If you recently bought a car, you may wonder when you can refinance your car loan to reduce the interest rate or lower the payment. Strictly speaking, you can refinance a car loan as soon as you find a lender that will approve the new loan.
Most lenders have no set waiting period after you’ve purchased a car. However, they can’t refinance until your current lender receives the car’s title from the manufacturer or previous owner, and that can take several months. Other lenders won't refinance a car loan until it has been open six months or more.
Depending on your situation, there can be advantages to waiting.
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When to refinance your car loan
Here are some general guidelines to help you determine the best time to refinance.
During the first 60 to 90 days of the car loan
It usually takes at least two to three months for your vehicle title to transfer from the manufacturer or previous owner to your current lender. Most lenders won’t even consider an application to refinance if the title hasn’t transferred. But waiting could be an opportunity to pre-qualify with more than one refinancing lender and compare rates.
When you applied for the original loan, the hard inquiry on your credit report may have caused a temporary small drop in your credit score. This drop could result in a higher interest rate on your new loan. Unless you already have good or excellent credit (a FICO score of 690 or higher), you'll benefit from waiting for your credit score to recover.
At least 6 months into the car loan
Waiting at least six months into your loan term provides more time for your credit score to rebound from any temporary drops. If your goal is to lower the interest rate and monthly payment, it makes sense to wait until your credit score enables you to qualify for a lower rate than your current one.
If this is your first time borrowing for a car, or you've had credit issues in the past, you might wait at least a year to refinance. This way, you'll have time to build a good history of on-time payments. Some lenders require six to 12 months of on-time payments before they'll consider a refinancing application.
2 years or more remaining on the car loan
To see a benefit from auto refinancing, it's best to have at least two years remaining on your auto loan. With most interest paid in the beginning of a loan term, there's less potential for savings if you refinance too late in the term.
Also, many lenders have refinancing requirements that come into play later in your loan. These differ from lender to lender and usually include the number of months left on your loan term, the remaining balance on the loan, the age of the car and its mileage. When you apply to lenders, be sure to ask about their specific requirements for refinancing.
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Should you refinance?
Regardless of when you refinance, you should take time to apply with multiple lenders and get more than one offer. Comparing refinance offers with your current auto loan can help you decide whether to refinance at all. Our auto loan refinance calculator below can help you compare offers.
You're most likely to benefit from auto loan refinancing in these situations:
Your credit score has increased since you took on a car loan.
Interest rates for auto loans have gone down since you got the loan.
You took a higher-rate loan at a dealership than you would qualify for with a different lender.
You're having trouble making the monthly payment. Refinancing to a longer term may reduce your payment, but you could end up paying more interest over the life of the loan.
FAQs
After you buy a car, you have to wait at least 60 to 90 days before you can refinance, since it takes about this long to transfer the title to your name. Generally, it's best practice to wait to refinance a car loan for at least six to 12 months.
How many payments before I can refinance my car? ›
You bought your car — or refinanced — recently
Lenders often require at least six on-time payments before they consider you eligible for refinancing. This is to lower the risk of default. If you can keep up with your current payments, you prove that you can handle your debt.
Can refinancing a car hurt your credit? ›
Refinancing may lower your credit score a few points, but the impact to your credit score will only be temporary. Applying for a loan generates a hard inquiry. Refinancing may be worth it if rates have dropped since you took out your loan.
How soon can you refinance a car loan with bad credit? ›
However, most financial experts agree that waiting six months before refinancing often will get you the best terms for your situation. It also gives you enough time to improve your credit score and get your financial situation in order.
What disqualifies you from refinancing a car? ›
Refinancing isn't an option for everyone. If the vehicle is worth less than the loan balance (upside down), a lender probably won't take the chance and at the same time lower your interest rate.
Why wait 6 months to refinance a car? ›
How long should you wait to refinance a car? Because new loans negatively impact your credit, you should wait to refinance until your credit score has recovered. Most experts recommend waiting at least six months to one year before refinancing.
Is there a downside to refinancing a car? ›
More interest overall
A longer loan term means interest has more time to accrue, so even if you get a lower annual percentage rate, adding 12 extra months could still end up outweighing the benefits long-term. As such, it's generally best to avoid refinancing to a longer car loan unless you have to.
What is a good interest rate for a car for 72 months? ›
An interest rate under 5% is a great rate for a 72-month auto loan. However, the best loan offers are only available to borrowers who have the best credit scores and payment histories.
Can you pay off a 72-month car loan early? ›
Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.
Who is the best to refinance a car? ›
Summary: Best Auto Loan Refinancing Lenders
| Company | Forbes Advisor Rating | APR Range |
|---|
| LendingClub | 3.9 | Starting at 4.99% |
| Consumers Credit Union (CCU) | 3.8 | Starting at 6.54% (with autopay) |
| Navy Federal Credit Union (NFCU) | 3.5 | Starting at 4.54% |
| U.S. Bank | 3.2 | Starting at 8.11% |
1 more rowApr 1, 2024
Can you refinance a car and get cash out? You can take equity out of your car in the form of a cash-out auto refinance loan that's up to the current value of your vehicle. You'll get cash back as a lump sum over the amount of your original loan balance.
How does refinancing work on a car? ›
When you refinance your car, you take out a new auto loan to pay off an existing car loan. The new loan will likely come with a different interest rate and term. You will pay the new lender in fixed monthly installments as you did with the old lender.
What is the lowest credit score you can have to refinance a car? ›
There's no universal minimum credit score for refinancing your auto loan. Different lenders have different requirements, and some lenders specialize in working with people with bad credit, including those who have bankruptcies or repossessions in their credit histories.
What credit score is needed to refinance a car with Capital One? ›
There are no minimum credit score requirements to refinance your car with Capital One. Credit scores range from 300 to 850 in the Fair Isaac Corp. (FICO) scoring model. The higher your credit score, the more likely you are to be approved to refinance your new or used vehicle.
Is it a good idea to refinance your car? ›
Refinancing your car loan can be a good idea if it allows you to save money on interest, but it's not the right financial move for every borrower. The best time to refinance is when interest rates have dropped or your credit score and DTI have improved.
How long is the waiting period for refinancing? ›
With a standard rate-and-term refinance, you'll need to wait at least 210 days from your original loan's closing date. If you're looking to take cash out with your refinance, you'll need to have lived in the home for at least one year and made on-time mortgage payments for the last 12 months.
