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College planning is an exciting time for you and your child. But, as exciting as it may be, there is a lot of preparation involved.

So, whether your child is entering into their freshman year of high school or a few months away from graduation, there is no better time to start planning for college than the present.

From figuring out your financials to helping your child prepare for admission exams, this college planning checklist for parents can help streamline your child’s transition from high school to college.

Starting a Savings Plan

According to the Education Data Initiative, the average cost of college in the U.S. is $38,270 per year, including books, supplies, and daily living expenses. Indeed, the cost of going to college has more than doubled over the past two decades.

With this in mind, it’s wise to start saving for college. But, while many parents may have the best intention of helping their children pay for their college expenses, they often fail to prepare.

So, even if your child is just now entering high school, you can still start saving and preparing for college costs. It’s never too late to start setting money aside for your children’s education.

💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.

Paying Close Attention to Grades and Curriculum

Since grades and curriculum are crucial to getting an acceptance letter, you may want to keep close tabs on your student’s grades and study habits. From helping with studying to supporting homework expectations, getting involved with your kid’s coursework may help them perform better in school.

You may also want to encourage them to take Advanced Placement courses. Since AP courses allow you to tackle college-level material while your child is still in high school, your student may get ahead by taking some.

Recommended: ACT vs. SAT: Which Do Colleges Prefer?

Encouraging Involvement with the Community

While the top factors in admission decisions tend to be academics, the next most important factors typically include a student’s demonstrated interest and extracurricular activities.

Encouraging your child to get involved in the community could potentially help them write a solid college application, and even help them decide what they want to do with the rest of their lives.

For example, if your child loves to run, they may want to try out for the track team to round out their classes or volunteer as a track coach for a youth team. Or, if they prefer journalism instead of sports, they may want to try writing for the school newspaper.

Not only will getting involved help with their college application, but it will also help sharpen their skills. So, don’t be afraid to encourage them to explore their passions and get involved with the school and/or local community. You might even want to get involved with them.

Planning for the SAT and ACT

Another key component to receiving acceptance letters from colleges and universities is having acceptable SAT and ACT scores. Some schools require the Scholastic Aptitude Test, known as the SAT, while others may require the American College Testing, known as the ACT. Some schools will accept either one, but it’s a good idea to check the preference of the schools your child will apply to.

To help your child prepare, you can encourage them to sign up for an after-school prep class or practice at home by using online resources such as Khan Academy’s free SAT practice program in partnership with The College Board.

Recommended: How to Help Your Child with SAT Practice

Researching Schools

One of the most important components of college planning for your child is helping them decide which university or college is the right fit. Fortunately, there are plenty of options available to help you find a school that will fit your child’s education and experience needs.

To get started in the decision-making process, you may first want to help your child decide what degree they would like to achieve. If they know they want to be an engineer, for example, you may want to focus on schools with good engineering programs.

It’s also wise to consider factors such as location and the type of college experience your child wants to have. For example, if they want to go to a school close to home and commute to save money, that desire will limit the search parameters.

Remember, while you may be the voice of reason, the ultimate decision is up to your child — the student. Simply help them evaluate all of the key factors in making an informed decision.

Scheduling College Visits

College visits can be a big help when it comes to finding the right fit. With this in mind, you may want to help your child plan a college visit well in advance of making a decision. The College Board recommends scheduling your visits during your child’s junior year in the spring if you have already researched schools.

For seniors, it may be best to schedule visits in the fall through the winter months. This may help seniors narrow down their options.

Since you want your child to get a feel of the college experience, you’ll want to make sure classes are in session. Therefore, it’s also wise to avoid visits during holidays or break weeks.


💡 Quick Tip: Would-be borrowers will want to understand the different types of student loans that are available: private student loans, Federal Direct Subsidized and Unsubsidized Loans, Direct PLUS Loans, and more.

Investigating Financial Aid Options

Even if you have saved for your child’s education, you may want or need to explore other funding options, which could include your child taking on some of the cost.

Completing a Free Application for Federal Student Aid (FAFSA®) is one of the first recommended steps to applying for student financial aid, whether that is in the form of grants, scholarships, federal loans, or work-study.

