Love your car but not your loan? Good news! There’s no rule saying you have to stick with the terms you got when you first purchased your vehicle. You can refinance within months of your purchase or even years later.

So how do you decide when refinancing is the right move? Here are 4 times when it may make good financial sense (along with some pitfalls to avoid):

1. Interest rates have dropped since you got your original loan.

Interest rates change frequently. A drop of even a percentage point or two can save you a decent chunk of change on your monthly payment and on the total amount you'll pay over the life of your loan. For example, say you got a $35,000 auto loan at 4% interest for 60 months. That’s a monthly payment of $644.58, and by the time your car is paid off, you’ll have paid $38,674.80 in total.

Now let’s say you refinance that same vehicle after 12 months to a 3% interest rate for the remaining 48 months. Your monthly payment would go down to $603.54, and the total paid at the end of 5 years would be $36,704.88 — a savings of nearly $2,000. That kind of savings is nothing to sneeze at if you ask us!



Just keep in mind, your best bet for saving is to only refinance for the remainder of your term. If you end up extending your term in the process (for example, refinancing to another 48 month loan when you’ve already paid 12 months toward your current 48 month loan), your initial monthly payments may be lower, but you may end up paying more in the long run.

2. Your financial situation has improved.

Not only do interest rates fluctuate with the market, the rate you qualify often varies based on your credit score and financial situation, including things like your income and the amount of debt you have. If you’ve improved your credit score, got a better paying job and/or paid down debt since you first purchased your vehicle, you may qualify for a better interest rate and better terms.

3. You didn’t shop around the first time.

If you purchased your vehicle from a dealer, you may have simply taken whatever financing they offered at the time. But here’s a secret: some dealers mark up their interest rates, meaning you may not always get best rate you could actually qualify for. So, if you didn’t shop around at first (and you’re not alone, we’ve been there!), it can pay to do so now to see if you could get a better rate.

4. Your monthly payments are too high.

Don’t qualify for a better interest rate, but still finding your monthly payments are a little bit too much of a stretch? You may want to look into refinancing for a longer term. Going from, say, a 48 month term to a 60 month term can make your monthly payment more affordable. Just keep in mind it will likely increase the total amount of interest you pay over the life of your loan.

Interested in learning more about whether an auto loan refi might be right for you?

Check out our loan rates and auto loan calculator to see how much you could save. Or give us a buzz at 800.736.4500 and we’ll help crunch the numbers for you. Ready to pull the trigger on a refi? Get the ball rolling by applying online today!