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How Soon Can You Refinance Your Car Loan?

Refinance Your Car Loan

It’s always a good idea to take an interest in saving money. Car loans are typically large debts that can take a long time to pay off, and as your life circumstances change, sometimes money becomes tight and you could use a break. Even if circumstances don’t change, you could use a break. 

Refinancing your car is a way to reduce those monthly payments and save money, but you have to know what is involved and how to do it properly in order to actually save money and avoid losing money.

We’ve got everything you need to know to determine when you should refinance your car and how to do it in a way that will save you the optimum amount of money. 


Here are some mistakes you need to avoid when considering refinancing or you may be unable to do so or could actually end up paying more if you do!

      • Don’t miss payments.
      • Don’t wait too long to refinance.
      • Don’t ignore penalties for paying off your car early.
      • Avoid extending your loan if you can, even if it saves you monthly.

Is It a Good Idea For Me To Refinance?

Here are some situations in which you can benefit from a refinance (or two):

      • Your credit score has improved
      • You took a higher rate loan with a dealership and can find a better lender
      • You are struggling to make your monthly payment
      • It’s a lower interest rate period than when you got your loan
      • You want to save money

Pros & Cons of Refinancing an Auto Loan


        • You can lower your interest payment
        • A lower monthly payment can save your budget
        • You can save a lot in interest


        • Your credit score will take a ding or two
        • Extending your loan term could cause you to pay more in the long run
        • Some lenders charge you extra for paying off a loan early, which can negate the benefit somewhat

When Can I Refinance My Loan?

You can actually refinance your loan immediately, if you want to and can find a lender willing to do so. There are a few considerations to take into account though. 

First of all, when getting a loan, the company typically will do what is called a “hard credit check” (as opposed to a “soft” one), which means it will actually do a temporary amount of damage to your credit score. 

This isn’t typically a big deal because you can quickly overcome this, but nonetheless, if you immediately contact a lender to try to get a better deal on interest, this may prevent you from doing so. 

If you have a really high credit score, it may not make much difference, so you could potentially get a better deal with someone else and save money. 

Note: Some lenders will not refinance for the first two to three months because it can take that much time for the deed to be transferred and some do not want to negotiate anything new without having that step completed.

After Six Months

This is typically a good time period to consider because it gives you time to repair the “hard check” penalty and also to have made some payments. The more you are able to raise your credit score in this time, the more likely you will be able to find a better deal. 

After the First Year

If you have had low credit or this is your very first automobile purchase, this is probably an ideal time for you to give refinancing a shot. You’ll have had time to build up your credit (as long as you haven’t missed a payment!) and have established some rapport with your lender at this point. 

Plus, it’s still early enough in the life of the loan to make some serious savings. One thing you need to keep in mind is that most of the interest that accrues on a car loan takes place early in the life of the loan. 

That means the longer you wait to refinance, the less you can potentially save on interest because you will have been paying a large portion of it.

Waiting Too Long

To put it simply: the sooner than you can refinance your loan, the more that you can save. You can even finance it more than once, just make sure you do your research and ensure you are actually getting a benefit from the new loan. 

To get any real benefit from refinancing, you need to have at least two years left on the loan, but by then your savings will be substantially less because you will have paid off a good percentage of the interest by then. 

Note: This is also the reason why you should avoid extending your current loan. Sure, it may feel like a windfall when your monthly payment is lowered, but since you’ll have paid most of the interest, extending your loan means that you will pay more for your car in the long run. Therefore, avoid this unless you absolutely cannot handle your monthly payment the way it stands. 


Does Refinancing an Auto Loan Affect Your Credit Score?

Yes, it can. However, not directly from the refinancing itself, but rather from the process. You see, lenders will want to check your credit score when you apply to refinance, so they will do one of those “hard” credit checks, which we have established will ding your score. 

Now, you’re probably going to be shopping around to find the best refinancing deal you can, so that may result in several dings. If you do these checks within close proximity to each other, that will actually affect your score less. 

Also, when you successfully find a better deal and your current loan closes, you may suffer another ding to your credit score because a longstanding account is closed and that can factor into credit scores. How much the resulting damage is depends on how long you’ve had the loan. 

At any rate, you can overcome this fairly easily. 

Will Refinancing My Auto Loan Help My Credit?

After the previous question, you might think this answer would be no, but in actuality, the money you save on good refinancing can improve your credit score far more than the damage you take to arrange it. 

What Is a Good Credit Score In Which to Refinance?

First of all, any improvement in your credit score can help you refinance. A score of 690-719 is typically considered “Good” and while both are considered excellent, an auto loan interest rate with an 825 credit score is going to get you a better deal than your 712 credit score auto loan interest rate. 

Featured Image: Megapixl

About the author: A resourceful, enthusiastic and organized lead financial news writer with over seven years of experience writing news (articles, stock updates and analysis, editorials, research reports), marketing content (landing pages, press releases, mailers, investor decks, creatives), website copy, interviewing, social media and SEO strategies, website design and copy editing.

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