When refinancing makes sense
Prime Refinancing Opportunities
- • Credit improved: Score increased 50+ points since original loan
- • Rates dropped: Market rates fell 1%+ from your current APR
- • Income increased: Better debt-to-income ratio improves qualification
- • Original loan had high rate: Dealer markup or subprime financing initially
Quick Savings Calculator
Current Loan Example
- • Balance: $18,000
- • Current rate: 9.5% APR
- • 36 months remaining
- • Current payment: $577/month
- • Total remaining interest: $2,772
After Refinancing
- • Same balance: $18,000
- • New rate: 6.5% APR
- • 36 months (same term)
- • New payment: $551/month
- • Total interest: $1,836
- • Savings: $936
What lenders look for
Loan-to-Value (LTV) Requirements
Current LTV: Loan balance ÷ current vehicle value
Most lenders want: LTV under 110-125%
If underwater: May need cash down or wait for principal paydown
Get vehicle value: KBB, Edmunds, or dealer appraisal
Vehicle Age and Mileage Limits
Age limits: Most lenders finance up to 7-10 year old vehicles
Mileage limits: Under 100,000-150,000 miles typically
Minimum loan: $5,000-7,500 minimum (varies by lender)
Credit unions: Often more flexible on age/mileage limits
Payment History Matters
On-time payments: At least 12 months of perfect payment history preferred
Recent late payments: Can disqualify or increase rate
Same lender: Your current lender may not refinance their own loan
Seasoning period: Some lenders require 6+ months since origination
Rate shop and pre-qualify
Best Places to Shop Refi Rates
Credit Unions
- • Typically lowest rates
- • Member-focused service
- • Flexible underwriting
- • Join online if needed
Online Lenders
- • Fast pre-qualification
- • Competitive rates
- • No branch visits needed
- • Same-day decisions
Banks
- • Relationship discounts
- • Local decision making
- • In-person service
- • Established processes
Soft Pull vs Hard Pull
Soft pull (pre-qualification): Estimated rate, no credit impact
Hard pull (application): Final approval, temporary score dip
Strategy: Soft pull multiple lenders, hard pull only your top 1-2 choices
Shopping window: Multiple auto inquiries in 14-30 days count as one
Avoid extending the term too far
Term Extension Trade-offs
| Scenario | Monthly Payment | Total Interest | Total Cost |
|---|---|---|---|
| Keep current term (36 mo) | $551 | $1,836 | $19,836 |
| Extend to 48 months | $429 | $2,592 | $20,592 |
| Extend to 60 months | $352 | $3,120 | $21,120 |
Lower payment isn't always better—extending from 36 to 60 months costs $1,284 more in interest
Smart Term Selection Strategy
Keep current term: If you can afford the payment, maximize interest savings
Slight extension okay: If it frees up cash for high-interest debt payoff
Avoid long terms: Don't turn 2 years remaining into 5 years just for lower payment
Extra payments: Even small additional principal payments accelerate payoff
Close the loop properly
Title Transfer Process
New lender handles: Most refi lenders coordinate directly with your old lender
Title timing: Old loan must be satisfied before new lender gets title
Grace period: Usually 10-15 days to complete the transfer process
Your responsibility: Continue making payments until transfer is complete
GAP Coverage Considerations
Current GAP policy: May not transfer to new loan automatically
Check cancellation: Cancel old GAP and get prorated refund
New GAP coverage: Shop rates from new lender vs. insurance company
Still underwater?: GAP coverage still recommended if LTV > 100%
Final Verification Steps
Payoff confirmation: Verify old loan shows $0 balance
First payment date: Note when new payment starts (usually 30-45 days)
Auto-pay setup: Set up automatic payments to avoid late fees
Document retention: Keep all paperwork until loan is paid off
Common refinancing mistakes
Focusing only on monthly payment
Lower payment via extended term can cost thousands more in total interest. Calculate total cost, not just monthly savings.
Not shopping around
First offer isn't always best. Credit unions, online lenders, and banks can have dramatically different rates for the same borrower.
Ignoring fees and costs
Factor in title fees, documentation fees, and any prepayment penalties on your current loan. Sometimes fees offset the savings.
Refinancing too early or too late
Very new loans may have prepayment penalties. Very old loans may not have enough balance/term left to make refinancing worthwhile.
When refinancing doesn't make sense
Skip Refinancing If...
- • You're planning to pay off the loan within 12 months
- • Your vehicle is worth significantly less than loan balance
- • Current loan has less than $5,000 balance
- • You can only improve APR by less than 1%
- • Fees and costs exceed 6 months of payment savings
- • Your credit has declined since original loan
Frequently Asked Questions
How much will a 1% APR drop save me?
On a $20,000 loan over 60 months, dropping from 8% to 7% saves about $57/month or $3,420 total. Use an online calculator with your specific numbers.
Can I refinance with bad credit?
Yes, but rates may not improve much. Focus on credit unions and online lenders that specialize in less-than-perfect credit. Wait if your score is actively improving.
Does auto refi reset my warranty or GAP?
Warranty continues unchanged. GAP coverage may need to be cancelled and re-purchased. Check with both your old and new lenders about GAP transfer policies.
Is there a prepayment penalty?
Most modern auto loans don't have prepayment penalties, but check your current loan agreement. Some older loans or subprime lenders may charge fees for early payoff.