It’s recommended to complete the form as soon as possible because there are differing deadlines to be aware of, including for individual colleges as well as federal and state deadlines. The sooner you submit your FAFSA, generally, the better your chances of receiving aid will be.

Colleges and universities will use the information reported on the FAFSA to determine how much aid a student is eligible for. Even if your child has not applied to a school yet, they can list that school on the FAFSA, so encourage them to include their dream school as well as those they consider safety schools.

Comparing each financial aid award letter can help you and your child determine the financial obligation of attending each school. It is recommended to exhaust all federal aid options before considering a private loan, but if you are looking for supplemental funding for your child’s education, private student loans may be an option.

The Takeaway

College planning is a significant journey that requires careful preparation and support. By starting early, managing finances wisely, visiting campuses, organizing important documents, and providing emotional support, parents can help their children navigate this exciting transition with confidence and ease.

Parents and students can pay for college with cash savings, federal financial aid (including grants, scholarships, and student loans), and private student loans.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.

FAQ

When should parents start planning for their child’s college journey?

Parents should start planning early, ideally during the child’s high school years, to ensure they are well-prepared for the entire college process, from applications to move-in day.

What are some important financial steps parents should take when planning for college?

Parents should create a budget, explore financial aid options like scholarships, grants, and student loans, and understand the costs associated with college to manage expenses effectively.

How can parents support their child’s emotional transition to college?

Parents can support their child’s emotional transition by providing encouragement, being a listening ear, and helping them feel confident and excited about their new college life.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

If you’re looking to get a great deal on a new or used car, you’ll likely need to do more than negotiate a good price with the dealer. Unless you’re paying all cash, you’ll also need to get a great deal on your auto loan.

Lowering the annual percentage rate (APR) of a car loan is one of the best ways to save on vehicle financing and the total cost of buying a car. Even just a 1% difference in your APR could add up to hundreds of dollars in savings over the life of the loan. Loan APRs vary with the lender, so it can pay to shop around.

Keep reading to learn more on car loan APRs, how to get a lower APR, what’s considered a good APR on an auto loan, and more.

What Is APR?

When shopping for a car loan, it’s important to understand that APR and interest rate are two different things.

Interest rate refers to the annual cost of a loan to a borrower and is expressed as a percentage. APR is the annual cost of a loan to a borrower — including fees — and is also expressed as a percentage.

Why the distinction? The APR is intended to give you more information about what you’re really paying. The federal Truth in Lending Act requires that every consumer loan agreement disclose the APR. Since all lenders must follow the same rules to ensure the accuracy of the APR, borrowers can use the APR as a good basis for comparing loan offers apples to apples.

How APR Works for Auto Loans

The way auto loans work is that the APR you pay accounts for your car loan interest charges plus all other fees you have to pay to get your loan. In general, borrowers with higher credit scores will qualify for loans with lower APRs. Lenders view borrowers with poor credit as being more likely to default on their loans. To compensate for this risk, they will often charge these borrowers higher APRs.

The total amount of a loan and the length of the loan (called the loan’s term) can also impact a car loan’s APR. Lenders typically charge a higher APR for larger loans, as well as longer term loans, since they represent higher risk.

Recommended: How to Calculate APR on a Car Loan

Can You Negotiate APR on a Car Loan?

Yes, in many cases, the APR on your car loan is negotiable. In fact, the first interest rate that dealers quote you may not be the lowest that you actually could qualify for, so negotiating is often a good idea. A lower APR can lower your auto loan payments.

Recommended: Guide to Car Loan Modification

Tips for Getting a Low APR on a Car Loan

To help get the lowest interest rate on a car loan, consider the following steps.

Build Your Credit

Your credit score has a major impact on the APR a lender will offer you on a car loan. You often need a score in the mid-600s to qualify for an auto loan, and above 700 for the best rates. You may be able to get your score for free on your credit card statement or online account, or you can buy it from a credit reporting agency.

If your credit is less than ideal, consider taking some steps to build your credit before you apply for a car loan. Things that can help include making your debt payments on time, paying down your debt, and making sure you aren’t getting close to your credit limit. Applying for new credit triggers a hard credit pull, which can temporarily dink your score, so also be sure you only apply for the credit you really need.

