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Technically, there’s no minimum credit score required to refinance your car. Your score is one of multiple factors that lenders review as part of your application.

That said, you’ll typically qualify for better interest rates with a strong credit profile. But having bad credit may not automatically exclude you from getting approved, either. You will, however, likely pay more to borrow than a person with a score of 600 or higher.

Here, learn the ideal credit score when refinancing an auto loan, how your credit score will impact your new loan, current auto refinancing rates, and more.

Is There a Minimum Credit Score to Refinance an Auto Loan?

There’s no specific credit score that’s needed to refinance your car. Loans are available for people with a wide range of scores. However, typically, a FICO® score of 700 or above will give you access to the most favorable loan offers, while a score of 600 or higher means you’ll likely get standard offers.

As you start shopping for a new loan, it’s important to consider your reasons for refinancing your auto loan:

•   The first reason you might want to refinance would be that you might now qualify for a better interest rate than when you first got your car loan. That could be because rates have lowered in general or because you have built your credit score. A lower interest rate could reduce how much you dole out in interest over the life of the loan.

•   Another common reason for refinancing is to simply lower your monthly payments and take some stress off your budget. You might do this by extending your loan term. However, this means you’ll be making car payments for a longer period of time and may pay more in interest over the life of the loan.

How Different Credit Levels Affect Auto Loan Refinancing

Refinancing a car is usually most difficult when you have a bad credit score, meaning between 300 and 579. However, you may still be able to get approved, especially if you’ve demonstrated a strong track record of making your current car payments on time.

Another strategy that could help you get approved is to refinance with a loan cosigner. This puts another person on the car loan with you. The idea is that their credit score and even potentially their income could help you get approved. It also puts your cosigner on the hook for the payments if you don’t make them, and their credit can be damaged significantly if you miss payments. (Worth noting: The cosigner has no legal claim to the vehicle unless you add them to the title.)

With a good credit score, you’re more likely to get approved for a refinance and with a more competitive rate. However, your income still needs to support the loan payments. A lender will verify your income as part of the application process and also compare it to your debt levels.

This comparison is called your debt-to-income ratio. If your monthly debt payments are too large compared to your income, you could have trouble getting approved.

Recommended: What Should Your Average Car Payment Be?

Cash-Out Refinance and Credit Scores

In many cases, the best time for refinancing may be when your car is worth more than you owe.

This situation could arise for a couple of different reasons. The first is that you’ve taken good care of your car and it hasn’t depreciated too quickly. The second is that you’ve been making extra payments on your car loan, keeping your overall balance lower than the value of the vehicle.

In these scenarios, you could apply for a cash-out refinance on your auto loan. This lets you take out a larger auto loan and receive the cash difference between the smaller, original loan and the new, larger loan. The car is used as collateral, just as it would be with any other auto loan. However, you do lose the equity you had before.

A cash-out refinance can negatively impact your credit score, so that is something to keep in mind. When you apply, you’ll likely see a slight dip once the lender performs a hard credit check.

Additionally, a cash-out refinance can change the overall amounts you owe and a higher overall level of debt could lower your score.

Increasing Your Odds of Approval

If you’re thinking about refinancing an auto loan, you can take a few steps to increase your chances of approval.

•   First, make sure your credit history is accurate. You can do this by checking your credit reports. Double check that your balances are accurate and that no fraudulent accounts have been opened in your name. You can file a dispute with the credit bureaus if you see something that is inaccurate.

•   Next, continue to pay your bills on time, especially your car payment. Most lenders use an industry-specific credit score to buy a car. This places a great priority on your previous auto loan payments.

•   Also, it can be a good idea to work on paying down your debt, especially if you’re concerned about your debt-to-income ratio. Not only can lower debt amounts build your credit score, it may also help you qualify for a higher loan amount. The maximum debt-to-income ratio allowed by a lender is usually between 45% and 50% (including the new car payment), but many lenders prefer no more than 36%.

