How to refinance your auto loan (and when it makes sense)
You might be familiar with refinancing a mortgage. But what about refinancing your auto loan? Many people don’t realize it’s even an option. Depending on your situation, refinancing your car loan could help lower your monthly payment, reduce your interest rate or free up cash for other financial goals.
Not sure if refinancing is the right move? In this guide, we’ll cover:
Here’s how to know if refinancing might make sense for you.
How auto loan refinancing works
When you refinance your auto loan, you replace your current loan with a new one. The new loan pays off the remaining balance of your old loan, and you start fresh with new terms. This could mean a lower interest rate, a different loan length or a lower monthly payment.
The process is often simple and fast, and you don’t change vehicles to refinance.
Why people refinance auto loans
People refinance their car loans for different reasons. Here are some of the most common:
- Lower your monthly payment: You might do this by refinancing to a lower interest rate, extending your loan term or both—freeing up room in your current budget.
- Lower your interest rate: Save money over the life of the loan.
- Shorten your loan term: Pay off your car sooner and reduce total interest.
- Switch lenders: Move to a new lender if you’re unhappy with your current one.
When refinancing might make sense
Depending on your situation, one or more of these reasons might apply. Here are some scenarios where refinancing could be a smart move:
|1| Interest rates have dropped
If market rates have gone down since you originally financed your vehicle, refinancing could help you secure a better rate and offer significant savings over the life of the loan.
|2| Your credit score has improved
Stronger credit could potentially open the door to better rates and loan terms.
|3| You didn’t shop around the first time
Many people feel rushed during the car-buying process and end up with financing that wasn’t the best deal.
|4| You want to adjust your monthly payment
Life changes. Whether your budget has tightened or improved, refinancing allows you to adjust your payment to better fit your current needs.
- If you need lower payments now: Extending the term can help, though you may pay more in total interest.
- If you want to pay off the loan faster: Shortening your term might save you money on interest and get you to the finish line sooner.
|5| You want to consolidate other debt
If you’ve built up some equity in your vehicle, refinancing could give you an opportunity to combine higher interest debts—like credit cards or personal loans—into one lower-rate payment.
It’s a way to simplify what you owe and potentially save on interest, especially if your auto loan rate is much lower than your other balances.
Just keep in mind that spreading out your debt over a longer loan term could impact the total interest you pay, so it’s worth doing the math to see if it fits your financial goals.
See other debt consolidation options >
|6| You want loan protection
Life doesn’t always go according to plan—and that can be stressful when you have a loan to think about.
If you’re thinking about refinancing, it can also be a good time to consider how you’d handle unexpected bumps in the road—like a job loss, illness or damage to your vehicle.
Loan protection isn’t for everyone, but some people find peace of mind in having a backup plan. Depending on what you choose, protection could help cover your loan payments during tough times or help pay off your loan if your car is totaled or stolen.
It’s worth exploring the options and weighing the cost against the potential benefit.
Explore loan protection options >
When refinancing might not make sense
Refinancing isn’t always the right move. Here are some reasons you might want to hold off:
- Your car is older: Some lenders limit refinancing on vehicles over a certain age or mileage. Hint: Dupaco doesn’t have refinancing restrictions based on model, year or mileage!
- You’re almost done paying off your loan: With only a few payments left, refinancing might not save you much.
- You owe more than your car is worth: If you’re “underwater” on your loan, refinancing could be difficult.
How much could you save?
Everyone’s situation is different, but a State of Auto Refinance: 2022 report show that:
- 56% of people who refinanced saved between $50 and $149 per month.
- Nearly 1 in 5 borrowers who refinanced saw their monthly payment drop by $150 or more.
Try our auto loan refinance calculator >
Quick steps to start your auto loan refinance
Ready to see if refinancing makes sense for you? Here’s how to get started:
|1| Review your current loan
|2| Check your credit score
If your score has improved since you took out your original loan, you may qualify for better rates. If you’re a Dupaco member, you can view your score anytime with our Bright Track Credit Monitoring—a free tool in Shine Online and Mobile Banking.
|3| Boost your credit score before you apply
Not sure where to start? A free Credit History Lesson could help you learn how to build your credit!
|4| Use an online calculator
See how refinancing could change your payment—and how much you might save—with a tool like Dupaco’s free auto loan refinance calculator.
Hint: You’ll want to know some details about your existing loan before you get started:
|5| Shop around and compare lenders
Even a small difference in rates can add up.
Is refinancing right for you?
If your financial situation has changed since you bought your car, refinancing your auto loan could benefit you. Take a few minutes to review your current loan—and see if a better deal is out there.
Why it’s worth a look:
If you’re unsure, a Dupaco financial expert can help you explore your options and build a plan that fits your budget, goals and timeline.
