How To Refinance A Car Loan in 7 Steps

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Do you want better terms, lower interest, or monthly payments for your car loan? Refinancing a car loan can make sense in diverse financial situations. If your credit score has improved, you may be able to refinance a car loan with better terms. Refinancing an auto loan for shorter terms — you pay it all back sooner — can help you save on interest payments. But if your budget is stretched, refinancing a car for longer terms can lower the monthly payment. Whatever strategy you choose, you’ll find how to refinance a car loan below.

What is car loan refinancing?

Car loan refinancing means replacing your existing auto loan with another loan from a new lender. To do this, you’ll take out a new loan to pay off the original auto loan and continue paying off the new loan according to repayment terms. While the basic steps are the same, the best way to refinance car loans will vary based on your credit score, current loan, the amount needed, and the current lender’s early repayment fees.

Benefits of auto loan refinancing

Auto loan refinancing comes down to two key benefits: lower monthly payments or less interest paid over time. These can lead to either long or short-term savings, and sometimes both.

If you extend the loan term, you’ll lower the monthly payment amount but end up paying more interest over the loan’s lifetime. If you shorten the loan term, you’ll pay less in interest over the lifetime of the loan, but may have higher monthly payments. If your credit score has improved, you might get lower monthly payments with less interest, and a shorter loan term.

One caveat: Remember to take into account early prepayment or repayment fees on your original loan. Those fees could be more than the interest you’ll save with a new loan.

Auto loan refinancing (possible) benefits:

  • Lower monthly payments
  • Pay off the loan faster
  • Less money paid in interest
  • More favorable loan terms with a higher credit score

Preparing to refinance your car loan

If you’re ready to refinance your car loan, here are the steps to take:

Check your credit score

If your credit score has improved, great! Now is a good time to refinance an auto loan. If your credit score is low or needs more improvement, you may want to hold off on financing until your score improves.

To improve your credit score more quickly, consider rent reporting companies to get credit for on-time rent and utilities payments. You can also be added as an authorized user to someone with a higher credit score or longer credit history to benefit from their good score. Beyond that, the basics of credit building apply: Pay all debt on time every month, pay off debt as quickly as possible, and try to use less than 30% of your total available credit. 

Important credit score tip: If you submit multiple auto loan applications in a short time, usually about 14 days, it will count as only one hard inquiry on your credit score. If you spread it out over a longer time, your credit score could take a bigger dip.  

Understand your current car loan policy

Be sure to understand your current car loan policy. Some car loans — but not all — allow for early repayment. Others may charge substantial fees. When weighing how to refinance a car loan, consider any early repayment fees in the total financial picture. Without early repayment fees, auto loan refinancing often makes sense. With those fees, does it still make sense?

Gather your documents

Which documents you’ll need to refinance your car loan may vary by lender. In general, it’s a good idea to come prepared with:

  • Your driver’s license
  • Proof of car insurance
  • Proof of employment or proof of income — most will accept a paycheck stub or tax return
  • Proof of residence such as a utility bill or bank statement
  • The car’s registration paperwork
  • Make, model, year, and vehicle identification number (VIN) of the car 
  • The current loan information and lender
  • A photo of the car’s odometer reading

Compare rates and fees

Auto loan terms can vary widely by lender. Be sure to shop around to find the best rates for your auto loan. While loan terms or interest rates may be lower, consider all fees, including early repayment fees, when selecting a loan. 

7 steps to refinance your car loan

The best way to refinance a car loan will vary by situation. If you’re ready to get started, here’s how to refinance a car loan:

Choose a lender 

When choosing a lender, you’ll need to compare quotes and read reviews. What is the lender’s policy for early repayment, and what fees does it require? Understanding previous clients’ experience with the lender can help gauge whether it is a good choice for your auto loan refinancing. 

Fill out the application form

You can compare general quotes without filling out an application, but before making a final comparison, you’ll need to apply to multiple lenders. Be careful at each step of the car loan application process to enter all information correctly to ensure accurate quotes. And remember to submit all applications within about two weeks to minimize the impact on your credit score.

Submit the required documents

As part of the application process, make sure you submit all requested documents and ensure all documents are correct. You may need to submit the required documents like a copy of your driver’s license; proof of address; car make, model, and year; and the current loan information. Check with each lender for individual requirements.

Wait for approval or denial 

After filling out the application, you’ll usually get either an approval or denial within five days. You can plan to fill out multiple applications in one to two days and make the final decision the following week when all quotes are available.  

Sign your new contract

Always read through any contract thoroughly before signing. Once you’ve read everything and ensured that the contract reflects your understanding, it’s time to sign.

Pay off your old car loan 

After securing the new loan, it’s time to pay off the old car loan. That will clear any past debt. Now your monthly payment amount will be according to the terms of the new loan.  

Stay on top of your new car loan payments

To keep your credit score in good standing, or raise it even higher, be sure to make each monthly auto loan payment on time. You can set up an auto-pay with your bank or lender to ensure you never miss a payment. 

The Best Way To Refinance A Car

The best way to refinance a car is to take into account three factors:

  • The current loan amount and interest rate
  • New loan offers and interest rates
  • Whether you will be charged early repayment fees to refinance a car

If the new terms are more favorable (lower interest, fewer fees), it’s a clear go-ahead. If the terms are comparable but you need longer repayment terms, it also makes sense. In other cases, you’ll need to weigh the pros and cons. In any case, the best way to refinance a car is to decide you’re ready to proceed, research possible lenders, and follow the seven steps above to secure the best terms and refinance your car in as little as a few weeks.


What is the process of refinancing a car loan?

Refinancing a car loan is the process of taking out a new loan in place of your existing auto loan. You’ll need to fill out an application and compare lenders, then move ahead with the one you’ve selected before paying off your original auto loan.

Does refinancing a car hurt your credit?

Refinancing your car can cause a minor dip in your credit score, as long as you submit all applications in a short time. If you apply for many auto loans over months, it can cause a bigger dip in your credit score.

Should I go to a bank to refinance my car?

You can get an auto loan from your bank. When researching possible lenders to refinance your car, it’s worth checking with your bank for interest rates and fees and comparing its terms to other lenders.

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