For example, say your monthly income is $8,000 and you’re already paying $1,250 on a mortgage, $250 on a car loan, and $250 on other debts. That puts your debt-to-income ratio at 25% ($2,000 divided by $8,000), leaving you comfortably below the usual requirement.

How Does an Auto Loan Refi Affect Your Credit?

When you take out a new loan, your credit will be impacted in a few different ways. However, that doesn’t mean that refinancing your car is a bad idea, as long as it helps you meet your primary financial goals. A few ways auto loan refinancing affects your credit score includes:

New inquiry on credit report: When you’re figuring out what kind of interest rates you can get, remember to rate-shop in a set window of time. Auto credit bureaus may count multiple hard inquiries for the same type of loan as just one inquiry if they’re performed within 14 to 45 days, depending on the scoring method being used. If you’re sporadic with your applications, you could cause your credit score to drop up to five points for each one.

New account: Part of your credit score is based on the combined age of all your accounts. When you refinance an auto loan, you’re closing one account and opening another. That can cause your average age of accounts to go down and cause a drop in your score.

Amounts owed: A new car loan could cause a big dip in your score since it’s adding a large amount of new debt. But a refinanced car loan is usually for the same amount as the debt you already have, so it shouldn’t have a huge impact unless you do a cash-out refinance.

Recommended: Loan After Rebuilt Title

Auto Loan Refinance Rates

Of course, interest rates vary among different lenders. But the following chart may help you get a sense of what you’re likely to be offered.

Average Auto Loan Interest Rates

The credit bureau Experian® published the average auto loan rates based on credit range for the third quarter of 2024. This gives you a jumping off point about what you might expect when it’s time to refinance.

How to Look for Auto Loan Interest Rates

It’s important to shop around for auto loan refinance rates no matter what your credit score may be. One way to compare multiple rates without hurting your credit score is to use online tools that allow you to gather options. Dig into the details, however, to be sure you understand the annual percentage rate (APR), fees, and terms, and know the true cost of the loan, both in terms of your monthly payment and the overall cost of borrowing.

Once you find the best refinance quote, you can finish the application with your lender of choice.

Recommended: Refinancing After Repossession

The Takeaway

You can qualify for an auto loan refinance with a wide range of credit scores, depending on the lender and your other credentials. However, the higher your score, the more likely you are to get favorable rates and terms on your refinance. Getting a cosigner or taking the time to establish a stronger credit history can help you get more favorable interest rates on your car loan refinance.

And, of course, comparison shopping (within a short window of time) can also help you find the loan that is best suited to your needs.

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 is a good credit score for refinancing a car?

You will typically need a credit score of at least 600 in order to qualify for a refinance car loan. Those with higher scores are likely to access more favorable (or lower) rates and terms.

Can I refinance my car loan with a 500 credit score?

It can be challenging to refinance an auto loan with a credit score of 500. If you do find a lender, you will likely face very high interest rates and fees, as well as less favorable terms. Make sure you fully understand the total cost of the loan and your options before signing on.

Can refinancing hurt your credit?

When you refinance a loan, the lender typically does a hard credit pull to review your credit file. This causes a small (perhaps several points) drop in your credit score, which is temporary. Your score should be positively impacted as you make on-time payments and follow other credit-building habits.

Photo credit: iStock/MicroStockHub

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.

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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SOALR-Q225-030

Auto loan refinancing involves replacing your current car loan with a new one — ideally with more favorable terms. Depending on your financial profile, refinancing could qualify you for a lower interest rate, which may reduce your monthly payments and help you save money over the life of the loan.

How Car Loan Refinancing Works

When you refinance, you’re essentially negotiating a new agreement that could offer better rates or a more manageable payment schedule. Comparing lenders is key, as it allows you to find the most competitive offers. The best refinance option should match your financial goals, whether that’s minimizing interest, lowering your monthly bill, or both.

