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When Can You Refinance a Car Loan?

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Catherine Hiles
Updated December 7, 2022
5 Min Read

Most people don’t have the spare cash to purchase a car outright, which means they’ll likely need to take out a loan. But sometimes, drivers may be unable to qualify for a low-interest loan due to market conditions or their personal financial situation. In this case, they may wonder if it makes sense to refinance their original car loan. But when can you refinance a car loan, and when should you wait? 

Can I refinance a car loan?

Just like a mortgage loan, it is possible to refinance a car loan. Refinancing a car loan can help decrease your monthly loan payment by decreasing the interest rate or taking on a longer-term loan. A refinance essentially replaces your original loan with a new one, often with better terms and rates than the original, which can help you save money on interest in the long run.

How soon can I refinance a car loan?

While technically you can refinance a car loan as soon as you’ve taken it out, that may not always be possible—and there are times when it’ll be a better financial move for you to wait. In general, it can take a few months for your lender to receive the car title from the manufacturer or seller; until the lender has the title in their hands, you will not be able to refinance your car loan. However, if the process goes faster than this, you can certainly look into refinancing sooner—or you can take that time to look around and get preapproved for the loan refinance so you can jump on it as soon as the lender has the title.

When you should refinance an auto loan

While there’s no specific time frame when you should refinance your auto loan, there are a few scenarios that can signal when it’s a good time to move forward with your car loan refinance.

When interest rates decrease

If interest rates for car loans have decreased since you took out your initial car loan, refinancing could lower your monthly payments. It’s a good idea to keep a general eye on interest rates so you can start looking into refinancing as they decrease. You can also shop around with a few different lenders to see what rates they will offer you, and then choose the loan that best suits you.

When you find a loan with better rates and terms

Even if you got a decent interest rate on your original car loan, you may still be able to find one that has a lower rate. If you think there’s a more suitable loan out there for you, it’s smart to keep an eye out for one that will offer a better rate and better terms than your original car loan. Drivers who refinance through Caribou, for example, save an average of 6 APR percentage points on their car loan.*

When your credit score increases

For many people, a car is a requirement, and it’s not possible to wait to purchase one until they are financially stable. If you purchased your vehicle with a less-than-stellar credit score and have since been working on improving it, you may find that refinancing will get you a more favorable interest rate, which can lead to lower monthly payments.

When you’re having trouble paying your loan

Sometimes, a change in employment or an unexpected bill can throw your monthly budget off, which can make it harder to afford your car loan. Refinancing to a longer loan term means that your monthly payment amount will decrease — but it also means you’ll end up paying more in interest over the life of the loan.

When you’ve been paying your original loan for at least 6 months

You may want to wait 6 months after purchasing the car to give your credit score time to rebound after the initial lender checked your credit as part of the application process. A lender checking your credit can decrease your credit score by a few points, and if your score is teetering between the “fair” and “good” ranges, those few points could mean you will be offered a higher interest rate by the new lender with whom you intend to refinance your loan.

When you have at least 2 years left on your loan

In general, it’s recommended that you have at least 2 years left on your original loan to make refinancing worth it. This is because most of the interest on a car loan is paid in the beginning, so refinancing if you have less than 2 years left on the loan will likely result in you paying much more interest over the total life of the loan.

How to refinance your car loan

Once you’ve decided to refinance your car loan, there are several steps you’ll need to take, including the following.

  1. Shop around at several lenders to see which one will offer the best loan terms and interest rates.
  2. Get prequalified with at least three lenders so you can compare the offers and choose the one that best fits your needs.
  3. Gather your proof of income, proof of insurance, and existing car loan details and apply for a car loan refinance with your chosen lender.
  4. Once the refinance has been approved, follow up with your former lender and your new one to ensure that your original loan has been paid in full.
  5. Start making payments on your refinanced loan.


If you’re not sure whether or not it’s a good time to refinance your car loan, the answers to these frequently asked questions can help guide your decision.

Can I refinance my car loan at any time?

Technically, yes—but that doesn’t mean you should. In general, you want to wait at least 6 months after your original loan term begins and have at least 2 years left on the original loan to make refinancing worth it. You’ll also need to be sure that the refinanced loan will be a better fit for you than the original one, whether you want a lower interest rate or a longer loan term.

Does refinancing a car hurt your credit?

In a way, yes—although the impact is usually minor. When you apply for a loan, the lender will run a hard credit check, which can decrease your credit score by several points. But unless you plan on making a major purchase (such as a home) anytime soon, the damage to your credit score will be negligible and your score will bounce back as you make on-time car loan payments.

What do you need to refinance your car?

In order to refinance your car, you’ll typically need to show proof of income, proof of insurance, and the details of your current car loan. The lender will run a credit check to determine how big of a risk it will be for them to loan you money.

*Disclaimer: This information is estimated based on consumers who were approved for an auto refinance loan through Caribou on or after 08/01/202, had an existing auto loan on their credit report, and accepted their final terms. AS of 08/01/2022, these borrowers saved an average of 6.1% on their interest rate. There is no guarantee of savings. Your actual savings, if any, may vary.