Shop Around

Rather than assume you’re getting the best rate and terms from the dealer, it can be wise to do some loan scouting on your own. Many lenders will show you preapproved rates and terms online after you fill out a short application. This generates a soft credit pull, which won’t impact your credit.

Taking the time to get quotes from different lenders (both local and online) can help you find a great deal. It can also give you more leverage in negotiations because you’ll understand the going rates with your particular credit score for the car you’re interested in.

Make a Bigger Down Payment

Auto lenders often require borrowers to make a down payment on the loan. Doing so makes the buyer put more skin in the game and reduces the likelihood that they’ll default on the loan (since their own money is at stake, too). The larger your down payment, the less risk you pose to the lender and the lower an APR they’re likely to offer you. You’ll also pay less in total interest because the overall amount you need to borrow will be lower.

Choose a Shorter Term

Banks generally see loans with longer terms as riskier than loans with shorter terms. That’s because they worry borrowers are more likely to default in the long run. They encourage shorter terms by offering lower APRs. Be aware that shorter terms usually mean you’ll have a higher monthly payment.

Use a Cosigner

If you have poor or thin credit and you’re having trouble finding a loan with an affordable APR, you might consider using a cosigner who has better credit than you do. Cosigners are typically family members or close friends, and they agree to make loan payments if you can’t. This stop-gap measure means banks are less worried about a default and may offer you a lower APR.

Borrow Less

Buyers who need to borrow less money are less risky to lenders and may qualify for lower APRs. You can borrow less by choosing a cheaper vehicle, buying used instead of new, or forgoing expensive add-ons and trim levels. You may also be able to borrow less by negotiating a lower purchase price with the dealer.

What Is Considered a Good APR on a Car Loan?

The average car loan APR in Q1 2025 for new cars was 6.73% and for used cars was 11.87%, according to Experian®. Borrowers with the highest credit scores typically qualify for the lowest rates. For example, buyers with excellent credit — scores in the 780 to 850 range — may be able to qualify for new car loan rates closer to 5%. If you have poor credit, on the other hand, you may need to pay more than the average APR for a car loan.

Recommended: Average Car Loan Interest Rate by Credit Score

Other Ways to Lower Your Interest Rate

Even if you already have a car loan, there are ways you may be able to lower the amount of interest you pay.

Prepay Your Loan

One option is to prepay your loan. Auto lenders typically calculate the interest you owe based on your loan balance. By making extra payments, you can reduce your balance and, in turn, the amount of interest you’ll pay. This strategy doesn’t change your APR, but it can reduce the overall cost of your loan. Check to see if your lender charges prepayment penalties that might outweigh the savings you’d receive from prepaying.

Refinance Your Loan

To actually lower your APR, you may want to look into refinancing your car loan. When you refinance, you take out a new loan (ideally with better rates or terms) and use it to pay off your old loan. If interest rates have dropped or you’ve built your credit, you may be able to qualify for a new loan with a lower rate. Shortening your loan term, on the other hand, can reduce the total amount of interest you’ll pay, even if you don’t qualify for a lower APR.

Recommended: What Should Your Average Car Payment Be?

The Takeaway

The interest and fees you pay over the life of an auto loan have a big impact on the overall cost on the vehicle. Understanding how the APR on an auto loan works can help you get a lower rate on a car loan.

If you already have a loan and you’re not happy with your rate, you might want to shop around and compare refinancing offers from multiple lenders.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How can I lower my APR on a car loan?

You may be able to get a better annual percentage rate (APR) on a car loan by:

•   Building your credit

•   Making a larger down payment

•   Going with a shorter loan term

•   Negotiating a lower sales price

•   Shopping around for a lender

•   Using a cosigner

•   Refinancing your loan

Can you get 0% APR on a car loan?

Yes, dealers will sometimes offer car loans with a 0% annual percentage rate (APR). These deals are designed to incentivize customers to purchase brand new cars, which generally sell at a significantly higher cost than used vehicles. To qualify for one of these promotions, you usually need to have excellent credit.

What is a good APR for a car loan?

The annual percentage rate (APR) on a car loan will vary depending on your credit score, the lender, and the terms of the loan. On average, interest rates are close to 7% for new car loans and 12% for used car loans.

Photo credit: iStock/Photo_Concepts

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOALR-Q325-055

When it comes to refinancing your car, you can do so as many times as you want.

