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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.

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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

If your auto loan application is rejected, the lender might suggest that having an auto loan cosigner could help you get approved. You might be wondering, though, how much can a cosigner for a car loan really help? If you have little credit history or a low credit score and a qualified cosigner, the answer is a good amount — and it could also help you snag a better interest rate on your loan.

Of course, there are pros and cons of getting a cosigner for a car to consider, which we cover along with exactly how cosigning a car loan works.

What Is Cosigning?

Cosigning is a process in which another person applies for your loan with you, typically to improve your chances of getting loan approval. This person is agreeing to also be responsible for your loan, serving as a financial guarantor. If you don’t make your payments, they’re legally obligated to do so.

When you have an auto loan cosigner, the lender may access and review credit reports to see whether the cosigner can afford the monthly car payment. Having a qualified cosigner for car loans, therefore, can help you get your financing application approved.

How Does Using a Cosigner Work?

Let’s take a closer look at the cosigning process and how using a cosigner works.

Who Can Cosign a Car Loan?

Friends, family members, and anyone else who has a relationship with you can serve as a cosigner. A successful cosigner generally needs to be someone who has a good credit score, consistent income, and debt that’s not too high relative to the income they earn. People with bad credit may also cosign car loan applications, but that might not help your application get approved.

When to Cosign an Auto Loan

If you qualify for a loan on your own, a lender can’t require you to get a cosigner. A cosigner is needed, though, if a lender won’t approve the loan based on your own credit record and income.

When Is It Best to Get a Cosigner for a Car?

A cosigner can be needed if:

•   You have a limited credit history

•   You have a low credit score

•   Your debt-to-income ratio (the amount of debt you have in relation to your income) is too high

•   Your employment history is too short or unstable

•   You’re otherwise considered to be a high-risk borrower

Auto Loan Cosigner Requirements

Cosigners may have to meet the following cosigner requirements to cosign a car loan application:

•   Good credit score: Typically 670 or higher for better loan approval chances

•   Stable income: Proof of steady earnings to cover payments if needed

•   Low debt-to-income ratio: Ensures financial ability to take on additional debt

•   Proof of identity: Valid government-issued ID (e.g., driver’s license, passport)

•   U.S. Citizenship or residency: Some lenders require legal residency status

•   Valid employment or income source: Recent pay stubs or tax returns as proof

•   Strong credit history: No recent bankruptcies or major delinquencies

•   Willingness to accept responsibility: Cosigner must agree to repay if the primary borrower defaults

Creditworthy cosigners can help subprime borrowers get auto financing by cosigning a car loan. There are ways in which you may go from being a cosigner to primary borrower if all parties are agreeable to modifying the existing loan agreement.

Can You Use a Cosigner When Refinancing an Auto Loan?

Just like when you’re buying a vehicle, cosigning on an auto loan refinance is an option. You may use a cosigner with good credit who can help you get approved for refinancing. Subprime borrowers may qualify for bad credit refinancing without a cosigner, but they may not qualify for the best rates of interest.

Recommended: Can You Refinance a Car Loan With Bad Credit?

What Types of Lenders Allow Cosigners?

The following financial institutions may allow cosigners for car loan applications:

•   Banks

•   Credit unions

•   Private lenders

The way car loans work is that lenders provide financing to help borrowers buy a new or used vehicle. Borrowers are expected to repay the car loan over a set term, and these loans may include interest charges from an annual percentage rate or APR.

Some lenders may offer unsecured car loans. The difference between secured vs. unsecured auto loans is that the vehicle itself serves as collateral on the secured loan, while borrowers pledge no assets as collateral on an unsecured car loan.

What Rights Does a Cosigner Have?

You may ask, “What rights does a cosigner have on a car?” A cosigner has the right to request a cosigner release if the main borrower falls behind on payments. However, both the primary borrower and the lender would have to approve the cosigner’s removal from the loan.

Even though the cosigner agrees to repay the debt if the primary borrower doesn’t, the cosigner doesn’t have any rights to the car being financed. That belongs to the main borrower, with the cosigner simply serving as a financial guarantor.

