Keep the Car. Rethink the Loan. 6 Things to Consider Before Refinancing Your Auto Loan

Your car isn’t going anywhere. But maybe your loan should. Could refinancing help you pay less for the ride you already have?

Maybe your credit has improved since you bought your vehicle. Maybe rates have changed. Or maybe your monthly budget could simply use a little more breathing room. Whatever’s changed, the loan you got when you bought your car may be worth another look.

Refinancing won’t change what’s sitting in your driveway. But it could change the loan you’re paying for it.

When can refinancing a car loan make sense?

Refinancing may be worth exploring if you can qualify for a better rate, want to adjust your monthly payment, or would prefer a loan term that better fits your financial goals today.

The key is to compare the whole loan… not just the monthly payment.

Here are six things to consider.

1. You Gotta Start Somewhere.

Before you shop for something better, know exactly what you’re comparing it to.

Pull up your latest auto loan statement or contact your lender and find:

• Your current interest rate 
• Remaining balance 
• Monthly payment 
• Number of payments left 
• Payoff amount 
• Any fees or restrictions that could affect refinancing 

You don’t need to become an auto-financing expert. You just need a clear picture of where you are today.

2. Did Your Financial Picture Change?

Your original loan was based on your financial picture at the time. 

That picture may be different now. Maybe you’ve built your credit by making payments on time. Your income may have changed. You may have paid down a sizable chunk of the loan. And market rates can change, too.

If your financial picture has changed, your options may have changed with it. Think of refinancing as a chance to compare then with now. 

What if my credit has improved? That can be a good reason to take another look. An improved credit profile may help you qualify for different loan terms than you did when you originally financed the vehicle.

3. What Do You Want Your Loan to Do?

“Better” doesn’t mean the same thing for everyone. Knowing your reason for auto refinancing can make the comparison much easier.

Looking for a lower payment?

A different interest rate or loan term could reduce your monthly payment. That may give your budget more flexibility for other priorities.

Hoping to pay less interest?

A lower interest rate could reduce the total interest you pay over the life of the loan.

Want to pay off the car sooner?

A shorter loan term could help you become debt-free sooner, though your monthly payment may increase.

Simply want to see what else is available?

That's a perfectly reasonable place to start, too. You don't have to decide that refinancing is right for you before looking at your options.

4. Don’t Let a Lower Payment Fool You!

A smaller monthly payment can look pretty appealing. But it isn't the only number that matters.

Imagine you have two options:

Illustrative example only. Actual rates, payments, and terms vary based on individual circumstances.

At first glance, the new loan looks better. The monthly payment is $75 lower.

But the new loan also lasts longer.

That's why it's important to compare the interest rate, loan term, monthly payment and total cost, not just the payment you make each month.

A lower payment might be exactly what you need. A shorter term might matter more. Neither is automatically the better choice. It depends on what you’re trying to accomplish.

5. Sometimes the Best Move is No Move.

Refinancing isn’t automatically the right move.

If you’re already close to paying off your vehicle, there may not be enough time left on the loan for refinancing to provide meaningful savings. Fees can also eat into the benefit of switching loans. 

And while extending the term may lower your monthly payment, it can also mean paying interest for a longer period of time. If your current loan already works well for you, changing it just for the sake of changing it may not accomplish much.

That’s really the point: refinancing isn’t about getting a new loan. It’s about seeing whether a different loan could work better for your life today. 

6. Bought Your Car at a Dealership? You Can Still Rethink the Loan.

Yes, refinancing may still be an option if you originally financed your vehicle through a dealership.

When you’re buying a car, there’s a lot happening at once. You may have spent more time choosing the vehicle than thinking about the financing behind it. Refinancing gives you another opportunity to look at the loan part of the purchase. 

The same is true if your current loan is with another bank or credit union. Comparing your options doesn’t commit you to making a change. It just gives you more information to make a better decision. 

Not sure where to start? Ask yourself these 3 questions.

If all of this still feels like a lot, boil the decision down to this:

What am I paying now?
Know your rate, monthly payment, remaining balance and how much longer you’ll be paying.

What has changed?
Think about your credit, income, budget and the loan options available today.

What do I want to improve?
A lower monthly payment? Less interest? A faster payoff?

Those answers give you a much clearer starting point for deciding whether refinancing deserves a closer look.