There is no legal limit on the number of times you can refinance a car. However, each time you will have to find a lender that is willing to lend you the money for a new loan. Each lender will have its own rules for refinancing, and if you have refinanced a number of times already, it is possible a lender will decide not to make a loan offer.

However, even if you have to search for a lender, refinancing can be worthwhile, saving you money in interest payments over the life of the loan and making monthly payments more manageable. That said, it’s important to look into new loans carefully and ensure that the cost of refinancing, including fees, doesn’t take too large a bite out of your potential savings.

Let’s take a look at how and when to refinance and what mistakes you should avoid.

Car Loan Refinancing Basics

When you refinance a car loan, you are essentially replacing one loan with a new one. Ideally, the new loan will offer better terms and a lower interest rate than the old loan. That way, refinancing could improve your financial situation.

You might decide to look into refinancing if your original loan has become a bad fit in some way. For example, perhaps you’ve lost your job and your current interest rate means your payments have become too expensive for you. Or maybe your finances have changed for the better — for example, you may have built your credit score — and you are now more likely to qualify for a cheaper loan.

Whatever your reason for refinancing, be aware that you aren’t eliminating your debt. Your original loan balance will remain the same, and you’ll need to use the same collateral to secure the loan — in the case of an auto loan refinance, your car.

Factors to Consider Before Refinancing a Car Loan

Here are some factors to consider before refinancing a car:

•   An auto loan refinance calculator can help you determine whether refinancing is right for you.

•   Refinancing may be right for you if you can secure a lower interest rate.

•   Extending your loan term may reduce your monthly payment, but your interest costs may increase.

•   Refinancing for a shorter term may reduce your total interest costs, but your monthly payment may increase.

•   It’s possible to refinance with bad credit.

•   You could borrow extra funds with cash-out auto refinancing depending on your equity in the car.

•   It can be difficult to refinance an upside down car loan.

•   It can also be difficult to refinance a car with high mileage.

•   You’ll generally need proof of insurance to refinance a car loan.

•   You may not be eligible for refinancing if you owe less than $3,000 on a car loan.

•   Refinancing can hurt your credit score if the lender does a hard inquiry credit check.

Refinancing Requirements

Here are some typical requirements for auto loan refinancing:

•   Proof of identity

•   Proof of income

•   Proof of car insurance

•   Your car is 10 years old or newer

•   You owe at least $3,000 on your existing car loan

•   The car is registered in your name

•   Be current and not delinquent on your existing car loan

Recommended: Can You Register a Car Without a License?

How Many Times Can You Refinance a Car?

As mentioned earlier, you can refinance your car as many times as you want. Refinancing your car loan may be right for you if you can secure a lower car loan interest rate. (Refinancing for a longer term may increase your total interest costs.)

You’ll generally need to meet a lender’s minimum requirements to refinance your car. It’s possible to refinance your car loan multiple times if you can find willing lenders.

Keep in mind that refinancing typically comes at a cost. You may have to pay a title transfer fee each time you refinance your car loan. Fees can add to the cost of refinancing your car.

Reasons to Refinance Your Car

So, when should you refinance?

You may want to consider refinancing your loans when you’re either in a good spot financially or you’ve had some sort of financial setback.

For example, lenders look at your credit score when determining your creditworthiness, and that number helps them decide what terms and interest rates they are willing to offer you. If you’ve paid down debt and built your score since you took out your original loan, you may qualify for a new loan with lower interest rates.

But also, if you find yourself in a tough spot financially and need to find space in your budget, refinancing to a lower interest rate may help you save money.

In either situation, perhaps the best reason to refinance your car loan is to secure a better interest rate. All else being equal, a lower interest rate will mean that you pay less over the life of your loan. Your interest rate is included as part of your monthly car payments, and if it drops, so too should these payments, potentially making them easier for you to manage.

Is It Bad To Keep Refinancing Your Car?

If you continually refinance your car, there are a number of potential issues you could run into, including:

You Could End Up Upside-Down

First, as mentioned above, if you refinance to a loan with a longer term — even if you are offered a smaller monthly payment and lower interest rates — you can end up paying more over the life of the loan. What’s more, extending the life of your loan can potentially cause you to go “upside-down” or “underwater,” meaning you owe more on your car than it’s actually worth.

