How Soon Can You Refinance a Car Loan? When You Can (and Should) Consider Refinancing

Dayton Uttinger  | 

If you’re interested in refinancing your car, the first thing you should know (besides how refinancing works) is that there is no minimum waiting period. You can refinance immediately if you want to, before you even make a payment. However, the smarter question is not just when can you refinance your car, but when should you?

When Should I Refinance My Car Loan?

When you’re considering refinancing your car, timing is almost as important as the terms of your previous loan. The goal when refinancing is to end up in a better financial place than you were previously, but “better” might mean something different to everyone.

Your Credit Score Has Improved

If you got your previous car loan subprime, it was probably because your credit score designated you as high risk. If your credit score has significantly improved, then refinancing your car loan can get your a much better interest rate. Your total payment may decrease as well; if your credit score has improved significantly, it’s almost always the right decision to refinance.

You Didn’t Get the Best Loan to Begin With

Maybe you just didn’t do as much shopping around as you should have. Maybe you let the dealership take advantage of you. For whatever reason, if you know you can do better, getting some better loan terms in place will definitely give you a boost. Don’t just consider the amount you owe every month, though, think about APR, length of term, and fees.

You Can Make a Higher Down Payment

How much you put down on a car will affect your interest rate. It could save you money in the long run, if you refinance, to put more money down now instead of just paying more in interest for a longer term.

You Won’t Have a Prepayment Penalty

Unfortunately, you need to consider if your current loan has any prepayment penalties. Some lenders will actually penalize you for paying off your loan before the term ends. Since refinancing is essentially paying off your initial loan with a new one, it counts as an early payment.

Compare any prepayment penalties with your projected savings from refinancing. If the latter outweighs the former, refinancing is still a smart decision.

You Need a Lower Monthly Payment

On the other hand, you might need to refinance because things are starting to turn bleak. Maybe you could afford this car payment when you first got the loan, but now you’ve run into some bad luck. Refinancing may help to lower your monthly payment.

It will likely mean you’ll have to extend the term of the loan, which could mean that you pay more in the long run, but if you need to free up some cash now, refinancing could be the answer.

Prepare to Refinance

If you’re considering refinancing, your first step should be to improve your credit score. In general, this is good financial advice, but especially if you’re preparing to renegotiate the terms of your loan, having a good credit score is paramount. How soon you’re able to refinance your car will depend on how quickly you can raise your credit score.

Secondly, don’t be afraid to shop around. Dealerships, subprime lenders, credit unions, and banks can all refinance your auto loan. So make sure you get a good look at all your options, and judge which one will best fit your needs. If none of them are really offering what you’re looking for, even after you try to negotiate, consider that you might need to wait a while before trying again. Improving your credit can take a long time, so you might have to wait for the credit bureaus to reflect your actual score.

Refinancing your car can free up some money, but first you’ll have to make sure that you’re in a position for a lender to offer a better loan. Once you’ve done that, and shopped around for your best option, refinancing can be a relatively simple process. It only takes a couple hours, and you’ll be in better control of your finances.


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Dayton is a chronic Wikipedia addict, which is detrimental to her social life but stellar for her writing. She resides in Boise, ID, surrounded by her own frantic outlines, highlighted encyclopedias, and potatoes. The latter was not by choice.

This post was updated June 13, 2018. It was originally published June 14, 2018.