This Is How Often You Can Refinance a Car Loan

Yes, you can refinance an auto loan more than once, but make sure it's right move for you.

Saving money is the name of the game when it comes to loans. With current, low interest rates on auto loans, drivers might be tempted to save money with a refinanced car loan. Whether an auto refinance is the right move depends on several factors, including the number of times you’ve already refinanced your existing car loan.

Here’s how often you can get another loan on your car, and how to refinance your car loan.

How Many Times Can You Refinance?

Generally, there’s no required minimum time from the original auto loan date that you must wait before you refinance. Plus, unlike a mortgage loan, prepayment penalties are rare.

Because most interest on an auto loan is compounded at the beginning of the loan period, you can often save a lot of money by refinancing a car loan if you can qualify for a better rate today. But before you rush out to refinance your auto loan, there are several factors to consider before you apply for another loan so you can determine if a refinance makes financial sense for your situation.

How Much Will It Cost to Refinance a Car Loan?

If you can now qualify for a better car loan rate, you can expect a lower payment. However, before you decide to refinance an auto loan, consider the costs.

Refinanced auto loan costs include:

  • Loan origination fees
  • Processing fees
  • Pre-payment penalties

See: 10 Best Credit Unions for Car Loans

How Refinancing a Car Loan Affects Your Credit

Each time you refinance an auto loan, it affects your credit. If you refinance a car loan, the bank or credit union you’re applying to will need to run a new inquiry on your credit history, which results in a hard inquiry on your credit report.

A hard inquiry has a negative impact on your credit score — it drops your score by a few points. Although the immediate impact of a hard inquiry lessens after a few months, it does remain on your credit report.

If you have strong credit, such an inquiry will have less of an impact; however, if you’re struggling to rebuild your credit score, it’s advisable not to apply with too many credit lenders because it can negatively impact your credit score.

How to Refinance Your Car Loan

The process to refinance your car loan is similar to the requirements you met when you applied for your original loan; you’re simply getting a new auto loan to replace the old one.

To get started on your auto loan refinance, you’ll need to complete the following steps:

  1. Evaluate your financial situation. Has your income increased and credit scores improved since you first took out a car loan? Have you been making your car payments and your other financial obligations on time? If your financial situation has improved, an auto refinance will likely result in a better rate and lending terms.
  2. Shop around for a lender. Most lenders of auto loans, such as banks and credit unions, can also refinance a car loan. Interest rates, terms and fees might vary between lenders, so it pays to shop around for the best terms. If your financial situation has improved, you’ll have more options for your auto loan refinance. Start with your existing lender, which might offer you a better rate or reduced loan fees. Credit unions might also offer a good rate if you’re a member.
  3. Gather your financial documents: To complete the loan application process, you’ll need to have your financial documents readily available. In addition to your job pay stubs and current loan documents, you’ll need to provide proof of insurance and registration for the vehicle.

Getting a new auto loan can save you money. If interest rates on auto loans remain low, and your financial situation improves, refinancing a car loan is a good option to help you cut costs each month. Just be mindful of the costs when refinancing a car — make sure you are, in fact, saving money.

Learn: 6 Fastest Ways to Pay Off Your Car Loan