Here’s an example of what an auto refinance may look like:

Sam took out a car loan in late 2023. At the time, Sam had a low income and credit score, plus a fair amount of debt. This financial situation resulted in an interest rate of 16.56% for a subprime borrower on a used car — higher than the national average of 10.79% for used cars back then.

Since purchasing the car, Sam’s income has risen, his debt has shrunk, and he’s built his credit score. As a result, Sam thinks he may qualify for better interest rates today.

Seeking the lowest auto refinance rates, Sam decides to investigate car loan refinancing by:

1.    Setting goals for the new loan, such as an improved auto loan refinance rate.

2.    Researching online and brick-and-mortar lenders, including his current lender (refinancing car loans with the same lender is possible), and inquiring about possible loan terms.

3.    Self-reporting information to preferred lenders to see what prequalifying auto refinance rates look like (if available).

4.    Reading the fine print for preferred potential lenders to make sure all terms are clear.

5.    Applying to refinance the car loan with a preferred lender.

Given Sam’s income, debt-to-income ratio (DTI), and credit score improvements, a lender may offer him a loan with more favorable auto refinance rates and terms.

When to Think About Refinancing a Car Loan

•   Your credit score or debt-to-income ratio have greatly improved

•   Car loan interest rates have dropped in general

•   You realize your current loan is not right for you

•   You want to change the term of your loan

•   You have a subprime auto loan and want to explore refinancing car loans with a cosigner

•   You need a lower monthly payment

Required Information for Refinancing a Car Loan

When you apply to refinance a car loan with a new lender, you may need to provide information proving your identity and car ownership. Some of these documents and details may include:

•   Driver’s license

•   Proof of residence (e.g., a utility bill)

•   Income verification (e.g., a pay stub)

•   Car registration details

•   Your Social Security number

•   Your credit score (via a credit check)

•   Insurance documents

•   10-day payoff amount from the current lender

•   Vehicle identification number (VIN)

•   Limited power of attorney allowing vehicle title modification

•   Evidence of consistent, up-to-date payments on your current loan

This list is relatively extensive and lenders may require all of this information. Some auto refinance lenders may initially ask for a few documents and eventually request additional information to verify details.

The best auto refinance companies may deny your application if you cannot provide adequate proof of identity or proof of current financing. Applicants with excellent credit and sufficient income may qualify for the lowest auto refinance rates.

Recommended: Auto Loan Refinance Calculator

Tips for Comparing Car Loan Refinance Rates

•   Check your credit score – Lenders base rates heavily on your credit, so knowing your score helps set expectations.

•   Shop around – Compare offers from banks, credit unions, and online lenders to find the most competitive rates.

•   Look at the APR, not just the interest rate – The APR includes fees and gives a clearer picture of the total loan cost.

•   Compare loan terms – A longer term may lower your monthly payment but increase total interest paid.

•   Ask about fees – Look out for origination, prepayment, or application fees that could impact your savings.

•   Use a refinance calculator – Estimate your monthly payments and total savings to see which offer is best.

•   Evaluate lender reputation – Read reviews and check customer service ratings before choosing a lender.

•   Know your vehicle’s value – Some lenders won’t refinance older cars or those with high mileage.

Refinance Your Car Loan and Lower Your Monthly Payments

There are pros and cons of refinancing a car loan. Every situation and every lender is different. The best company to refinance auto loan debt for some borrowers may not be the best auto loan refinance company for you. This is why shopping around and comparing used car refinance rates is so important.

Potential benefits of refinancing an auto loan include:

•   Lower interest rates: If your financial and credit situations have significantly improved since you took out the original loan, you could qualify for a lower interest rate. As mentioned earlier, applicants with excellent credit and sufficient income may get approved for the lowest car refinance rates.