Is a Cosigner on the Title of a Car?

A person who cosigns your auto loan won’t be listed on the title of your car. A cosigner is not included in the title and has no ownership of the vehicle. A cosigner is simply an individual who shares the financial responsibility of repaying the loan alongside the primary borrower, which reduces risk to the lender.

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

Can a Cosigner Take Your Car?

A cosigner has no right to take your car because the cosigner has no ownership of your vehicle and no security interest in the vehicle. If you default on the car loan, your cosigner will be responsible for making required payments on the loan. If the borrower and cosigner both fail to make required payments on the loan, then the lender may take or repossess the car.

A car title may list the owner and any lienholders who hold a security interest in the vehicle. The title may name your lender as a lienholder if your financing is secured by the vehicle as collateral. A cosigner is not your lienholder and has no right to take your car.

Recommended: Can You Refinance Your Auto Loan After Repossession?

Pros & Cons of Cosigning an Auto Loan

As with just about any financial transaction, there are pros and cons to having a cosigner for a car, which we outline in the table below:

The Cosigning Process

In order to get a cosigner, you’ll first need to brainstorm who might make a good auto loan cosigner. This will generally be someone with good credit, a decent income, and a relatively small debt-to-income ratio — and who might be willing to do this for you.

Because cosigning a car loan is a big responsibility, it makes sense to prepare for when you’ll ask that person. Have information available about the vehicle, the lender, the loan terms, and so forth. Also, be ready to share how you’ll be able to make payments on time. Perhaps you’ve had credit challenges in the past that are still making it difficult for you to get a loan on your own, but you’re now following a budget and have some money saved. Share that information with the potential cosigner.

If that person agrees to cosign for a car, then they would apply for the car loan with you, sharing their personal information with the lender and agreeing to have their credit scores and credit reports checked. If the loan gets approved, they’d sign the paperwork.

Cosigner vs Co-borrower

The below table compares cosigners vs. co-borrowers:

Recommended: Refinancing a Car Loan: What to Consider

Can a Cosigner Be Removed From an Auto Loan?

A cosigner can be removed from an auto loan by these three methods:

•   Paying off the loan: If this is possible, then you’ll not only remove the cosigner from the loan but you’ll get rid of a monthly payment. Make sure there are no fees for paying early — or, if there are, that the payoff still has enough value to move forward.

•   Investigating a cosigner release: Check your car note or talk to your lender to see if there is a clause in your loan papers to release a cosigner if certain conditions have been met. If there isn’t, ask the lender what they would need to release the cosigner; they may agree if they feel confident that you can make the payments on your own.

•   Refinancing the car loan into your name only: If you had financial or credit-related reasons for getting a cosigner and your situation has since improved, then you may be able to refinance the car into just your name. Refinancing for borrowers with a bad credit score can also sometimes be an option.

Although the third option is often the most practical, there are things to consider when refinancing a car loan.

For one, it can affect your credit score (though the effects are usually small and relatively short-lived).

You’ll also want to take the time to compare the interest rates, terms, payments, and fees offered by various lenders. Ideally, you could get an interest rate that’s better than your current one, as well as a more attractive payment (with the new loan’s term playing a key role in what that new payment would be).

Recommended: Can You Refinance a Car With a CoSigner?

Alternatives to Getting a Cosigner

Below we highlight some alternatives to getting a cosigner:

Build Your Credit Score

Working on your credit history, paying your bills on time, and building your credit score may help you secure financing on better terms for you. There’s no guarantee that you’ll get approved for auto loan financing, but building your credit score can help.

Buy a Less Expensive Vehicle

Buying a less expensive car may be an option to consider if you don’t qualify for tens of thousands of dollars in auto loan financing. Lenders may offer financing as low as $5,000, which can be sufficient for buying a used vehicle.

Save Up for a Larger Down Payment

Saving up for a larger down payment may help you qualify for car loan financing by minimizing your borrowing costs. A larger down payment may prevent you from getting an upside down auto loan in which your loan balance is greater than your car’s resale value. It’s generally better to have positive equity in your car rather than negative equity that leaves you underwater.

