How To Refinance Auto Loan: 7 Simple Steps Most Drivers Miss

Dec 15, 2025

Refinancing your car loan can potentially lower your monthly payment, reduce the interest you pay over time, or help you pay off your vehicle faster. But it's not always the right move for every driver. In this guide, you'll learn exactly what it means to refinance a car, when it makes sense to do so, and how to navigate the process step-by-step so you can make an informed decision about whether refinancing is right for your situation.

What Does It Mean To Refinance a Car Loan?

When you refinance your auto loan, you're essentially replacing your existing car loan with a new one, typically from a different lender. The new lender pays off your current loan, and you begin making payments under the new loan's terms, which might include a lower interest rate, different monthly payment, or adjusted loan term.

Refinancing isn't simply modifying your existing loan. You're taking out an entirely new loan with its own approval process, terms, and conditions. The goal is usually to secure better terms than what you currently have, whether that means saving money on interest, lowering your monthly payment, or both.

When To Refinance (and When It Might Not Be Worth It)

Whether you should refinance your car depends on your circumstances. Here are the situations in which refinancing an auto loan typically makes sense:

Your credit has improved significantly since you took out your original loan. A higher FICO score can qualify you for substantially better rates.
Interest rates have dropped below what you're currently paying.
You accepted dealer financing at a higher rate to close the deal quickly.
You want to lower your monthly payment to improve cash flow.
You'd like to pay off your car faster by shortening the loan term.

The primary reasons why you should refinance your car loan include reducing your total interest costs, lowering monthly payments, or adjusting your loan term to better fit your budget. Some borrowers also refinance to remove a co-signer once they can qualify independently.

However, refinancing isn't always worthwhile. Skip refinancing if:

You're underwater on the loan (owing more than the car's current value)
Prepayment penalties or refinancing fees exceed your potential savings
Your loan is nearly paid off (within 12-18 months)
Your vehicle is very old or has high mileage (many lenders have limits around 10 years old or 100,000 miles)

Quick scenario: Let's say you have $15,000 left on a 5-year loan at 7% interest with 36 months remaining. Your monthly payment is roughly $463. If you refinance the $15,000 at 4.5% but extend to 48 months, your payment drops to $342, saving you $121 monthly. However, you'll pay more total interest over the longer term. The trade-off depends on whether you prioritize immediate cash flow or long-term savings.

What Lenders Typically Require for an Auto Loan Refinance

Before you begin the process of refinancing your auto loan, it helps to know what lenders look for.

Common eligibility criteria:

Minimum credit score (often 600-650, though requirements vary)
Vehicle age limits (typically under 10 years)
Mileage caps (commonly under 100,000 miles)
Minimum loan amount (often $7,500-$10,000)
Proof of income and employment
Current auto insurance

Documents you'll need:

Driver's license or state ID
Current loan statement and payoff amount
Vehicle information (VIN, mileage, title)
Proof of income (pay stubs or tax returns)
Proof of residence
Insurance documentation

Important tip: Before applying, check your current loan for any prepayment penalties. Some lenders charge fees if you pay off your loan early, which could eat into your refinancing savings.

Step-by-Step: How To Refinance an Auto Loan

Here's exactly how to refinance your auto loan:

Review your current loan details: Gather your current interest rate, remaining balance, monthly payment, and payoff amount. Contact your lender for the exact payoff figure, as it may differ from your remaining balance due to interest calculations.
Check your credit: Know where you stand before applying. If your credit needs work, consider reviewing our credit repair guide to improve your score first.
Shop around and compare rates: Get quotes from multiple lenders—banks, credit unions, and online lenders. Many offer prequalification with a soft credit check that won't impact your credit score. Once you're ready to formally apply, try to submit all applications within a 14-day window; credit bureaus typically count multiple auto loan inquiries in this timeframe as a single inquiry.
Calculate your potential savings: Compare the total cost of your current loan versus refinancing options, factoring in any fees.
Submit your formal application: Once you've chosen a lender, complete the full application with all required documentation.
Wait for approval and finalize details: If approved, carefully review the new loan terms before signing. Your new lender will pay off your existing loan directly.
Keep making payments: Continue paying your old loan until you receive confirmation that it's been paid off and closed.

Will Refinancing Really Save You Money? Here's How To Check

Is it a good idea to refinance a car loan? The honest answer is that it depends on your specific numbers. A refinance that saves you two or three percentage points on your interest rate with minimal fees is usually worthwhile. But extending your loan term significantly might result in paying more interest overall, even with a lower rate.

The best way to know if refinancing makes sense for you is to get an actual rate quote based on your credit profile and compare it against your current loan. Don't just look at the monthly payment—calculate the total amount you'll pay over the life of each loan.

What To Do Next: Assess Your Options at Lendward

At Lendward, we know that refinancing decisions aren't one-size-fits-all. That's why we've built our entire process around personalized service. When you call, you'll speak with real people, not chatbots or automated systems. Our customer service representatives don't work on commission, and they all have prior lending experience, so you can trust you're getting honest guidance.

Your dedicated account manager will walk you through the entire refinancing process, helping you understand whether it makes sense for your situation and what rates you might qualify for. We work with borrowers across all credit profiles and handle everything from new and used car loans to refinancing.

Ready to see what refinancing could save you? Explore your auto refinancing options or connect with our team to discuss your specific situation. Learn more about Lendward's loan process and discover how we make refinancing straightforward and stress-free.