How do I refinance a used car loan?
Steps to refinance
Start by checking your credit score and gathering your current loan details, including the payoff amount and account number. Then shop around with banks, credit unions, and online lenders.
Once approved, the new lender pays off your existing loan and sends you the new terms. You'll continue making payments to the new lender, ideally at a lower rate or shorter term.
Refinancing is easiest if your car is worth more than you owe. If you're upside down, you may need to pay the difference upfront or roll it into the new loan, which isn't always possible.
- Check your credit score—many lenders require at least 600–650.
- Get the 10-day payoff quote from your current lender.
- Compare rates from at least three lenders.
- Be aware of any prepayment penalties on your old loan.
When it's worth it
Refinancing can lower your monthly payment, reduce your interest rate, or shorten your loan term. It's often worth it if you've improved your credit since the original loan or if rates have dropped.
Even a small rate reduction can save hundreds over the life of the loan. Use an online calculator to see potential savings.
Avoid refinancing if the fees outweigh the savings or if you're close to paying off the loan.
Common mistakes
- Refinancing without checking for prepayment penalties on the original loan.
- Extending the loan term to lower payments, which can increase total interest paid.
- Not shopping around and accepting the first offer, which may not be the best rate.