•   Budget-friendly monthly payments: Refinancing your loan may result in lower payments each month if you decide to extend your loan term. Keep in mind, though, that by extending your loan term, you’ll typically pay more in interest over the life of the loan.

•   Cash for other expenses: If you have positive equity (i.e., your car is worth more than your current loan amount), you may be able to borrow against that equity with cash-out auto refinancing. This means you can take out more than what you currently owe on your car and use that additional loan money to pay for other expenses.

Potential downsides of refinancing an auto loan include:

•   Lowering your credit score: A lender may pull a hard credit check before making an official auto loan refinancing offer. The hard credit check may hurt your credit score, whether or not you accept an offer.

•   Paying more in the long run: While monthly payments may be more budget-friendly in the short term, refinancing a car may entail a longer loan term. As a result, lower monthly payments can result in paying more in interest over the life of the loan.

•   Possible debt-to-income impact: Cash-out auto refinancing increases your debt burden, which can negatively impact your debt-to-income ratio and make it harder for you to qualify for other lending products.

The Takeaway

If your financial situation has improved since taking out your car loan, you could qualify for a better rate. Building a credit score, landing a better job, or paying off some other debts may cause a lender to consider an applicant as less of a risk than when they financed a car originally. Qualifying for a more favorable rate now could mean saving money over the life of the 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

Can I refinance a car loan with bad credit?

Yes, refinancing an auto loan with bad credit is possible, but it may be difficult. Lenders typically handle auto refinancing on a case-by-case basis. You may be able to refinance a car loan with bad credit if you have a positive track record of making payments on your current loan or have a creditworthy cosigner. If you’re considering refinancing and are coming up empty-handed, talk to your current lender. They may be open to discussing options.

How do I know which lender is the best for my auto loan refinance?

To find the best lender for your auto loan refinance, compare interest rates, loan terms, fees, and customer service reviews. Use online tools and calculators to estimate savings. A good lender offers transparency, flexibility, and terms that align with your financial goals, such as lowering your rate or monthly payments.

Does checking my auto refinance rate hurt my credit score?

Checking your auto refinance rate with a soft credit inquiry won’t hurt your credit score. However, submitting a full loan application triggers a hard inquiry, which may cause a slight, temporary dip in your score. Comparing rates within a short time frame can help minimize the impact of multiple hard inquiries.

Can I refinance with a cosigner?

Yes, some companies allow auto refinancing with a cosigner. Some lenders may also allow qualified individuals to co-borrow. A creditworthy cosigner or co-borrower can help you get approved for better refinance car loan rates.

Who has the best auto refinance rates?

The best auto refinance rates typically come from credit unions, online lenders, and banks offering competitive APRs to qualified borrowers. Rates vary based on credit score, loan term, and vehicle details. Shopping around and comparing offers helps identify the most favorable rate for your financial situation and refinancing goals.

Can I qualify for auto loan refinancing at a lower interest rate?

Auto refinance applicants may need higher income, better credit scores, or a much lower debt-to-income ratio than they had when taking out their initial loan to potentially qualify for lower rates. That said, qualifying for a lower car loan refinancing rate is never guaranteed, no matter how much those factors may have changed in your favor.

What happens if I extend my car loan term?

Extending your car loan term can lower your monthly payments, making them more manageable. However, you may pay more in total interest over the life of the loan. It can also increase the risk of being upside-down on your loan, where you owe more than the car’s current value.

Photo credit: iStock/tomertu

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-Q225-029

When you take out a car loan, the interest is the amount you pay your lender for the opportunity to borrow it. Car payments are amortized over the life of your loan, which means that in addition to the amount you’ll pay each month to pay down your principal, you’ll also owe interest.

The interest rate you’ll be offered on your loan will vary depending on a number of factors, including your credit score and the length of your loan. Interest payments are a costly part of financing your car, so it’s important to understand how they’re calculated so you can get a clear sense of what a good interest rate is as you shop for an auto loan.

