What refinance rates are and why they matter
A refinance rate is the interest rate a lender offers when you replace your existing car loan with a new one. You keep the same car, but you get a new loan from a different lender (or sometimes the same one) to pay off the old loan. The new rate determines how much you pay in interest over the life of the loan — a lower rate means lower monthly payments or a shorter payoff timeline.
Refinance rates vary based on your credit score, the age and mileage of your car, how much you still owe, current market conditions, and the lender you choose. Unlike new car loan rates, which are often set by the dealer, refinance rates come directly from banks, credit unions, and online lenders. You can shop around and compare offers before committing to anything.
The main reason to refinance is to lower your monthly payment or reduce the total interest you pay. If your credit score has improved since you took out the original loan, or if market rates have dropped, you may may have access to for a better rate now than you did before.
Key Takeaways
- Refinance rates depend on your credit score, the car's age and value, how much you owe, and the lender — not on the dealer or your original loan terms.
- You can refinance with a bank, credit union, or online lender, and you should compare offers from at least three lenders before choosing one.
- The refinance process takes one to two weeks from process to funding, and your old loan is paid off automatically once the new one closes.
- Refinancing makes financial sense only if the new rate is at least 0.5 to 1 percentage point lower than your current rate, depending on how much time is left on your loan.
How lenders decide your refinance rate
Your credit score is the single biggest factor. Lenders pull your credit report and score when you explore, and a higher score gets you a lower rate. If your score has risen since you took out the original loan — because you paid bills on time or paid down debt — you will see a better rate offer now.
The age and mileage of your car also matter. A car with 40,000 miles is worth more and is less risky to lend against than one with 120,000 miles. Lenders use the car's current market value to decide how much they will lend you. If your car has depreciated significantly, the lender may offer a lower rate or decline to refinance at all.
How much you still owe compared to what the car is worth — called the loan-to-value ratio — affects your rate too. If you owe $15,000 on a car worth $18,000, that is a safer loan than owing $15,000 on a car worth $16,000. The safer the loan, the lower your rate.
Finally, current market rates set the floor. If the Federal Reserve has raised rates recently, all lenders' rates go up. If rates have fallen, refinance rates fall with them. You cannot control this, but you can control which lender you choose — rates vary between banks, credit unions, and online lenders even on the same day.
Where to get refinance rate quotes
Credit unions often offer the lowest refinance rates, especially if you are a member. You do not need to have your original loan with them. Call or visit their website, provide basic information about your car and loan, and ask for a rate quote. Credit unions typically process refinances quickly and may waive certain fees.
Banks — both national chains and local institutions — offer refinance loans. Call your current bank first, since they already have your financial information and may offer a rate discount for existing customers. Then call two or three other banks to compare. Most will give you a rate quote over the phone or online without a hard credit pull, which means it does not affect your credit score.
Online lenders like LendingClub, Upgrade, and others specialize in auto refinancing and often have streamlined applications. You can submit an process online and get a rate quote within hours. Read the fine print for prepayment penalties — some online lenders charge a fee if you pay off the loan early.
Once you have quotes from at least three lenders, compare the interest rate, the monthly payment, the loan term (how many months), and any fees. A lower rate is not always the best deal if the lender charges an origination fee or prepayment penalty. Ask each lender for the total cost of the loan, not just the monthly payment.
When refinancing saves you money
Refinancing makes sense when the new rate is meaningfully lower than your current rate. As a general rule, if the new rate is at least 0.5 to 1 percentage point lower, you will save money — but this depends on how much time is left on your loan. If you have only six months left to pay, refinancing may not be worth the time and effort. If you have three years left, a 1 percentage point drop could save you hundreds of dollars.
Use a refinance calculator to see the actual numbers. Enter your current loan balance, current interest rate, remaining months, and the new rate you are being offered. The calculator will show you the new monthly payment and total interest paid. If the new total interest is lower than what you would pay on your current loan, refinancing is worth considering.