The Takeaway

Getting a cosigner can sometimes make the difference between a loan application getting approved or turned down, and it can often save the borrower money. Reasons why a cosigner is typically needed include when the primary borrower has credit-related issues or doesn’t have enough income.

At some point, however, a borrower may decide to refinance the loan to get the cosigner’s name off of the application and, ideally, also secure a better interest rate.

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 are the requirements to be a cosigner for an auto loan?

To be a cosigner for an auto loan, you typically need a good credit score, stable income, low debt-to-income ratio, and proof of identity. Lenders require cosigners to be financially capable of repaying the loan if the primary borrower defaults, ensuring added security for the lender.

Does being a cosigner on a car loan improve your credit score?

Yes, being a cosigner on a car loan can help build your credit score if payments are made on time. The loan appears on your credit report, and consistent payments build your credit history. However, missed or late payments can negatively impact your score, just like the primary borrower’s.

Does a cosigner own the car that they are cosigning on?

No, a cosigner does not own the car they are cosigning on. The primary borrower holds ownership, but the cosigner is legally responsible for repaying the loan if the borrower defaults. Their name appears on the loan agreement, but not necessarily on the vehicle title or registration.

Photo credit: iStock/Drazen Zigic

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®

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By consolidating multiple car loans, you could secure a lower interest rate and/or a lower monthly payment, not to mention the convenience of streamlining multiple car loan payments into one.

There are a number of tools that you can use to consolidate your car loan, including personal loans, home equity loans, or refinancing your car loans into one loan. Here’s a closer look at how the process works and how to decide whether it’s the right choice for you.

Can You Consolidate Car Loans?

You can consolidate debt, including car loans, by combining multiple loans under one new loan to streamline payments. Ideally, the new loan may also have a lower interest rate, which could save you money in the long run. Or, the new loan may have a better term that can help make your monthly payments more manageable.

Reasons to Consider Consolidating Car Loans

Reasons to consolidate your car loans include the ability to:

•   Streamline monthly payments: If you have multiple car loans, keeping track of the different due dates can get overwhelming. Consolidation can streamline those payments into one monthly payment.

•   Secure a lower rate: If average auto loan interest rates have fallen or your finances have improved, you may qualify for a new loan with lower interest. Consolidating your auto loans under this new loan could reduce the amount you pay each month, as well as the overall amount of interest you’ll pay over the life of your loan.

•   Make monthly payments more manageable: Finally, if your monthly payments are too high, consolidating with a loan that has a longer term can lower your monthly payments. Be aware, however, that you will be paying interest for longer, which in some cases may increase the total cost of your loan.

Recommended: Fixed vs. Variable Interest Car Loans

Steps for Consolidating Auto Loans

If you’re looking to consolidate your auto, here are the steps you’ll need to take:

1. Learn the Status of Your Current Loan

First, find out how much you still owe on your auto loans. Specifically, you’ll want to find out your 10-day payoff quote, which is the amount of money required to pay off your loans completely, including principal, interest, and fees, over the next 10 days. After 10 days, you’ll want to get a new quote from your lender.

You’ll also want to find out if your lender charges prepayment penalties for paying off your loan early. If they do, be sure the cost of these penalties doesn’t outweigh the benefits of consolidation.

2. Choose Your Loan Type for Consolidation

Next, you’ll want to choose what kind of loan you’d like to use to consolidate your auto loans. You have a number of options, including:

•   Car consolidation loans: Some auto lenders will offer the ability to consolidate your auto loans into one auto loan that’s secured by your vehicles. While these loans can help streamline your bills, beware that if you miss a payment, your vehicles are in danger of being repossessed by your lender.

•   Personal loans: Like auto loans, personal loans are a form of installment loan. However, unlike car loans, they are often unsecured and require no collateral. When consolidating with a personal loan, you’ll own your cars outright. Personal loans offer a lump sum of cash with few limits on how you use it. You agree to pay back the loan in monthly installments with interest.

