Rateworks auto loan refinance
July 21, 2023

Timing is Everything: When Can You Refinance a Car Loan?

If you’ve been watching the news or following news highlights on social media, you probably know buying a car is expensive.

Written by

Sarah T.

According to various sources, it’s about $10,000 more expensive to buy a new car now than it was before the pandemic. Not only that, but interest rates continue to be on the rise. A recent article from Car & Driver suggests that interest rates are as high as 7% if not more, and $1,000-a-month car payments are becoming more commonplace. So, if you need a new or used car, what are your options to refinance and seek a lower interest rate down the road? And when is it too soon to refinance a car loan?

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Want to Refinance a Car? Here’s What You Should Know 

Car loan refinancing replaces your existing auto loan with a new one, typically with better terms and conditions. It allows you to obtain a new loan with a lower interest rate, monthly payment, or both. By refinancing, you may save money over the life of the loan and have more financial flexibility. Additionally, refinancing can help improve your credit score if you make timely payments on the new loan.

Timing Factors: How Soon Can You Refinance a Car Loan?

When considering refinancing a car loan, it's crucial to understand the eligibility requirements and waiting periods set by lenders. Each financial institution may have specific guidelines that dictate how soon you can refinance your loan. 

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These requirements often consider factors such as your loan age, payment history, and the potential for credit score improvement. Here is what to consider:

  • Loan age—Lenders typically have a minimum age requirement for a car loan before it can be refinanced. This requirement ensures that borrowers have made certain payments on their existing loan before seeking refinancing. So, be sure to read the fine print for any prepayment penalties. In most cases, loans that impose a penalty have a fee of about 2% of your outstanding balance. If you owe $10,000 on your car loan, that fee will be about $200.
  • Payment history—Lenders assess your repayment behavior and look for a consistent track record of on-time payments. A positive payment history increases your chances of getting approved for refinancing and may result in better loan terms.
  • Credit score improvement—If you've been making regular payments on your existing car loan, your credit score may have improved since you initially secured the loan. A higher credit score can make you eligible for more favorable refinancing options. 

Benefits of Early Car Loan Refinancing: Is it a Good Idea?

After purchasing your car, you must wait at least 60 to 90 days to refinance it because that is the minimum amount of time it takes to transfer the car title into your name. After this period passes, you have the green light to refinance. But it’s best to come prepared even here, so let’s discuss what you should consider before pursuing the process. 

  • Potential savings—Refinancing your car loan can save you money over the life of the loan. Securing a lower interest rate can reduce your monthly payments and the total interest paid over time. This can lead to significant savings, especially if you have an extended loan term.
  • Interest rate reduction—One of the primary motivations for refinancing a car loan is to obtain a lower interest rate. Refinancing can allow you to qualify for a better rate if you initially secured your loan when interest rates were high, or your credit score has improved. A lower interest rate translates into reduced interest charges and more affordable payments.
  • Improved loan terms—Refinancing your car loan early can also allow you to negotiate better loan terms. You can extend the loan term to lower your monthly payments or choose a shorter term to pay off the loan more quickly. Additionally, refinancing can allow you to switch from a variable-rate to a fixed-rate loan, providing stability and predictability in your payments.
  • Cash flow flexibility—Lowering your monthly car loan payments through refinancing can improve your overall cash flow. This extra money can be used for other financial goals, such as paying off debts, saving for emergencies, or investing in your future.

The Car Loan Refinancing Process: Step-by-Step Guide

If you’ve been monitoring the interest rate trends and what’s going on with car prices, and have decided that refinancing your car is the right thing to do, here is a step-by-step guide. These auto refinance tips can help you make informed decisions along the way.

  • Assess car loan refinance eligibility—Before proceeding, evaluate your eligibility for refinancing. Your credit score, loan-to-value ratio, and loan balance will determine whether you qualify for refinancing. Lenders may have specific requirements, so reviewing them beforehand is essential.
  • Gather necessary documents—Prepare the required documents, including proof of income, identification, vehicle information, current loan details, and proof of insurance. Having these documents ready in advance can streamline the application process.
  • Research and compare lenders—Research different lenders and compare their refinancing options. Look for competitive interest rates, loan terms, fees, and customer reviews. This will help you select the lender that best suits your needs.
  • Apply for refinancing—Complete the application once you've chosen a lender. Provide accurate information and ensure all required fields are properly filled out. You may need to consent to a credit check as part of the application process.
  • Review and accept the offer—After submitting your application, the lender will review your information and make an offer. Carefully review the terms, interest rate, monthly payment, and associated fees. If you're satisfied with the offer, accept it to proceed with the refinancing process.
  • Pay off existing loan—Once your refinancing application is approved, the new lender will pay off your loan directly. Ensure the payoff amount is correctly calculated to avoid any remaining balance or penalties.
  • Start repayment—Begin making payments on your new loan according to the agreed-upon terms. Update any automatic payments or arrangements you had with your previous lender to avoid missed payments.

