Car Loan Refinancing: How to Save Money on Your Auto Loan

Car loan refinancing replaces your current auto loan with a new one that has better terms. You keep the same car but get a different interest rate, monthly payment, or loan length.

The process is straightforward: a new lender pays off your existing auto loan, and you start making payments to them instead. If rates have dropped since you bought your car, or your credit score has improved, you could save a significant amount of money.

Borrowers who refinanced their car loans in Q3 2025 saved an average of 2.08 percentage points on their interest rate, according to Experian. That translates to roughly $77 per month in savings for the average borrower. Some refinancing platforms report even higher savings, with customers reducing their monthly payments by $141 on average.

This guide walks you through everything you need to know about car loan refinancing: when it makes sense, what it costs, and a step-by-step process to get the best deal.

There are four main reasons borrowers refinance their auto loans. Each one can put real money back in your pocket, depending on your situation.

Auto loan refinancing rates vary widely based on your credit score, loan amount, and vehicle age. Here is what borrowers can expect in 2026.

The average 60-month new car loan rate sits at 6.93%, the first time it has dropped below 7% since June 2023. Refinance rates follow similar patterns.

Credit score is the single biggest factor in the rate you will get. Experian data from Q4 2025 shows the spread clearly:

Follow these steps to refinance your auto loan and get the best available deal for your situation.

Every lender has slightly different criteria, but most car loan refinancing lenders evaluate these factors:

Timing matters. Refinancing at the right moment maximizes your savings, while refinancing at the wrong time can cost you money.

The sweet spot is 2-3 years into your loan. Auto loans front-load interest payments, so refinancing early lets you capture more savings. Refinancing within the first 6 months is usually too soon because lenders want to see a history of on-time payments. Refinancing in the last year of your loan is usually not worth it because you have already paid most of the interest.

Refinancing makes the most sense when:

• Your credit score has improved significantly since the original loan
• Market interest rates have dropped
• You need to lower your monthly payment due to a change in your financial situation
• You want to remove a co-signer from the loan
• You are unhappy with your current lender's service

Avoid refinancing when rates are higher than your current rate, when your car is worth less than you owe, or when you are close to paying off the loan.

Unlike mortgage refinancing, auto loan refinancing has minimal upfront costs. Most lenders do not charge application or origination fees for car refinances. However, there are a few potential costs to watch for:

• Prepayment penalty: Some lenders charge a fee for paying off your current loan early. Check your existing loan agreement before refinancing.
• Title transfer fee: Your state may charge a fee to transfer the vehicle title from your old lender to the new one. This typically ranges from $5 to $75.
• Re-registration fee: Some states require you to re-register your car after refinancing, which carries a small fee.
• Sales tax (in some states): A handful of states charge sales tax on the refinanced amount.

These fees are usually small enough that the interest savings from refinancing still outweigh the costs. Some lenders roll the fees into the loan, so there is nothing to pay out of pocket. Use a car loan refinancing calculator to run the numbers and make sure you come out ahead after accounting for all fees.

Refinancing a car loan with bad credit is possible, but it comes with trade-offs. Interest rates for borrowers with poor credit can be 10 percentage points or more above rates for those with excellent credit, which means your total cost could be significant.

Most lenders require a minimum credit score of 600 for refinancing, but some work with lower scores. iLending approves borrowers with FICO scores as low as 560, and requires just six months of credit history.

Pre-qualification (also called pre-approval) is a critical step that many borrowers skip. Here is why it matters and how to do it right.

Refinancing your car loan will have a temporary, minor impact on your credit score. Here is what to expect:

The hard inquiry from your formal application typically lowers your score by 5-10 points. If you applied to multiple lenders within a 14-day window, it should count as a single inquiry.

Closing your old loan and opening a new one changes your credit mix and average account age, which can cause a small dip. However, if the refinance lowers your monthly payment and helps you stay current on all your debts, the long-term impact on your score is positive.

Most borrowers see their score recover within a few months. Over time, a car loan with consistent payments can actually raise your credit score.

Before you decide to refinance, weigh the benefits against the potential downsides.