•   Home equity loans and home equity lines of credit (HELOCs): A home equity loan allows you to borrow money against the value you’ve built up in your home. These loans use your home as collateral and because they’re secured, they may offer lower interest rates than other options. However, if you fail to pay back your loan, you’re at risk of your lender repossessing your home. Meanwhile, a HELOC allows you to open a revolving line of credit backed by the value of your home. You can borrow up to a certain credit limit, and as you pay back the loan, that credit limit is restored.

Recommended: Personal Loan vs Auto Loan: What’s the Difference?

3. Gather Necessary Application Documents

Once you’ve established the type of loan you’re interested in, you’ll want to gather documents. Requested information is often similar to that of car loan requirements, such as personal identification and proof of insurance, residence, and income.

4. Compare Lenders and Apply

Shop around among various lenders to help ensure that you receive the lowest interest rate possible. You may even want to apply to multiple loans. Though a loan application will lower your credit score slightly, the effects of multiple applications during a short period are not cumulative, as the credit reporting bureaus want to encourage you to find the loan that’s right for your situation.

Pros and Cons of Consolidating Car Loans

Before committing to a loan, be sure to weigh the pros and cons of consolidation carefully.

Pros of Consolidating Car Loans

Here are some of the notable upsides of car loan consolidation:

•   Consolidating can lower your interest rate and/or your monthly payments.

•   Consolidation may also help build your credit score by decreasing your credit utilization, which is the amount of available credit that you currently use.

•   Consolidating with an unsecured loan will mean that you own your cars outright, and don’t need to fear repossession if you miss a loan payment. That’s not to say there aren’t consequences for failing to pay an unsecured loan. Lenders will do what they can to recoup their losses, including sending the loan to a collections agency.

Cons of Consolidating Car Loans

On the other hand, consolidating your loan may have a host of disadvantages:

•   You may trigger prepayment penalties, if your lender charges them.

•   You could end up with a higher interest rate. This could end up happening if your credit score has slipped since you initially applied.

•   If you extend the terms of your loan, you might end up ultimately paying more in interest than if you’d kept your original loans

Recommended: Debt to Income Ratio for Car Loans

Alternatives to Car Loan Consolidation

If you decide consolidation is not for you, you have a number of options.

Trade In Your Vehicles

You could potentially lower the amount you pay each month by trading in your vehicles for cheaper used car options at a dealership.

Sell Off One Car

Another option is to sell one of your vehicles. You could then use the money you make from that sale to help you pay off your other auto loan.

Auto Loan Refinancing

Another option is auto loan refinancing. When you refinance an auto loan, you take out a new loan to pay off one of your old loans. As with a consolidation loan, this new loan will hopefully have a lower interest rate or a longer term that leads to more manageable monthly payments.

Again, you’ll want to consider refinancing when interest rates have dropped or when your finances have improved, which can increase the chance you’ll receive a more favorable new loan.

Recommended: Pros and Cons of Refinancing a Car

The Takeaway

Debt consolidation and refinancing can be important tools to help you make your finances more manageable and save you money. Also, if either strategy helps you pay your debts on time, it’s a great way to be proactive in protecting your credit score, which can make securing future debt easier and cheaper.

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

Is it possible to consolidate auto loans?

Yes, it’s possible to consolidate auto loans by combining multiple loans into a single loan with one monthly payment. This may simplify finances and potentially lower the interest rate. However, eligibility depends on credit, income, and lender terms, and fees or extended loan terms could increase overall costs.

Can you refinance two car loans together?

Yes, you can refinance two car loans together through a process called loan consolidation. This combines both loans into a single loan with one monthly payment, which may simplify finances. However, eligibility depends on factors like your credit score, income, and the combined value of the vehicles.

Does debt consolidation affect buying a car?

Consolidating your loans may help build your credit score, which will help you secure future auto loans. It may also help you free up extra cash that you can use to purchase a new vehicle if you choose.

Photo credit: iStock/Jinda Noipho

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.

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