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Refinancing a Car Loan

blog-auto-loan-refinanceMost people are familiar with the concept of refinancing a mortgage loan – but what about refinancing your auto loan? Did you know this is possible? Is this a good idea?


As with any refinancing decision, the validity of it depends on your unique situation:



  • What is the interest rate with your current auto loan and how does it compare with current rates? Obviously it only makes good financial sense to refinance if you can get a lower rate.  Check out auto loan interest rates by FICO® Score range for your State to see if current rates are lower than the rate you are currently paying.
  • How far are you into the existing loan term? Remember, interest is “front loaded” in an auto loan (meaning in the beginning of your loan term most of your monthly payment is applied to the interest and not the principle).  As such, refinancing in the early part of a loan term is more beneficial as that’s when you are paying the most interest and stand to save more money.
  • How old is the vehicle? Some lenders may have policies against financing older vehicles as they have less value.
  • Does your current loan have pre-payment penalties? Be careful to check the “fine print” with your existing loan as there may be substantial pre-payment penalties if you pay off the loan early.
  • What is the state of your credit? The refinancing lender will likely perform a thorough credit check on you and higher FICO Scores tend towards better interest rates.  Do your homework before applying for an auto refinance loan by making sure your credit report is free of errors and you have a high FICO Score.


Ready to check out auto refinancing?  The process is fairly straight forward. Invest in the time to do some research to identify companies that offer auto loan refinancing and check out their interest rates.


Apply, and if you are approved, the new lender will provide funds so you can pay off your existing auto loan and transfer the title.  After that, you start paying your new lender monthly like before.


Note, there are typically some low dollar amount “nuisance fees” involved (lien-holder fee, state re-registration fees, etc.) – be sure to understand what these will be when interacting with the refinancing lender.


While not as exciting as purchasing a new car, refinancing your existing car loan can provide you with an interesting opportunity to reduce your monthly car payment and save some money over the life of the loan.


Tom Quinn is the Vice President of Business Development for myFICO® , and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.

About Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 20 years of experience working with consumers, regulators and lenders and regarding credit related questions and initiatives.


  1. This is a good tip, but I wish there was more information included on how refinancing affects your credit score (or if it doesn’t). I recently refinanced, I had my loan with Ally Bank at 7% and went to Chase for 2.85%APR. It felt great because I have not been very happy with Ally (they are very shady about explaining you how much goes into interest and how much goes into the principal, I just felt like they changed the percentage every month according to a payment schedule they posted).

    Anyway, big money saver, I reduced my monthly payments and will be paying less over the life of the loan:)

    I would have gone with Chase initially, but they denied me the auto loan when I had a lower score, while Ally accepted my loan.

    What I am wondering about the credit score is, does your score drop when you refinance? I had my credit pulled twice by Bank of America and Chase and decided to go with Chase…I did this since I heard there was a rule that you had around a week to make as many credit pulls necessary when shopping around for a car or mortgage loan. Does this also count when refinancing? Also, how does it affect length of credit history, since one loan is closed and a newer one is opened?

  2. People should know certain things before going to refinance their car loan. They need to check the used car interest rate before going to apply for this type of loan. It is always advised that they should not go for any sort of cash out refinance offer because it will increase the length and cost of the loan.

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