Keep in mind that refinancing resets the clock on your loan. If you have 24 months left and you refinance for 60 months at a lower rate, your monthly payment will drop, but you will be paying for longer. The total interest might still be lower, but you need to do the math to be sure.
The refinance process and approval process
Once you have chosen a lender, you will fill out a formal process. Have your driver's license, Social Security number, current loan information (account number and lender name), and proof of insurance ready. The lender will pull your credit report, verify your income, and confirm the car's value using services like NADA Guides or Kelley Blue Book.
Approval typically takes three to five business days. During this time, the lender may ask for additional documents — a recent pay stub, proof of residence, or a photo of the car's odometer. Respond quickly to speed up the process. Once approved, the lender will send you loan documents to sign electronically or by mail.
After you sign, the lender funds the loan and pays off your old loan automatically. You do not have to contact your original lender or make any calls yourself. The new lender handles all of that. You will receive a new loan agreement and payment instructions, usually within one to two weeks of approval.
Your first payment to the new lender is typically due 30 days after the loan closes. During that time, you may receive a final statement from your old lender showing a zero balance. Keep that statement for your records.
Fees and costs to watch for
Many refinance lenders charge an origination fee, which is a percentage of the loan amount (usually 0.5 to 2 percent). Some lenders advertise "no origination fee" refinances, which can save you money upfront. However, they may make up for it with a slightly higher interest rate.
A prepayment penalty is a fee charged if you pay off the loan early. Not all lenders charge this, and many states limit or ban prepayment penalties on auto loans. Ask the lender directly whether the loan has a prepayment penalty and, if so, how much it is.
Some lenders charge a title transfer fee or documentation fee. These are usually small (under $100), but they add to the total cost. When comparing offers, ask for the all-in cost, including all fees, not just the interest rate.
A few lenders offer refinances with no fees at all. These are real, but the interest rate is usually slightly higher to compensate. Do the math on total cost, not just the rate or the fees alone.
What happens if your car is worth less than you owe
If you are underwater on your loan — meaning you owe more than the car is worth — refinancing is harder but not impossible. Most lenders will not refinance a loan where you owe more than 120 percent of the car's value. Some credit unions and specialized lenders will go up to 125 percent, but the interest rate will be higher.
If you are underwater, focus on paying down the principal as quickly as possible before refinancing. Even a few extra payments can bring you above water and open up better refinance options. Once you owe less than the car is worth, you will may have access to for lower rates from more lenders.
If you cannot wait to refinance, ask the lender whether they will refinance the full amount you owe or only the amount the car is worth. Some will roll the difference into the new loan, but that increases your total debt and is usually not worth it.
Frequently Asked Questions
Will refinancing hurt my credit score?
A hard credit pull will lower your score by a few points temporarily, but the impact is small and recovers within a few months. Multiple applications within a two-week window count as a single inquiry, so shop around without worry. Your score will actually improve over time as you make on-time payments on the new loan.
Can I refinance a car I am still paying off?
Yes, that is the whole point of refinancing. You can refinance as long as you owe money on the car and the lender is willing to lend on it. There is no waiting period — you can refinance when ready after taking out the original loan, though you will save more money if you wait until your credit score improves or rates drop.
What if my lender says I cannot refinance?
This usually means the car is worth too little compared to what you owe, or your credit score is too low. Try a credit union or a specialized auto refinance lender — they have more flexible requirements than banks. You can also wait a few months, pay down the loan balance, and try again when your credit score improves.
Do I need to tell my current lender I am refinancing?
No. The new lender handles everything, including paying off the old loan. You do not need to contact your current lender or ask permission. You will straightforward stop making payments to them once the new loan closes, and they will send you a final statement.
How often can I refinance?
There is no legal limit on how many times you can refinance. However, each refinance involves a hard credit pull and fees, so it only makes sense if the new rate is significantly lower. Most people refinance once or twice over the life of a car loan, not repeatedly.