A refinance rate is what a lender charges you to replace your existing car loan with a new one
When you refinance a car loan, you're asking a new lender to pay off what you still owe on your current loan, then you make payments to that new lender instead. The refinance rate is the interest rate the new lender charges you on that new loan. It's not a separate fee or a discount—it's the annual percentage rate (APR) you'll pay on the borrowed amount for the life of the new loan.
The refinance rate you're offered depends on your credit score, the age and mileage of the car, how much you still owe, current market conditions, and the lender's own pricing. Two people refinancing identical cars on the same day can receive different rates because their credit profiles are different. A rate of 4.5% and a rate of 6.2% both exist in the market at the same time—which one you get is determined by your individual risk profile as a borrower.
Refinancing makes sense only if the new rate is lower than your current rate, or if you need to change the loan term (the number of months you have to repay). If you're paying 7% and you can refinance at 5%, you'll pay less interest over time. If you're paying 5% and a lender offers you 6%, refinancing costs you money and you should decline.
Key Takeaways
- Your refinance rate depends on your credit score, the car's age and condition, how much you owe, and the lender's current pricing—not on your original loan rate.
- Refinancing only saves money if the new rate is lower than what you're currently paying, or if you extend the loan term and can afford the longer payment schedule.
- Banks, credit unions, and online lenders all offer refinance rates, and rates can vary by 1% to 2% between lenders for the same borrower.
- Your current lender may offer you a refinance rate, but you are not required to refinance with them and should compare offers from at least two other sources.
- The car must have a lien-free title or the current lienholder must agree to release it once the new loan pays them off.
How lenders set the rate they offer you
Lenders use your credit score as the primary driver of your rate. A score of 750 or higher typically qualifies for the lowest advertised rates. A score between 650 and 749 will see higher rates. A score below 650 may be declined by some lenders or offered rates that are 3% to 5% higher than the best available rates. Credit unions often have more flexible scoring thresholds than banks, meaning they may offer competitive rates to borrowers with scores in the 600s.
The age and mileage of the car matter because older cars and high-mileage cars are more likely to need expensive repairs. A lender refinancing a 2015 car with 120,000 miles faces more risk than one refinancing a 2021 car with 45,000 miles. The older car may receive a rate that's 0.5% to 1% higher, or the lender may decline to refinance it at all. Most lenders will not refinance cars older than 10 years or with more than 150,000 miles, regardless of credit score.
The loan-to-value ratio (LTV)—how much you owe compared to what the car is worth—also affects your rate. If you owe $15,000 on a car worth $20,000, your LTV is 75%, which is considered low-risk. If you owe $18,000 on the same car, your LTV is 90%, which is higher-risk. Higher LTV usually means a higher rate. Current market interest rates set the floor: when the Federal Reserve raises its benchmark rate, all lenders' rates rise. When it lowers rates, lenders' rates typically fall within weeks.
Where refinance rates come from and how they vary
Banks, credit unions, and online lenders all publish refinance rates, but the rates are not the same across all three. Banks typically offer rates in a middle range. Credit unions often offer lower rates to members, especially if you've banked with them for a year or more. Online lenders vary widely—some specialize in borrowers with lower credit scores and charge higher rates; others focus on borrowers with strong credit and offer competitive rates.
The same lender may quote you different rates depending on the loan term you choose. A 48-month refinance might be offered at 5.2%, while a 60-month refinance on the same car might be 5.5%. The longer the loan, the more interest the lender is exposed to, so they charge more. Conversely, a 36-month refinance might be 4.9%. You can usually see these tiered rates on a lender's website before you formally request a quote.
Rate shopping within a short window (typically 14 to 45 days, depending on the credit bureau) counts as a single inquiry on your credit report, so multiple rate requests in a few days do not damage your score. Spacing them out over months, however, will show as separate inquiries and may lower your score slightly. Most people refinance through two to four lenders to compare offers.
When a lower refinance rate actually saves you money
A lower rate saves money only if you keep the loan long enough to recoup any costs. Most refinances involve a title transfer fee (typically $50 to $200), a loan origination fee (0% to 1% of the loan amount), and sometimes an appraisal fee ($0 to $150). If your new rate is 0.5% lower but the fees total $300, you need to save at least $300 in interest before breaking even. On a $15,000 loan, a 0.5% rate reduction saves roughly $75 per year, so you'd break even in four years.
If you plan to sell or trade in the car within two years, a refinance with fees may not pay off. If you plan to keep the car for five or more years, a 1% rate reduction almost always saves money. Use a refinance calculator (available free on most lender websites) to enter your current loan balance, the new rate, the new term, and the estimated fees. The calculator will show you the total interest paid under both scenarios and whether refinancing is worth it.
