. While customers on the BBB website give PenFed nearly 1.1 stars out 5.0, its consumer ratings elsewhere are high. The lender has a very positive 4.5-star rating out of 5.0 on Trustpilot.

Negative customer reviews about PenFed usually mention slow processing times. However, positive reviews about the credit union consistently highlight low rates and an easy, customer-friendly loan process.

Our team reached out to PenFed Credit Union for a comment on its negative reviews but did not receive a response.

#3 myAutoloan: Best Low-rate Option

Starting APR: 4.01%
Loan amounts: $8,000 to $100,000
Loan terms: 24 to 72 months
Availability: 48 states (not available in Alaska or Hawaii)
Minimum credit score: 575

Rather than a direct provider of auto loans, myAutoloan is an online marketplace where you can compare offers from a number of lenders in one place. After you enter your personal information, lenders will provide loan offers for you to choose from.

The myAutoloan marketplace can help borrowers looking to refinance their auto loans find competitive rates. Those with less-than-ideal credit history can refinance their vehicle loans through the site, which provides options for borrowers with credit scores of 575 and above. However, the lowest rates are reserved for people with the highest credit scores.

myAutoloan reviews

myAutoloan has favorable ratings within the industry. The auto loan marketplace has an A+ rating from the BBB and is accredited by the organization.

Customer reviews for myAutoloan are generally positive. The company has a solid 4.1 stars out of 5.0 from over 800 customer reviews on Trustpilot. However, there aren’t many reviews elsewhere, perhaps owing to myAutoloan being a marketplace and not a direct provider. Customers don’t usually interact with myAutoloan after getting their loans.

The company’s great rates and easy application process are consistently mentioned among positive reviews. Consumers who report negative experiences often mention getting high volumes of ads after entering their information on myAutoloan’s website.

Our team reached out to myAutoloan for a comment on its negative reviews but did not receive a response.

#4 Bank of America: Top Choice for Bad Credit

Starting APR: 6.79%
Loan amounts: $7,500 minimum ($8,000 in Minnesota)
Loan terms: 48 to 72 months
Availability: 50 states
Minimum credit score: 580

Bank of America is one of the largest financial institutions in the United States. It offers a wide variety of banking and lending products, including refinance auto loans, at very reasonable rates. Furthermore, our researchers found that the company offers loans to people with below-average credit, with a minimum credit score of 580. Bank of America was also the most popular lender in our 2023 auto loans survey, with 18.25% of those surveyed holding loans from the company.

If you want to refinance your auto loan, Bank of America’s starting refinance rates are slightly higher than some other lenders’ but are still competitive for the industry. While the company is a smart choice for those with lower credit scores, you’ll only get the bank’s best rates if you have a good credit score. In addition, the minimum refinance loan amount is $7,500, or $8,000 if you live in Minnesota, which may rule out some potential borrowers.

Bank of America reviews

Bank of America has a strong standing within the industry, holding both accreditation and an A+ rating from the BBB.

When it comes to customer reviews, the company doesn’t fare as well. Bank of America has an average rating of 1.0 stars from consumers on the BBB website and a 1.4-star rating out of 5.0 from customer reviews on Trustpilot.

However, it’s important to note that reviews are for the company overall and are not specific to its auto loans division. Even though a number of Bank of America customers complain about high fees and frustrations with phone support, many also report positive experiences with the company, usually pointing to user-friendly online interfaces and supportive customer service.

Our team reached out to Bank of America for a comment on its negative reviews but did not receive a response.

Getting your auto loan refinanced can get you lower rates and payments in the long run if you have a better credit score or if car loan rates drop. However, when you should refinance depends on your current financial situation and the rates available. Along with our top picks for refinancing your auto loan, you should look around for lenders and compare options before making a decision.

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.

Here are the factors our ratings take into account:

• Reputation: Our research team considered ratings from industry experts and each lender’s years in business when giving this score.
• Rates: Auto loan providers with low APRs and high loan amounts scored highest in this category.
• Availability: Companies that cover a variety of circ*mstances are more likely to meet consumer needs.
• Customer experience: This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness, friendliness and helpfulness of each warranty company’s customer service team based on our shopper analysis.

Our credentials:

• 300+ hours researched
• 25 companies reviewed
• 2,000+ consumers surveyed

*Data accurate at time of publication.