When you refinance a car loan, you replace your current loan with a new one. The goal is to get better financing terms, whether it's a lower payment, interest rate — or both.
The application process for refinancing a car should take less than an hour. Often, the lender will let you know of their decision within a day.
Below, CNBC Select explains how the process works — from figuring out whether refinancing is the right step to shopping around for a lender.
How to apply for car loan refinancing
1. Assess your situation
Before you fill out your refinancing application, you want to ensure refinancing makes sense in your situation. Here are a few things you want to consider.
Your goals
Car owners typically refinance to make their auto loans more affordable. That might mean a lower interest rate, decreased monthly payment or shorter loan term. Of course, it's never guaranteed that you'll get all three so you need to decide which one to prioritize.
If you want to save the most money, it's wise to think long-term and focus on lowering your rate or paying off the loan sooner. This way, you'll pay less in interest over the life of the loan.
On the other hand, if you're trying to free some room in your budget, focus on lowering your payment. Note, however, that a longer loan term can lead to higher interest charges over time.
Your car's value
You can use resources like Edmunds.com and Kelly Blue Book to estimate how much your car is worth. If you owe more on your vehicle than its current value, you have negative equity in it, which is known as being "underwater" on your loan. This can make it difficult to refinance your car until you get back into positive equity — for example, by paying extra each month.
Your loan terms
When you evaluate your current loan terms, pay close attention to the interest rate. If you financed your car when the rates were low, you're not likely to get much benefit out of refinancing (if any) in a high-rate environment. But when the opposite is true, savings can be significant.
2. Check your credit
Credit plays a crucial role in your refinancing application. A good credit score (or a FICO score of 670 and higher) can help you get approved more easily and secure favorable terms. If your credit isn't in the best shape, you might want to work on improving it before you apply for refinancing.
You can check your credit at any time without any impact on your score. Often, credit card issuers offer a version of your score in their mobile app. Alternatively, you can use a free service such as Experian free credit monitoring. You'll get an updated credit report from the bureau and FICO credit score once a month.
Experian Dark Web Scan + Credit Monitoring
Cost
Free
Credit bureaus monitored
Experian
Credit scoring model used
FICO®
Dark web scan
Yes, one-time only
Identity insurance
No
Terms apply.
Note that your credit isn't the only factor lenders will consider. They're also likely to evaluate your debt-to-income ratio, payment history on your current car loan and more.
3. Gather your documents
Ready to refinance? You'll need to gather the following paperwork:
- Your driver's license
- Proof of income
- Your auto insurance information
- Proof of residence if the address on your driver's license doesn't match your credit report records
- Your car's registration documents
- Your car's make, model and year, as well as its vehicle identification number (VIN)
- Your current loan information
Your lender may have unique requirements and ask for additional paperwork or information. For instance, some online lenders can request a photo of your vehicle's odometer reading.
4. Prequalify with different lenders
No matter the type of financing you're applying for, it's good practice to shop around first. This helps you ensure you're getting a competitive offer that will save you the most money.
Many lenders allow potential borrowers to prequalify online. When you prequalify, the lender provides you with estimated loan terms based on the information you provide. This doesn't affect your credit since you only get a hard inquiry when you apply.
Autopay, our top pick for refinancing among auto loans, offers prequalification — and you get multiple loan options from various lenders. The platform advertises three types of refinancing. Besides traditional refinancing, you can consider cash-back refinancing to borrow money against the equity on your vehicle, or a lease buyout to pay off your lease early.
Autopay Car Loan
Annual Percentage Rate (APR)
Starting at 2.99%
Loan purpose
Used and new vehicles, refinancing loans, lease buyout
Loan amounts
$2,500 to $100,000
Terms
24 to 96 months
Credit needed
Not specified
Early payoff penalty
None
Late fee
Varies by lender
See our methodology, terms apply.
Capital One also has a quick and convenient prequalification process. You can get several loan offers and choose one that fits your goals best. The lender will assist you with transferring your title once you get approved.
Capital One Auto Finance
Annual Percentage Rate (APR)
Depends on credit profile
Loan purpose
New vehicles, used vehicles, refinancing
Loan amounts
Starting at $4,000
Terms
36 to 72 months
Credit needed
Not specified
Early payoff penalty
None
Late fee
Depends on the lender
Terms apply.
5. Apply for refinancing
Once you have a few offers, you can compare them and decide which one is the most advantageous. When you're ready to proceed with a lender, let them know you're ready to apply. If you get approved, the lender will create a new loan with the agreed terms. As for your old loan, your new lender will either pay it off or provide you with funds to complete this step yourself.
All that's left to do now is to begin paying off your new loan. Make sure you know the due date and consider setting up automatic payments to never miss it.
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Bottom line
In the right circumstances, car refinancing can save you money or make your auto loan easier on your budget. Whatever your goal is, remember to crunch the numbers to ensure it's a wise decision for you — and compare multiple lenders to maximize your savings.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every auto loan guide is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of card loan products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.
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