How long should I refinance my car?
So as a best practice, it's ideal to wait at least one year before refinancing but you should have at least two years left on your loan. Having a minimum of two years left gives you the best potential to maximize interest savings over the life of the loan (since you pay more in interest during the initial years).
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.
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.
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.
A refinance takes 30 to 45 days to complete in most cases, but it could always require more or less time depending on a variety of factors. For example, appraisals, inspections and other services that third parties handle can slow down the process.
While interest rates aren't at historic lows anymore, other market factors like car values could make this a good time to refinance your car. However, whether it's a good time to refinance heavily depends on your credit situation. If you can get a lower interest rate, it's a great time to refinance.
If you refinance and extend your loan's term, you are more likely to end up owing more than your vehicle's worth. This is called being upside-down or underwater on your loan. Your chances of going upside-down with a longer loan term increase because cars generally depreciate in value each year.
There's no legal or lender-based limit to how many times you can refinance a car loan. As long as you meet the creditworthiness criteria, you can refinance as often as you'd like.
Although the hard credit checks associated with your auto refinance application will remain on your credit report for two years, most credit scoring models only consider inquiries made within the past 12 months. Generally, the impact of credit checks on your credit score is minimal — around 5 points.
As such, refinancing might not be worth it if: You've been paying your original loan for quite some time. Refinancing results in higher overall interest costs. Your credit score is too loan to qualify for a lower rate.
Is it bad to refinance too early?
You could face a prepayment penalty.
Some lenders charge you a hefty fee — known as a prepayment penalty — if you pay off your loan in the first few years of borrowing it. Your new loan pays off your old mortgage when you refinance, so if that would trigger a penalty, you'll pay more than expected for your refi.
Any time for a simple or rate-and-term refinance; after seven months for a streamlined refinance; after 12 months for a cash-out refinance (can vary by lender). You must have made on-time payments for the past six months; 12 months for a cash-out refinance.
- Make a full lump sum payment. ...
- Make a partial lump sum payment. ...
- Make extra payments each month. ...
- Make larger payments each month. ...
- Request extra or larger payments to go toward your principal.
Typically, interest rates for car loans range from around 7% to 13% for those with good credit, and can be higher for those with poor credit. A 17% interest rate would result in a significant increase in the overall cost of the car, as well as higher monthly payments.
| Credit Score | New Car Loan | Refinance Car Loan |
|---|---|---|
| 750 or higher | 12.77% | 7.89% |
| 700-749 | 12.65% | 8.98% |
| 600-699 | 17.84% | 10.09% |
| 451-599 | 22.56% | 12.76% |
Conventional loans – you can do a rate-and-term refinance right away if you want, but typically not with the same lender. That's because, before 6-months, the lender may lose their original commission. On the other hand, if you want a cash-out to refinance, you'll have to wait for at least 6-months.
While mortgages can be refinanced immediately in certain cases, you typically must wait at least six months before seeking a cash-out refinance on your home, and refinancing some mortgages requires waiting as long as two years.
| Product | Interest Rate | APR |
|---|---|---|
| 20-Year Fixed Rate | 6.67% | 6.73% |
| 15-Year Fixed Rate | 6.34% | 6.42% |
| 10-Year Fixed Rate | 6.28% | 6.37% |
| 5-1 ARM | 6.51% | 7.81% |
You could pay more in interest
If you refinance to a longer loan term to reduce your payment, you may actually pay more overall because of the additional months of interest you pay. Even a reduced rate may not offset the cost of continuing to pay interest for an extra year or two.
While market predictions are bullish on the funds rate — and by extension, auto loan rates — finally coming back down in 2024, it's still not a guarantee. Powell and others at the Fed remain committed to their target of 2% inflation.
What is the best auto loan rate right now?
| Top Auto Loan Lender | Lowest APR | Term Length |
|---|---|---|
| PenFed Credit Union | 5.24% | 36 to 84 months |
| Auto Approve | 5.24%** | 12 to 84 months |
| Consumers Credit Union | 6.54% | Up to 84 months |
| Auto Credit Express | Varies | Varies |
You have positive equity in your car
Lenders view positive equity — cars worth more than you owe — as a big plus when refinancing. This is largely because the lender stands to make more if you default and it repossesses your vehicle to sell. This possibility means the lender may offer you a lower interest rate.
Two years left on the loan
As your loan ages, your car is getting older as well, and its value is depreciating. Lenders have specific requirements regarding the age and mileage of cars they're willing to refinance, and some lenders won't refinance a loan that's too close to the end of its term.
Can I refinance my car with the same lender? Yes, many lenders will allow you to refinance your existing car loan. Keep in mind that lenders may not offer refinancing as an option. Especially if your vehicle is in poor condition, has low value, or you have few payments remaining on your existing loan.
Not only can there be fees involved in applying to refinance, but some borrowers may also experience having to pay early termination fees, depending on how their original auto loan is set up.
