4 Reasons to Refinance Your Auto Loan


Interest rates have dropped since you got your car loan or perhaps you just found a much better loan rate. You may have financed through your dealer when purchasing your car for the sake of convenience. At the time you didn’t realize the interest rate was high. Dealers do want to make a profit after all. Since then, you’ve seen a rate advertised by your local credit union or another financial institution that was much lower. Refinancing if the rate difference is significant can potentially save you a nice sum over the remaining life of the loan. There may even be further rate discounts for signing up for services such as direct deposit and automatic loan payments.  Never hurts to ask so you know you’re getting the best rate.


When you purchased your vehicle and applied for a car loan your score was not the greatest. Since then, you’ve worked to improve it and it is higher. Talk to some lenders, you may now be eligible for a lower interest rate auto loan.


There was a change in your financial situation and your car payment is straining your budget. Refinancing at a lower interest rate for a longer term can lower your monthly payment and make it a bit more manageable. Keep in mind, as your vehicle decreases in value, you may owe more on the loan than the car is actually worth. Although it might be tempting to refinance for a longer term, even with a lower interest rate, you may be paying more in interest over the life of the loan. Do the math for an accurate picture.  On the flip side, if you’re income has increased, perhaps you can afford a higher payment. If you can find a lower interest rate and can refinance and shorten your term, even if your monthly payment increases, you will be saving in overall interest. 


You may have needed a cosigner to be approved for your initial car loan. Since then, you’ve established a good credit history and have a good credit score. It may be the right time to refinance the car loan in your just name with no cosigner.

Three questions to ask before refinancing your car loan

1. Is there a prepayment penalty for paying off my existing car loan early?

Although it’s rare prepayment penalties still exist. You’ll need to crunch the numbers and see if it’s still beneficial to refinance.

2. Have I waited too long to refinance my auto loan?

Rates are typically lowest for new vehicles. If the majority of your interest and principal is paid off, there may not be enough savings in it to make it worth your while.

3. Did my credit score change for the worse?

If it is too low to be approved for financing that includes a lower interest rate, you should hold off on refinancing your car loan.

How and where to refinance an auto loan 

When you are looking to refinance, you’ll want to shop around for the best rates, flexible terms and lowest fees. Your local credit union is a great place to start. Check out Spirit Financial’s auto loan rates. The more you research out your loan options, the better the chances of you getting the best deal. You can run the numbers to see how the deal stacks up and what your overall savings will be. When you find the lender you feel will offer you the best deal on an auto refi loan, you’ll find the process similar to when you got your previous auto loan.

Once you complete a car loan application, the lender will run a credit check and request information about your income and the vehicle you are refinancing. They’ll evaluate how much you owe on your existing loan and how much the car is worth to be sure you’re not upside down on your vehicle. Once the car refi loan is approved, they will pay off your original loan, transfer the title and you will begin making your new loan payments.

The main benefit of refinancing your car loan is saving money. You need to determine which saves you more overall, a refi or your existing car loan. There’s no minimum amount of time you have to wait before you refinance your loan. Just made a payment or two and realized you have a high-interest rate because you didn’t bother to do your homework and get pre-qualified? Well, get cracking and find a better rate. You usually pay more interest than principal in the early months of a loan, so if you can get a lower rate, the more you save by refinancing your auto loan early.

Your decision to refinance an auto loan may depend on your individual financial situation. We hope that our blog helped you to better understand if refinancing is right for you. Interested in learning more about shopping for a new vehicle? Read our “Ten Steps to Getting the Best Deal when Purchasing a Vehicle” and “Buying a Car vs. Leasing.” We also invite you to learn more about CarShop365, our online car shopping tool!