Extending the loan term can lower your monthly payment but increases total interest paid. If you refinance a 48-month loan at $350 per month into a 60-month loan at $280 per month, your payment drops by $70, but you're paying for 12 extra months. This makes sense only if you genuinely need the lower payment and can afford the extra interest cost. Shortening the term (refinancing a 60-month loan into a 48-month loan) raises your monthly payment but saves interest, and is only possible if your income has increased.
What you need to know before requesting a refinance rate quote
Have your current loan documents or account information ready. You'll need the current loan balance, the original loan amount, the interest rate you're paying now, and the remaining term (how many months are left). You should also know the car's year, make, model, mileage, and whether there are any outstanding liens or loans against it. If the car has been in an accident or has a salvage title, some lenders will decline to refinance it.
Your credit report should be checked before you start shopping. You can request a free report from AnnualCreditReport.com (the only federally authorized source). Look for errors—a missed payment that wasn't actually missed, or an account you don't recognize. Errors can be disputed and removed, which may raise your score before you explore. If your score has risen since you took out the original loan, you're more likely to receive a better rate.
Decide in advance whether you want to keep the same loan term or change it. If you're keeping the term the same, the math is straightforward: a lower rate saves money. If you're considering a different term, calculate the total interest cost under both scenarios before requesting quotes. Some lenders allow you to see rate quotes without a hard credit inquiry, which doesn't affect your score; others require a hard inquiry to provide a firm quote.
How to compare refinance rate offers from different lenders
Request quotes from at least two lenders, ideally one bank, one credit union, and one online lender. Write down the APR (not just the interest rate), the loan term, the monthly payment, and all fees. The APR includes the interest rate plus fees, so it's the true cost of borrowing. A lender quoting 5.0% APR with $200 in fees is cheaper than one quoting 4.9% APR with $500 in fees, even though the interest rate is lower.
Compare the total interest paid over the life of the loan, not just the monthly payment. A lower monthly payment often means a longer loan term, which means more total interest. A calculator on the lender's website will show you this. If Lender A offers $280 per month for 60 months (total interest: $1,800) and Lender B offers $310 per month for 48 months (total interest: $1,280), Lender B costs less overall even though the payment is higher.
Ask each lender whether the rate is locked or conditional. A locked rate means they've committed to that rate for a set period (usually 30 to 60 days). A conditional rate may change if your credit score drops or the car's value drops significantly. Some lenders lock the rate only after you've submitted all documents and they've verified the car's condition. Others lock it when ready after the quote.
Why your current lender's refinance rate may not be the best option
Your current lender has an incentive to keep your loan. They may offer you a refinance rate that's lower than your current rate but higher than what you could get elsewhere. They're betting you'll accept the offer without shopping around. Loyalty discounts exist at some lenders, but they're not automatic—you have to ask, and they're usually small (0.25% to 0.5% off).
Your current lender also has your full financial history, which can work against you. If you've been late on payments, even once, they may offer you a higher rate than a new lender who only sees your credit score. A new lender evaluating you for the first time may offer better terms. Conversely, if you have a long history of on-time payments with your current lender, they may offer you a better rate than a new lender would.
The process of refinancing with a different lender is straightforward: you explore, they pull your credit, they verify the car's condition (usually with photos or an inspection), and if approved, they send payment directly to your current lender. Your current lender releases the title, and the new lender becomes the lienholder. The entire process typically takes 5 to 10 business days.
Frequently Asked Questions
Can I refinance if I'm underwater on my loan (owe more than the car is worth)?
Most lenders will not refinance if you're significantly underwater. Some credit unions and specialized lenders will refinance if you're only slightly underwater (within 5% of the car's value) and have a strong credit score. You may need to make a cash payment toward the loan balance first to bring the loan-to-value ratio down to an acceptable level.
How long does it take to get a refinance rate quote?
A soft quote (no credit inquiry) can be provided in minutes on a lender's website. A firm quote (with credit inquiry and car verification) typically takes 24 to 48 hours. The full refinance process, from process to funds sent to your current lender, usually takes 5 to 10 business days.
Will refinancing hurt my credit score?
A hard credit inquiry will lower your score by a few points temporarily. Multiple inquiries within 14 to 45 days count as one inquiry, so shopping around within a short window minimizes the impact. Your score will recover within a few months. Closing your old loan and opening a new one may temporarily lower your score, but it recovers as you make on-time payments on the new loan.
What if my car has a lien on it from the original lender?
The new lender will pay off the original lender and become the new lienholder. You don't need to do anything—the two lenders handle the title transfer. You'll receive a new loan document showing the new lender as the lienholder, and your car's title will be updated in your state's motor vehicle records.
Can I refinance multiple times?
Yes, you can refinance as many times as you want, as long as you meet the lender's requirements. However, each refinance involves fees and a hard credit inquiry, so refinancing more than once every two to three years is usually not cost-effective unless rates drop significantly or your credit score improves substantially.