Whether you want to take advantage of a lower interest rate or hope to change the terms of your loan, there are plenty of reasons to refinance your vehicle. But how many times can you refinance your car?
We at the Home Media Review Team will explore the refinancing process here – when you can do it, how many times you can refinance your vehicle and if you should do it in the first place. Before refinancing your car, consider comparing the best auto refinance rates online to save money.
How often can you refinance your car?
You can refinance your car as often as you like, and there are no legal restrictions on how long you should wait before doing so. You will not encounter any law preventing you from refinancing your car at any time.
On the other hand, some problems could arise if you refinance too often. Drivers who extend their repayment periods over and over again risk having their loans reversed and could possibly hurt their credit ratings.
Potential problem: Owing more than your car is worth
Your loan is “upside down” if you owe more than your car is actually worth. This can happen if you don’t get a good interest rate or if you refinance too early when the car’s depreciation is greatest.
Auto loans can also be upset if you extend your refinance terms too often and end up with a much longer payment period. During the term of the loan, you will pay more than the value of the car at the beginning. With multiple refinances on the same car, you are more likely to end up with an upside-down car loan.
Potential problem: damage to your credit score
Every time you get a pre-approved car loan, your credit score could suffer due to serious investigation. Normally, your credit score will recover fairly quickly. If you complete another application within a month or two, your FICO score may remain lower than the first. This could make it harder to get approved for new credit cards, personal loans, or even mortgages.
Multiple requests of the same loan type within 14 days will only be added once, but after that the count usually starts over. If you’re on the line between two credit score brackets, you might actually start receiving more. car loan rate after several refinancings.
How long does it take to refinance a car loan?
You can refinance an auto loan as early as the business day after the initial transaction is completed. No law requires you to wait a certain amount of time before refinancing your car with a new loan. However, make sure you can actually get a lower rate by refinancing your existing loan or you could end up with harsh repayments in the long run.
If you bought your car new from a dealership, the salesperson may have told you to wait six months or a year before refinancing. Generally this is not true. Dealerships often receive commissions after you’ve made loan payments for six months, so they may be tempted to tell you not to refinance right away. It’s rare that drivers are contractually obligated to wait a certain amount of time before refinancing their vehicles.
Another issue to watch out for is prepayment penalties. Auto lenders in 36 states and the District of Columbia are allowed to charge drivers a fee for terminating auto loans with a term of less than 60 months. In addition to a prepayment penalty, those refinancing a new or used car could end up having to pay title fees.
Should I refinance my car loan?
People typically refinance their vehicles to save money by getting lower monthly payments. It’s best to refinance your vehicle when you get a better interest rate while keeping the repayment period about the same or shorter than your current car loan.
In other words, it makes more sense to choose a 48 month refinance loan than a 60 month loan if each option has a similar interest rate.
Increasing the remaining term of your loan to 60 months may give you a slightly cheaper car payment per month, but you could end up paying significantly more than your original loan. If you received a higher interest rate, cheaper monthly payments could still result in higher overhead.
If you carefully compare the best rates in the market, chances are that refinancing your loan balance is the right choice. The main exception concerns motorists who have already refinanced their car often in the recent past.
When to refinance a car loan
It’s a good idea to refinance your car if the following conditions are true:
- Your credit score has improved and you can get a better interest rate
- You find that your current lender or dealer gave you the wrong rate the first time
- You can afford higher payments and want to shorten the term of the loan to save on total interest charges
- A family member is willing to co-sign the loan for better terms
- You are in a better financial situation and devote less income to paying off your debts
When not to refinance a car loan
Be careful and consider not refinancing your car loan in the following situations:
- Your credit score has gone down and you will get a higher interest rate on the loan
- You only have a few years left on your car loan
- Your car is over 10 years old
- You’re upside down on the loan
- Your car loan has prepayment penalties in the contract
Our recommendations for car loan refinancing
Refinancing your car loan is often a fairly simple process that can be completed in a matter of hours. We recommend contacting credit unions in your area and considering the most reputable auto refinancers. Below are two of our top picks if you want refinance a car loan.
Automatic approval: first choice for refinancing
Starting Annual Percentage Rate (APR): 2.25%
Loan amounts: $5,000 to $85,000
Loan conditions: 12 to 84 months
Auto Approve is a marketplace where you can compare refinance offers from various online lenders. Borrowers with the best credit reports could find refinance rates as low as 2.25% through Auto Approve. Most customers have positive experiences with Auto Approve – the company has a 4.7 – out of 5.0 stars on Trustpilot.
Keep reading: Automatic Approval Review
PenFed Credit Union: Best Credit Union
From April: 4.24%
Loan amounts: $500 to $150,000
Loan conditions: 36 to 84 months
PenFed is our top choice for auto refinancing among credit unions. The financial institution usually offers exceptional rates for those with excellent credit scores, but borrowers with bad credit will likely be turned away. Reviews on Trustpilot mention courteous customer service agents and give PenFed Credit Union 4.6 out of 5 stars.
Because consumers rely on us to provide unbiased and accurate information, we’ve created a comprehensive rating system to formulate our ranking of the best car loan companies. We’ve collected data on dozens of loan providers to score companies on a wide range of ranking factors. The end result was an overall score for each vendor, with the companies scoring the most points at the top of the list.
Here are the factors taken into account by our ratings:
- Reputation (25% of total score): Our research team considered ratings from industry experts and each lender’s years in business to assign this rating.
- Prices (25% of the total score): Auto loan providers with low APRs and high loan amounts scored highest in this category.
- Availability (25% of total score): Companies that cover a variety of circumstances are more likely to meet consumer needs.
- Customer experience (25% of total score): This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness and helpfulness of each lender’s customer service team.
*Data correct at time of publication.