You Might Have to Pay Prepayment Penalties

Beware of prepayment penalties. When you refinance, you’re essentially paying off one loan and taking on another. However, your first loan may charge you extra if you pay it off early. Before you refinance, make sure there are no prepayment penalties, and if there are, make sure they don’t outweigh the benefits you might gain by refinancing.

It May Hurt Your Credit

Refinancing your car loan may temporarily lower your credit scores. As you shop for new loans and look for the best rate, each lender you submit an application with will typically make a hard inquiry as they pull your credit score. Your credit report keeps track of hard inquiries, which can cause your score to dip for a short period. That said, typically multiple hard inquiries in a short period of time are not cumulative in the effect they have on your score.

Recommended: Refinance a Car After a Divorce

How Long Should You Wait to Refinance an Auto Loan?

After you take out a car loan, there’s no set length of time that you have to wait before you can refinance. Theoretically, you could do so right away. For example, perhaps the car dealer offers a cash rebate if you finance your purchase through the manufacturer. It might be possible for you to take this deal and then immediately refinance to a lower interest rate with a bank. You might even get a “new car rate.”

That said, realistically, you may have to wait at least a month while your dealer and the Division of Motor Vehicles process paperwork relating to the vehicle title and registration.

Also, banks may have their own rules about how soon they’re willing to consider refinancing an auto loan. They may require that you hold your old loan for a set period before they will make a new offer.

And a final note about the timing of potential auto refinances: it may make sense to refinance as early as you can, near the beginning of your loan. If you wait, you may end up extending the number of years you’re paying off your vehicle, which could mean you spend more money even if you can lower your interest rate and monthly payment.

Recommended: Finance a Salvage Title

Can You Refinance a Car Loan with Over 100,000 Miles?

Refinancing a car with more than 100K miles on the odometer is possible. Lenders may be more concerned with the age of the vehicle than the amount of miles on it. In general, it can be difficult to refinance a car that’s more than 10 years old.

You may qualify for auto refinancing if your car is less than 10 years old and has fewer than 150K miles on the odometer. Lenders may also charge a higher rate of interest if you’re refinancing a car with over 100,000 miles.

The value of a car typically depreciates with use and age. An alternative to refinancing a high-mileage car is selling it and buying a new or used vehicle.

Recommended: How to Sell a Car You Still Have a Loan On

When to Avoid Auto Loan Refinancing

Refinancing does not make sense if you stand to lose money in the deal. How might that happen?

New auto loans cost money. States will charge a new title fee, and lenders may charge any number of fees, including origination and processing fees. If the amount you save by refinancing is less than the cost of new fees, the process may not be worth it. But you’ll have to read the fine print and do the math to be sure.

It is possible to wait too long to refinance. Interest rates are usually better for newer vehicles, so the older your car gets, the less favorable the loans you may have access to are likely to be. Some lenders won’t even consider vehicles that are over a certain age.

Recommended: Renegotiate a Car Loan

How Can You Ensure You’re Getting the Best Possible Rate?

Shopping around and comparing terms can help you find auto refinancing that’s right for you. You can check your rate and see whether you prequalify for any rate offers. Seeing whether you prequalify for auto refinancing typically involves a soft credit check that does not impact your credit score.

Once you shop around and compare rates, you’ll be free to apply for auto refinancing with the lender of your choice. Keep in mind that a lower interest rate doesn’t necessarily save you money if you refinance for a longer term.

Lenders may conduct a hard inquiry if you submit an application for auto loan refinancing. A hard inquiry can remain on your credit report for two years, and the initial impact can cause your credit score to drop several points.

Recommended: Can You Refinance a Car Loan With the Same Lender?

How to Lower Your Monthly Payment

Refinancing for a longer term can lower your monthly payment. Keep in mind that extending your loan term may increase your total interest costs, so this option may not be right for you if your goal is to minimize your interest costs.

In some cases, refinancing for a lower interest rate may lower your monthly payment depending on other factors. Your loan amount, annual percentage rate (APR), and term length will determine your minimum monthly payment.

Recommended: Refinance a Leased Vehicle

The Takeaway

While you can refinance your car loan as many times as you want, there are some factors that may limit how often you should do it.

