Can you refinance your car loan for better value?

Refinancing means replacing your current car loan with a new one, usually with a better interest rate, more flexible loan terms, or both. People refinance for various reasons, such as:

• Reducing monthly payments

• Decreasing the length of a loan

• Switching from a variable interest rate to a fixed rate

It may not always make financial sense to refinance your car loan. Online refinance calculators can help you estimate how changes to your loan terms—like interest rates or payment lengths—could impact your monthly payment. While they aren’t a guarantee, they can be a helpful way to explore your options before talking to a lender.

Before approaching a lender, consider:

• Your current interest rates

• The range of refinancing products available on the market

• Possible application and processing fees

Here are a few situations where refinancing may be worth exploring:

If you’ve improved your credit score recently, you could qualify for a better interest rate or more favorable loan terms on a car loan. This could save you money in the long term or make your monthly payments more affordable.

You may have taken a variable-rate or adjustable-rate auto loan because the introductory rate and starting monthly payments were lower than a fixed-rate loan. However, interest rates can fluctuate over time, potentially increasing your loan rate, making these types of loans attractive but unpredictable.

Refinancing from a variable- to a fixed-rate loan means you'll pay the same interest rate for the life of the loan, allowing you to set a payment budget every month.

Choosing to refinance gives you the opportunity to explore other lenders either within your community or online. You may want to switch lenders for several reasons, sometimes simply because a trusted friend uses that lender. Typically, changing lenders is due to:

• Refinancing deals

• Responsive customer service

• Lower interest rates

• Flexible term options

• Convenient locations

When you buy a new or used car from a dealership, you can sometimes feel rushed into accepting the loan they offer you—even though the interest rate is uncomfortably high. Or, if you have poor credit or driving infractions, it may be the only loan available to you when you need a car.

You don’t have to be stuck in that high-interest loan. There could be better financing options out there with lower interest rates and better terms. Talk to your local credit union or the bank where you have your checking and savings accounts.

The refinancing process is a little different for everyone, but here are some standard steps to get you started:

Data on your current loan can help you and the lenders you approach determine rates and terms that fit into your current financial situation. Have the following information about your existing loan handy for your search:

• Interest rate

• Months remaining in the term

• Monthly payment amount

• How much you’re paying to principal and interest each month

• Any penalties or conditions built into the contract

Many lenders offer refinancing options, including both fixed-rate and variable-rate loans. Take your time to compare lenders—including credit unions, banks, and online-only lenders—paying close attention to interest rates, loan terms, and refinancing deals.

Loan comparison websites can help you review rates and terms from multiple lenders simultaneously, saving you time.

Refinancing rates and terms will partially depend on your credit history, including whether you've made previous payments on time. Before applying for a refinance, check your credit score to see where you stand. You can do this for free on AnnualCreditReport.com, which provides credit reports from the three main credit reference bureaus.

Depending on the lender, you can apply for a refinanced car loan in person, online, or over the phone. The lender will ask you for various pieces of information when reviewing your application, including your:

• Name, address, and date of birth

• Social Security number

• Income and employment details

You may have to provide the lender with evidence to support your application, such as pay stubs, tax returns, and insurance documents. Your lender will also check your credit history and other financial circumstances.

Some lenders may approve you for a refinance the same day you apply or shortly after, meaning you won't have to wait long for a decision. Other lenders could take several days to review your details.

If you're approved for refinancing, the new lender will pay off the remaining balance on your current loan. After that, you'll start making monthly payments on the new loan—usually with updated terms that reflect your refinance agreement.

Most lenders won't let you apply for a refinance during the first 60–90 days of a new agreement. A waiting period may even be in your contract before you can refinance with another lender.

Poor credit can also put a wrench in your refinancing plans. If your credit score is too low, the higher interest rates may make refinancing unaffordable. Or, if your record shows you haven’t reliably paid your bills, lenders may not be willing to refinance your car loan.

When you refinance a car loan, you're bound to new loan terms set by your lender. For example, your lender may require you to get comprehensive and collision coverages that provide an extra layer of protection.

If this is the case, check out Dairyland's range of customizable coverages. We can help you find affordable rates, low down payments, and flexible payment plans.