If you’re facing a steep interest rate on your current auto loan, refinancing might be the right move. Many owners reap considerable savings when they refinance a car loan, but it’s only a good choice in certain situations.

After researching the top auto loan providers, we’ve discovered which options are best for those who’d like to refinance a car loan. In this article, we’ll explain situations when refinancing could be the correct choice and when you should keep financing a car with your current loan.

What Does It Mean To Refinance A Car Loan?

Refinancing a car loan means you’re taking out a new loan to cover what’s left on your existing one. It’s typically used by borrowers who want to get a lower interest rate.

Those who refinance car loans often save money on their monthly payments. However, even if they secure lower rates, they may end up paying more overall if they choose longer terms. That’s because extending a loan term means the borrower will pay more in interest over the life of the loan.

Many drivers keep more money in their savings accounts when they refinance a car loan, but using an auto loan calculator can help you determine if it’s right for you. We’ll explain when refinancing may be a solid option and when it may be better to keep your current car loan.

Does Refinancing A Car Loan Hurt My Credit?

Your credit score may decline slightly after you refinance a car loan, but the effects should be relatively minimal. Your potential lender will look at your credit history using a hard credit check, which may negatively impact your credit score. For many borrowers, the lower interest rate and monthly payments that result from refinancing make up for any minor dips in their credit scores.

3 Best Providers To Refinance A Car Loan

If you’re looking to refinance a car loan, consider Auto Approve, myAutoloan, and PenFed Credit Union. Each of these providers is known for quality customer service and highly competitive rates. Below, we’ll explain why these providers fit the needs of motorists looking to refinance a car loan.

LenderStarting APROverall RatingAward
#1 Auto Approve2.25%4.2Best For Refinancing
#2 myAutoloan1.24%4.4Best Auto Loan Marketplace
#3 PenFed Credit Union1.79%4.4Best Credit Union

#1 Auto Approve: Best For Refinancing

Auto Approve specializes in refinancing auto loans, and its annual percentage rates (APRs) are typically quite low. The company’s customer satisfaction is high, as seen by its average rating of 4.7 stars out of 5.0 from more than 3,000 Trustpilot reviews.

While many reputable refinancing providers only lend to borrowers with strong credit, Auto Approve considers those with credit scores as low as 580. Between its relatively low interest rates and strong customer service, Auto Approve earned the title of Best For Refinancing from our review team.

Auto Approve Pros

Auto Approve Cons

Stellar customer satisfaction

Some mentions of poor communication

with agents

Typically offers low rates

Considers borrowers with fair credit

#2 myAutoloan: Best Auto Loan Marketplace

Rather than a lender, myAutoloan is an online marketplace that connects borrowers with lenders. While borrowers don’t get car loans directly from myAutoloan, the company works with providers that offer competitive rates.

Applicants must have at least a 575 credit score to qualify for refinancing with lenders on myAutoloan’s marketplace. However, only those with excellent credit are likely to be eligible for the best refinancing rates.

myAutoloan Pros

myAutoloan Cons

4.3-star customer review

rating on Trustpilot

Not an actual auto lender

Easy to compare loan offers

Plenty of refinancing options

#3 PenFed Credit Union: Best Credit Union

Vehicle owners hoping to refinance a car loan should look for providers that are credible, offer some of the lowest rates around, and get plenty of great customer reviews. Pentagon Federal Credit Union, commonly known as PenFed, suits all of those needs, making it an excellent choice for refinancing a vehicle.

Those with low creditworthiness are likely to have auto refinancing denied by PenFed Credit Union, though, as it requires a minimum credit score of 610. The organization’s membership is largely made up of military members and veterans, but anyone can join by opening a savings account with $5.

PenFed Credit Union Pros

PenFed Credit Union Cons

Reasonable starting APRs

Stricter credit requirements

Strong customer service

Benefits for members

When Should I Refinance A Car Loan?

Refinancing an auto loan can be an excellent way to free up access to money through a reduced APR and a lower monthly payment. Below are situations when refinancing an existing loan could be beneficial.