Consider whether you will actually save money when you refinance. Remember that though you may lower your interest rates and monthly payments, fees associated with a new loan can reduce those benefits. And if you extend the life of your loan, you may end up paying more in the long run.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

Can you refinance a car twice?

Yes, you may have the option of refinancing your car multiple times before paying off the debt and gaining 100% equity in the vehicle. As long as you can find a lender willing to give you an auto refinancing loan, you can refinance your car multiple times.

Is it bad to keep refinancing your car?

It’s not necessarily bad to keep refinancing your car, but refinancing may be more advantageous when the car is newer. There are risks you’re more likely to encounter when you try to refinance later in the life of your car’s loan, like going upside down on the loan.

How long should you wait to refinance an auto loan?

Theoretically, you can refinance as soon as you get your car loan. Pragmatically, it will probably take about a month for the various paperwork to be finalized. After that, you can typically refinance, though it’s best to make sure you do so only if you’ll be getting concrete financial advantages from it.

Photo credit: iStock/mixetto

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q325-054

Refinancing your auto loan means replacing your old loan with a new one that ideally has better terms. Refinancing does not necessarily extend your loan term — that is, unless you choose a loan with a longer repayment term.

Read on to learn how refinancing works and when it might affect the length of your loan term by making it either shorter or longer.

How Refinancing Affects Your Car Loan

When you refinance an auto loan, you get a new loan to pay the balance of what you owe for the car. The new loan may have a lower interest rate, which could lower your monthly payment and save you money over the life of your loan.

Refinancing could also extend the term of your loan, but only if you choose to make the loan’s term longer. If you lengthen your loan term, it could result in a lower monthly payment. However, you’ll typically end up paying more in interest overall. A longer term can also make it feel like you’re starting your car loan all over again.

You could also refinance a car loan to a shorter term, which could help you qualify for a lower interest rate, but your monthly payments will be higher. Two upsides to this: You’ll pay less interest over the life of the loan, and you’ll pay your loan off faster if the loan term is shorter.

If you only have a year or two left on your current auto loan, refinancing might not be your best option. That’s because you pay the most interest early in the life of a loan. The potential cost savings of refinancing are diminished the closer you get to paying off the loan.

Recommended: What Credit Score Do You Need to Refinance a Car?

How Does Refinancing Affect Your Loan Term?

It’s important to note that refinancing may not affect your loan term at all. Whether it does or not is up to you, and it depends what your objectives are.

If you’re looking to save money with a lower interest rate on a car loan, you may be able to qualify for a lower rate without changing the term of your loan. This would lower your monthly payments and save money in interest over the life of the loan.

However, as mentioned above, you might decide to shorten your loan term to pay off your loan faster. Or you might choose to lengthen the loan to lower your monthly car payment. It depends on your goals and your budget as well as what kinds of loans you qualify for.

Recommended: Is Car Interest Tax Deductible?

When Is It a Good Idea to Refinance?

It may be a good idea to refinance your car loan when:

You found a better deal. There is no specific length of time before you can refinance a loan. In fact, if you find a loan with better rates and terms, you can refinance almost immediately. As mentioned above, it may be best to refinance earlier in the repayment process to help make the most of potential savings.

You can qualify for a lower rate. If you’ve built your credit since you took out the original car loan, you may be able to get a better interest rate with car loan refinancing.

Your credit history has a big impact on the interest rates lenders will offer you. Those with bad credit may struggle to get a loan or pay a less favorable interest rate. Borrowers with higher credit scores are typically offered lower rates. Lenders see these borrowers as less risky because they have a track record of paying their debts on time.

Your monthly payments are hard to meet. If your car payments have become unmanageable, you could consider refinancing to a loan with a longer term. That can lower your monthly payment, making it a better fit for your budget though you will likely pay more interest over the life of the loan. Later, if your financial situation improves, you could refinance the car loan to a shorter term to pay off your loan faster and save money on interest.

Your car is worth more than you owe on it. It’s easier to get a loan when your car is high in value. If you owe more than your car is worth, a situation known as being upside down on your car loan, many lenders won’t approve you for a loan. That’s because they don’t want to finance a car for more than it’s worth. For this reason, it may be wise to refinance sooner than later, given how cars can depreciate in value.