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Remember, the refinancing process can vary between lenders, so it's essential to follow the specific instructions provided by the lender you choose. Conduct thorough research, compare options, and carefully review all terms and conditions before deciding.

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Tips for a Successful Car Loan Refinance

When pursuing a car loan refinance, implementing effective strategies can help maximize your savings and benefits. To make the most of the refinancing process, consider negotiating with lenders, carefully reviewing loan terms, and being mindful of associated fees. 

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More specifically, here are some car loan refinance benefits:

  • Negotiate with lenders—Don't be afraid to negotiate with lenders for better terms. If you have a strong credit history or improved financial standing, you may have leverage to secure a lower interest rate or reduced fees.
  • Consider fees—Before proceeding with a refinance, carefully assess the associated fees. While refinancing can lead to long-term savings, it's essential to weigh the costs involved upfront. Compare fees across different lenders to choose the most cost-effective option.
  • Review loan terms—Thoroughly review the terms and conditions of the new loan before accepting an offer. Pay attention to the interest rate, loan duration, and any potential penalties or prepayment fees. Understanding the terms will help you make an informed decision and avoid any surprises in the future.
  • Calculate savings—Use online calculators or consult with lenders to estimate your potential savings. Compare the new monthly payment, total interest paid, and overall cost of the loan with your current loan. This will help you determine if refinancing is truly beneficial for your financial situation.
  • Timing is key—Keep an eye on market trends and interest rate fluctuations. Refinancing during a period of low interest rates can offer more favorable terms and increase potential savings. Stay informed and choose an optimal time to initiate the refinancing process.

How Soon Can I Refinance My Car if I Have Bad Credit?

Borrowers who previously took out a car loan with bad credit may be burdened with high-interest rates. Refinancing their loan could be a viable option to save money. While refinancing a car with bad credit, even below 550, may be possible, it may be beneficial to take some time to improve their credit score. 

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Here are some ways to work on improving credit:

  • Pay bills on time—Consistently making timely payments is crucial for building a positive credit history. Missing a payment can cause your credit score to plummet by as much as 180 points if you don’t make it up within 30 days. To prevent missing a payment, set up reminders or automatic payments to ensure bills are paid promptly. And, make sure that you have been diligent in creating your budget. This will ensure you have the funds available each month to make your payments.
  • Deal with accounts in collections—Address any accounts that have gone into collections. Negotiate payment arrangements or settlements to resolve these debts. No matter what you do, don’t ignore debt that has gone into collections. And, once you have done what you can to resolve the debt, ask the creditor to stop contacting you. Under federal law, they must stop contacting you if you request so in writing.
  • Consider a credit-builder account or becoming an authorized user—Though this can be a more time-consuming process, often taking about six to 12 months before you see results, opening a credit-builder account or becoming an authorized user on someone else's credit card can help establish or rebuild credit. If you are added to another person’s account, ensure that the account holder has a positive payment history. And, take responsibility for your portion of any debts incurred.
  • Get credit for your rent and streaming services payments—Use Experian Boost to include positive rental and utility payment history in your credit report. This can provide a boost to your credit score. It’s free to sign-up and you’ll start seeing a slight improvement to your score within just a few months.
  • Focus on paying off debts—Prioritize paying off existing debts, especially high-interest ones. Reducing overall debt can positively impact your credit utilization ratio and improve your credit score. Apply either the snowball approach be paying off your smallest debts first or the avalanche approach that has you focus on the bills with the highest interest rates first. Both approaches are highly effective in helping you pay down debt. Just remember that whichever path you take, you need to make at least the minimum monthly payment on any bills due each month.

Is Now the Right Timing to Refinance YOUR Car?

Making an informed decision about when to refinance your car loan is essential for maximizing savings and improving your financial situation. By understanding the eligibility requirements, timing factors, and potential benefits of early refinancing, you can take advantage of lower interest rates, improved loan terms, and increased cash flow flexibility. 

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Don't hesitate to explore your options and get a quote today with RateWorks, a trusted resource that can provide personalized refinancing offers tailored to your needs. Take control of your car loan and start saving money by refinancing at the right time

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*The content on this page provides general consumer information or tips. It is not financial advice or guidance. Each person’s circumstances are unique. The Cash Store may update this information periodically. This information may also include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that also serve your needs

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