What You Need to Know About Refinancing Your Car Loan

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By Jacob Maslow

Refinancing your auto loan is a smart step for streamlining your finances and paying fewer fees. After all, interest can add up over the lifetime of your loan. But there are things you should know about a refinance car loan. From how to qualify to determining where to go and what to look for, here’s how to refinance your car loan.

How To Qualify For Refinancing

To understand your options to refinance, first, you need to know if you’re qualified. Odds are, if you’re reading this and have a decent credit score, you’re eligible for refinancing your auto loan. However, the refinance process can be complicated.


Even if your credit score isn’t great at this moment, odds are you will qualify for refinancing and lower monthly payments on your auto loan in the future. You need not wait for lower rates, but you need to make sure you make your car payment on time to bolster your credit score.

Refinancing in Four Steps

  • Find a lender with a low rate
  • Submit your information and details for approval
  • Authorize the new lender to completely pay off your old loan
  • Make all remaining and future payments to the new lender


While these steps look good on paper, it’s typically not that simple in most cases. Refinancing can be complex because of lenders’ motivations and the amount of communication and paperwork that goes into the process.

Where To Go To Refinance

There are three different categories of potential auto loan refinance lenders. The first category is “Lenders,” also known as banks and credit unions. These institutions will help you replace your original loan with a newer and lower rate, but won’t help you compare rates to find the lowest one.


The second category is “Refinance Brokers.” These are companies that act as a middleman between you and a lender to help compare potential refinancing rates. Refinance brokers can be sneaky, as they’ll often charge you for GAP insurance and other extended protection products rolled up into your new loan price.


The third and final category is “Affiliate Websites.” These sites rank high in Google searches and the longer they keep you on their website, the better. They urge you to provide your contact info so they can sell it to other lenders and brokers, leading to lots of unsolicited emails, phone calls, and texts for you.


The key is to make sure you know which options you’re okay with and which you want to avoid. 

What To Look For When Refinancing

Everyone’s path to refinancing their auto loan will look different from each other, purely because credit scores and finances differ from person to person. However, there are some key guidelines to follow to make sure you’re doing what’s best for your wallet.

A Low Rate

Honestly, this tip goes without saying, but it’s still worth mentioning. You always need to make sure you shop around and compare APR (annual percentage rates) between potential lenders to make sure you’re really getting a lower refinance rate and actually saving money.


When shopping around for a new auto loan rate, make sure to do it in a timely fashion. Those rates won’t stick around forever, so do all your research quickly and efficiently before choosing a refinance rate.


No one wants to jump through hoops to get information, so make sure you choose a refinance lender that easily provides you with information without spamming your notifications. It’s also a big bonus if there’s a chance you can refinance 100% online—that’s most convenient of all.

Companies that Utilize “Soft” Credit Checks

You have to provide potential refinance lenders a lot of information about yourself and your finances so they can evaluate your credit score and provide you with a new rate. However, checking your credit score, whether it’s a company or yourself, can actually lower it.


So it’s crucial to find companies that use “soft” credit checks as opposed to “hard” ones. Essentially, “soft” checks don’t show up on your credit score and don’t affect it. “Hard” credit checks impact your credit score negatively. Always find companies that don’t hurt your score.

What To Avoid When Refinancing

While refinancing looks different for every individual, there are a few key things to avoid at all costs when it comes to refinancing.

Pressure to Refinance

To understand your options to refinance, it’s crucial to know that the time may not be right for you just yet. Avoid companies that instill a sense of urgency and make you think you’ll never be able to refinance if you don’t do it at that moment.

Hidden Fees and Extras

This was briefly discussed regarding refinance brokers, but it’s always imperative that you read the fine print before signing anything. While the protection products offered by refinance brokers can be beneficial, don’t fall for them sneaking it into your refinanced loan price.

What the Refinance Environment Looks Like

In March of 2020, the Federal Reserve cut all interest rates to 0%, meaning that refinance rates are at extreme lows. Still, there’s lots of room for fluctuations. Your credit score is the best indicator of if you’re able to refinance at this time.


A good credit score will ultimately result in a lower APR. Ideally, if your credit score is anywhere from under 600 to 700, you’ve got a good chance of being able to refinance and have lower monthly payments. If your score is over 700, you can still refinance, but you probably already have a pretty good rate.

Refinancing Can Be Easy

If you’re still on the fence about refinancing, that’s fine! Just make sure you understand your options to refinance before committing to anything. Proper research and keeping your credit score up are the best things you can do before refinancing your auto loan.

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