Recommended: How to Calculate the APR on a Car Loan

How to Refinance Your Auto Loan

When it comes to how to refinance a car loan, these are the steps you’ll need to take.

1. Gather the pertinent documents. This includes all the information about your current car loan, including the amount you borrowed, the monthly payment amount, the interest rate and terms, and the loan balance.

You’ll also need the make, model, year, mileage, and vehicle identification number (VIN) for your car, as well as your auto insurance information.

2. Shop around with various lenders. Consider starting with your original lender. Not all lenders offer refinancing, but if yours does, it may make the process easier. Get quotes from other lenders, too, to make sure you’re getting the best deal for you.

3. Apply for a loan. You’ll be required to submit proof of income and employment, along with personal information, such as your name, date of birth, contact information, address, Social Security number, and driver’s license number.

Be aware that applying for a car loan refinance can temporarily lower your credit score since it will trigger a hard pull on your credit report. If you end up submitting a number of loan applications, as long as you do them within a certain time frame (45 days in the case of FICO®), it only counts as one credit check.

4. Accept the loan. Once you’re approved for a loan and accept it, the old loan is paid off with your new refinanced loan. Your new lender usually handles this, but double-check to be sure. You’ll then begin making payments on the new loan.

Recommended: Does Refinancing a Car Hurt Your Credit?

The Takeaway

Refinancing your car loan doesn’t automatically extend the term of your car loan. However, you can choose to lengthen — or shorten — your car loan if it makes sense for you financially to do so. By extending the loan term, you usually can lower your monthly payment. However, you will also likely pay more interest over the life of your new loan.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

What happens to your old loan when you refinance?

When you refinance an auto loan, the old loan is paid off with your new loan. The new lender usually takes care of this, but it’s wise to double-check with them. Be sure to ask for confirmation that the original loan was repaid.

What are the cons of refinancing a car?

Refinancing a car can extend the loan term, increasing the total interest paid over time. It may also involve fees, such as application or closing costs. Additionally, if your credit score has dropped, you might face higher interest rates, making the new loan less favorable than the original.

Does refinancing replace your current car loan?

Yes, car loan refinancing replaces your current auto loan with a new one, and the old loan is paid off.

Photo credit: iStock/DMP

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q325-053

Refinancing your vehicle will likely cause a dip in your credit score because the application process usually involves a hard credit inquiry, which will temporarily lower your score. Additionally, accepting a loan can lead to another drop, as borrowers are statistically more likely to miss payments when they first take on a new debt.

That said, refinancing can offer big advantages, including lowering the cost of your loan over time and making your monthly payments more manageable. Depending on your situation, these benefits may be worth it — even if refinancing a car does temporarily hurt your credit.

Keep reading to learn more on auto loan refinancing, including how it can lower your credit score, factors that affect your credit score, and how auto loan refinancing may help your credit.

What Is Auto Loan Refinancing?

Auto loan refinancing involves taking out a new loan to pay off the balance on your original auto loan. Once you’ve applied for a new loan and your application is accepted, your new lender will take possession of the title of your vehicle. You’ll then begin making regular payments to the new lender. In some cases, you may refinance with your original lender.

There are both pros and cons of refinancing a car. Ideally, the new loan will offer a lower interest rate or lower monthly payments. However, you may also be on the hook for fees. Lenders charge fees for issuing a new loan, which can eat into whatever savings the new loan offers. Make sure these costs don’t outweigh potential savings.

As far as when to refinance a car, there are a few scenarios when it might make sense: if interest rates drop, your financial situation improves, or you’re looking for ways to lower your monthly payments.

If interest rates drop or you’ve built your credit score, you may be able to qualify for a loan with a lower interest rate than your current loan. Paying less in interest will reduce the cost of borrowing over the life of the loan.

You may also choose to refinance to a loan with a longer term. This can reduce the amount of your monthly payment. However, a longer term means you’ll pay more in interest over the life of the loan, which can ultimately make your loan more expensive.

Recommended: What Credit Score Do You Need to Refinance a Car?

Can Refinancing a Car Lower Your Credit Score?

