The best place to refinance depends on your credit score and how much time you want to spend shopping
Your bank, credit union, online lenders, and dealerships all refinance car loans, but they charge different rates and move at different speeds. Banks typically offer rates tied to your credit score and require you to have an account with them, or at least to open one. Credit unions often beat bank rates if you're a member, but membership rules vary — some require you to live or work in a specific area, others require you to belong to a particular employer or organization. Online lenders compete on speed and will work with lower credit scores, but their rates are usually higher than banks or credit unions. Dealerships can refinance through their finance office, but they're not lenders themselves — they're brokers who send your process to a bank or captive finance company and take a cut.
The real difference between these options is not which one is "best," but which one fits your situation. If you have good credit and time to compare, a credit union or your current bank will likely offer the lowest rate. If you need money fast or have fair credit, an online lender might close in days instead of weeks. If you're already at a dealership buying a different car, refinancing through their finance office can happen the same day — though the rate will reflect their markup.
Key Takeaways
- Credit unions and banks offer the lowest rates but require membership or an account, and approval takes one to two weeks.
- Online lenders close faster (sometimes in days) and work with lower credit scores, but charge higher rates to offset the risk.
- Dealership finance offices can refinance your existing loan same-day, but the rate includes their commission and is rarely competitive.
- Your credit score, current loan balance, and vehicle age all affect which lenders will work with you and what rate they'll offer.
- Shopping across at least three lenders takes a few hours but can save you hundreds of dollars over the life of the loan.
Banks and what they require before they'll refinance
Most banks will refinance a car loan if you have an account with them or are willing to open one. They pull your credit report, verify your income, and check the vehicle's title and current loan balance with your existing lender. The process takes seven to fourteen days from process to funding. Banks typically offer rates between 4% and 10%, depending on your credit score, the age of the vehicle, and how much you still owe.
The catch is that banks are selective about which vehicles they'll refinance. Most won't touch cars older than ten years, and some won't go past eight. They also won't refinance if you're underwater on the loan — meaning you owe more than the car is worth — because they have no collateral if you default. Call your bank's auto lending department and ask whether they refinance existing loans before you spend time on an process. Many banks have stopped this business entirely and only finance new purchases.
Credit unions: lower rates if you meet their membership rules
Credit unions almost always beat banks on rate, sometimes by a full percentage point or more. They're nonprofit organizations owned by their members, so they return profits as lower rates and fees. Most credit unions will refinance cars up to twelve years old, and some go to fifteen. They also tend to be more flexible about underwater loans and lower credit scores than banks are.
The barrier is membership. Some credit unions are open to anyone in a geographic area — you can join if you live or work in a specific county or city. Others require you to work for a particular employer, belong to a union, attend a certain school, or be related to a current member. Check whether you're already may be able to access for membership through your employer, school, or family. If not, some credit unions offer membership to anyone who opens a savings account with them, though the savings account usually requires a small deposit — often $25 to $100. The refinancing process mirrors a bank's: seven to fourteen days, credit check, income verification, and title confirmation.
Online lenders and the trade-off between speed and cost
Online lenders like LendingClub, Lightstream, and Upgrade will refinance your car in as little as two to five business days. They accept lower credit scores than banks and credit unions do, and they don't require you to have an account with them beforehand. You explore on their website, upload documents (pay stub, proof of insurance, vehicle registration), and get a decision within hours or a day.
The cost of that speed is a higher interest rate. Online lenders typically charge between 5% and 15%, depending on your credit score and loan amount. If you have good credit, an online lender's rate might be competitive with a bank. If your credit is fair or poor, you'll pay more than you would at a credit union, but you'll get the money faster and with less paperwork. Online lenders also refinance older vehicles more readily — some will work with cars up to fifteen or twenty years old — and are more willing to refinance underwater loans.