When Your Credit Score Has Improved

If you’ve seen a boost to your credit score, you may be approved for a lower interest rate. Auto lenders are more willing to offer competitive rates to those with high credit scores, as they prefer lower-risk borrowers over those looking for bad-credit car loans.

When Your Car Is Worth More Than The Loan

You’ll likely be able to reduce your interest rate when you refinance a car loan on a vehicle that’s worth more than you owe on it. That’s because lenders strongly consider loan-to-value (LTV) ratio when assessing the potential risk of each applicant.

When Interest Rates Have Decreased

If interest rates are significantly lower now than when you took out your car loan, there’s a good chance you could get a better rate by refinancing. Prequalifying with lenders can help you find out whether you’re eligible for lower interest rates than what your dealership or financial institution initially offered.

When Should I Avoid Refinancing A Car Loan?

There are certain situations when it’s best not to refinance a car loan. Below are a few cases where you should strongly consider holding onto your current auto loan instead of refinancing.

You Owe More Than Your Car Is Worth

It’s extremely unlikely that you’ll get approved for a lower APR if your vehicle is worth less than your existing auto loan, a position known as being “upside-down.” If you apply to refinance a car loan that’s upside-down, you could receive a ding to your credit only to learn your interest rate won’t drop.

Your Auto Loan Has A Steep Prepayment Penalty

When you refinance a car loan, your old lender misses out on interest it otherwise would have gained in future months. To combat these losses, some lenders add prepayment penalties to loan contracts. If the prepayment penalties mentioned in your current contract’s disclosures are high, you may lose money even if refinancing gets you a lower interest rate.

Your Car Loan Is Almost Paid Off

Auto lenders commonly front-load interest, so most of your payment typically goes toward principal around the end of your contract. If you refinance a vehicle loan after making a sizable down payment or nearly paying the balance off, you’ll probably see your credit score dip in return for an interest rate similar to what you’re already paying.

How To Refinance Your Car Loan

If you’ve decided that refinancing your car loan could get you a lower APR and more affordable car payments, follow the four steps below to navigate the process.

#1 Collect Important Documents And Information

When looking to refinance a car loan, you’ll need to provide personal and financial information such as your rent or mortgage payments, Social Security number, proof of income, and proof of car insurance.

You’ll also need your vehicle identification number (VIN), as it gives potential lenders details about your car. Look for records of your current auto loan since you’ll need to know your monthly loan payments, the balance of the loan, and the loan term.

#2 Apply To Refinance Your Car Loan

Keep in mind that if you have multiple hard credit checks within 30 days as you shop for a new auto loan, FICO will count them as a single inquiry. That means rate shopping won’t impact your credit report more than once. Financial institutions such as banks, credit unions, and online lenders provide auto refinancing, and many have online loan applications.

#3 Compare Loan Offers

Once you receive options to refinance your auto loan, consider the terms that have been offered. Depending on the lender and your situation, you may be offered a different repayment period, a lower APR, or both. Compare refinancing options before choosing a lender, as some will suit your needs better than others.

#4 Finalize Loan Details

You’ll need to pay any penalties or fees associated with your old loan if you decide to refinance for a new auto loan. It’s also important that you sign all documents regarding the new car loan. Once the auto refinance process is complete, stay on top of payments to continually improve your credit score throughout the term of the loan.

Frequently Asked Questions

How We Rate Loan Providers

Our review process aims to deliver consistent and unbiased assessments of auto loan providers. While there are multiple qualities that make a loan company successful, our review team focuses on those we believe are the most important for consumers:

  • Rates: Auto loan companies with high loan amounts and low APRs are more likely to meet customer needs.
  • Reputation: Our review team explored ratings from experts and each lender’s number of years in business when giving this score.
  • Availability: Companies that cover a variety of circumstances scored best in this category.
  • Customer Experience: This rating is based on transparency and consumer satisfaction ratings. We also took into account the helpfulness of each loan provider’s team based on our shopper analysis.

*Data accurate at time of publication.