Refinancing a car can temporarily lower your credit score due to the credit inquiry and changes in your credit accounts. When you apply for refinancing, the lender performs a hard inquiry to review your credit history, which may cause a small dip in your score. Additionally, refinancing replaces your existing car loan with a new one, which might reduce the average age of your credit accounts — a factor that impacts your score. However, these effects are usually minor and temporary.

It’s also important to note that if you’re shopping around for a loan (which is advisable), you don’t need to worry about getting hit with multiple hard inquiries. Credit score companies don’t want to deter borrowers from shopping around for the best loan, so they count multiple hard inquiries made over the course of a few weeks as one.

Factors That May Affect Your Credit Score

Hard inquiries aren’t the only thing that can affect your credit score. The five main factors that have an impact on your credit score include:

•   Your payment history: This is the most important factor, accounting for 35% of your FICO® score. Lenders want to know that you have a track record of paying your bills on time. This helps them determine how risky offering a loan may be.

•   The amount you owe: As the second biggest factor, this comprises 30% of your credit score. If you’re using a high portion of your available credit, lenders may see you as potentially overextended, putting you at higher risk of default.

•   Length of credit history: This factor makes up 15% of your FICO score. FICO looks at how long you’ve had your credit accounts, as well as the last time you used them. In general, the longer your credit history, the better the effect on your score.

•   Your credit mix: Generally speaking, FICO likes to see you have a mix of credit, such as credit cards, installment loans, and mortgages. This accounts for 10% of your credit score calculation.

•   New credit: This factor also makes up 10% of your score. New credit, as mentioned above, can be a red flag to lenders who might worry it puts borrowers at greater risk of default.

Recommended: Can I Use a Co-Borrower When Refinancing?

Can Refinancing a Car Help Your Credit?

Refinancing a car can help your credit if it improves your ability to make on-time payments. By refinancing, you might secure a lower interest rate or extended loan terms, which can reduce your monthly payment. This makes it easier to stay current on your loan, as consistent on-time payments positively impact your credit score.

Additionally, refinancing can lower your debt-to-income ratio, a factor lenders consider when evaluating your creditworthiness. Over time, this could strengthen your overall credit profile.

Recommended: What Questions Should You Ask When Refinancing a Car Loan?

When You May Not Want to Refinance an Auto Loan

Refinancing your auto loan isn’t always appropriate. There are certain situations in which you might consider opting against refinancing, such as:

•   If interest rates have risen since you took out your initial loan: In this scenario, it may be very difficult to find a new loan with a better rate. This may be true even if you’ve built your credit score.

•   If your car is worth less than the amount you still owe: If you’re in this situation, you have an upside down car loan. Lenders may be hesitant to extend credit since if you default on your loan, they’ll be unable to recoup their losses by repossessing and selling your vehicle.

•   If you’ve already paid off most of your loan: In this case, refinancing may not make much sense, as the cost of fees can offset the potential savings.

•   If you’re planning to apply for another major loan soon: Remember that new credit will temporarily lower your credit score. So think ahead to whether or not you’ll be applying for another major loan in the near future, such as a mortgage. If so, you may want to put off refinancing until you’ve secured that loan at the best rate possible.

Recommended: Car Loan With a 650 Credit Score

The Takeaway

Refinancing a car can have both positive and negative impacts on your credit score. While the initial hard inquiry and opening of a new account might cause a slight, temporary dip, the long-term benefits of lower monthly payments and reduced interest rates can lead to improved financial management and, ultimately, a better credit score.

If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.

FAQ

How does refinancing a car affect your credit score?

Refinancing a car can temporarily lower your credit score due to a hard inquiry and the replacement of your old loan with a new one, reducing the average account age. However, it can improve your credit over time by making payments more manageable, helping you maintain consistent on-time payment history.

Why did my credit score go down when I refinanced my car?

Your credit score likely dropped when you refinanced your car due to a hard inquiry from the lender and the closure of your original loan. Refinancing creates a new loan, which can lower the average age of your credit accounts. These effects are usually minor and temporary with responsible repayment.

Does paying off a car loan affect your credit?

Yes, paying off a car loan can affect your credit by reducing your credit mix, which is a factor in your credit score. While it removes a debt obligation, closing the account may also lower the average age of your credit. However, the positive history of on-time payments remains beneficial.

Photo credit: iStock/Tero Vesalainen

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOALR-Q325-052