Dealership finance offices and why they're rarely the best option
When you refinance through a dealership's finance office, you're not actually borrowing from the dealership. The finance manager submits your process to a bank, credit union, or captive finance company (a lender owned by the car manufacturer, like Ford Credit or GM Financial). The dealership takes a commission — usually 0.5% to 1% of the loan amount — which gets added to your rate. That commission is why dealership rates are almost always higher than what you'd get by going directly to a lender.
The one real advantage to dealership refinancing is speed and convenience. If you're already there buying a different car, the finance office can often close a refinance on your existing loan the same day. You sign papers, the money moves, and you're done. But if you're not at a dealership for another reason, the rate premium makes it worth your time to shop elsewhere.
How your credit score, loan balance, and vehicle age affect your options
Lenders use three main factors to decide whether to refinance you and what rate to charge. Your credit score determines your baseline rate — the higher your score, the lower the rate. Most banks and credit unions want a score of 650 or higher; online lenders will work with scores as low as 580 or 600, but charge more for the risk. Your current loan balance and the vehicle's value determine whether you're underwater. If you owe $15,000 on a car worth $12,000, most banks won't touch it; credit unions and online lenders are more flexible. The vehicle's age and mileage affect whether a lender will finance it at all. A 2015 car with 80,000 miles is refinanceable at most places; a 2008 car with 180,000 miles will be rejected by banks and many credit unions, though online lenders may still work with it.
Before you explore anywhere, pull your own credit report from AnnualCreditReport.com (the only free source mandated by federal law) and get a rough estimate of your car's value from Kelley Blue Book or NADA Guides. Knowing your score and whether you're underwater saves you from wasting time on lenders who won't work with you.
Shopping across lenders and what to compare
The only way to find the best rate is to shop. Get quotes from at least three lenders — ideally one bank, one credit union, and one online lender. When you explore, each lender will pull your credit report, which creates a "hard inquiry." Multiple hard inquiries within fourteen days count as a single inquiry for credit scoring purposes, so don't space out your applications over weeks. Do them all within a few days.
When you compare quotes, look at the interest rate, the loan term (how many months you'll pay), and the total interest you'll pay over the life of the loan. A lower rate on a longer term might cost you more in total interest than a higher rate on a shorter term. Also check whether there are prepayment penalties — some lenders charge a fee if you pay off the loan early. Most don't, but it's worth asking. Once you've chosen a lender, they'll send your process to your current lender to confirm the payoff amount, and the new lender will pay off the old loan and send you the new loan documents to sign.
Frequently Asked Questions
Can I refinance if I'm behind on my current car payment?
Most lenders won't refinance if you're currently behind. You'll need to bring your loan current first, then wait at least one or two months before explore. Some online lenders are more flexible, but they'll charge a higher rate to offset the risk. Call your current lender and ask about a payment plan if you're struggling to catch up.
How much will refinancing lower my monthly payment?
That depends on the new interest rate, how much you still owe, and how long you extend the loan. A lower rate almost always lowers your payment, but extending the term from 48 months to 60 months also lowers it — though you'll pay more interest overall. Use an online calculator with your loan balance, new rate, and desired term to see the exact payment.
What happens to my old loan when I refinance?
The new lender pays off the old loan in full, and your old lender releases the lien on your car's title. You'll receive a payoff letter from your old lender confirming the loan is closed. The new lender holds the lien until you pay off the new loan. You don't have to do anything — the lenders handle the transfer.
Is there a penalty for paying off a refinanced loan early?
Most car loans, including refinanced ones, have no prepayment penalty. You can pay off the loan early without extra fees. Ask the lender before you sign whether there's a prepayment penalty, and if there is, ask them to waive it or shop elsewhere.
How long does the whole refinancing process take?
Banks and credit unions typically take seven to fourteen days from process to funding. Online lenders can close in two to five business days. The fastest option is a dealership, which can sometimes close same-day. The slowest part is usually waiting for your current lender to confirm the payoff amount.