How to Calculate Interest on a Car Loan

If you want to figure out how much interest you’ll be paying each month as you make payments on your auto loan, the easiest thing to do is to find an amortization calculator online and plug in the numbers.

To figure it out yourself, you’ll need the same basic information:

•   Your interest rate

•   How often you make payments

•   Loan principal

Here is the formula to figure out how much of your monthly loan repayment goes to interest:

(Interest Rate / Number of Payments per Year) x Loan Balance = Interest Amount Owed

Let’s say you take out a five-year auto loan of $20,000 at an interest rate of 8 percent. If you’re making monthly payments, we’ll make the number of payments 12. Since we’re looking at your very first payment, the balance is still $20,000. Then, we plug in the other numbers:

(0.08 / 12) x $20,000 = $133.33. This is the amount of your first payment that will go toward interest

As you pay down the amount of your principal, the amount of each payment that’s going toward your interest will also grow smaller.

Car Loan Interest Formula

A car loan may include daily simple interest charges and a fixed monthly payment. This means a variable portion of your monthly payment may go toward principal and interest.

A larger portion of your monthly payment may go toward interest at the beginning of the term, and a smaller portion of your monthly payment may go toward interest near the end of the loan term.

As mentioned earlier, you can use this simple interest formula to calculate how much of your monthly payment goes toward interest:

(Interest Rate / Number of Payments per Year) x Loan Balance = Interest Amount Owed

The interest rate in this formula is expressed as a decimal. For example, a 5% interest rate would be expressed as 0.05.

Your outstanding loan balance decreases with each payment, so this formula could be applied each month to determine how much of your payment went toward interest charges in that particular month. This is the formula used by online amortization calculators to estimate total interest costs over the life of your car loan.

Recommended: Simple Interest vs Compound Interest

Car Loan Interest Example Calculations

Here are some car loan interest example calculations:

48 Months at 3%

A 48-month car loan with a $25,000 loan balance, 3% annual percentage rate of interest, and $553.36 monthly payment would include the following interest charge:

(0.03 / 12) x $25,000 = $62.50 interest charge for the month in question

72 Months at 3%

A 72-month car loan with a $530.45 loan balance, 3% APR, and $531.78 monthly payment would include the following interest charge:

(0.03 / 12) x $530.45 = $1.33 interest charge for the month in question

48 Months at 6%

A 48-month car loan with a $25,000 loan balance, 6% APR, and $587.13 monthly payment would include the following interest charge:

(0.06 / 12) x $25,000 = $125 interest charge for the month in question

72 Months at 6%

A 72-month car loan with a $577.17 loan balance, 6% APR, and $580.05 monthly payment would carry the following interest charge:

(0.06 / 12) x $577.17 = $2.89 interest charge for the month in question

Recommended: What Should the Average Car Payment Be?

Simple vs. Precomputed Interest

Most car loans use a simple interest formula, which is what we discussed in the last section. This means that the amount of interest you owe each month is a percentage based on your principal, or loan balance, as of the day your payment is due.

In some cases, especially for subprime borrowers, a car loan might use precomputed interest instead of simple interest. This means lenders calculate the amount of interest upfront and add it to the principal, then divide that total by the number of months in your loan term to get your monthly payment. Your payments don’t apply to interest and principal separately.

And if you make extra payments, you likely won’t be able to lower the amount of interest you pay over the life of the loan as much as you would by prepaying on a loan with simple interest. However, if you’re only going to make the minimum payment each month, it may not make much difference to you.

Recommended: How Much Is My Car Really Worth?

How Is Interest Paid on a Car Loan?

The average interest rate on new car loans in the first quarter of 2025 stood at 7.1%, according to Edmunds.

In the early months of your loan, you’ll owe more interest, and a greater portion of your monthly payments will go toward paying it off. As your loan balance gets smaller, you’ll owe less interest. Thus interest will become a smaller portion of your monthly payment, and more of your money will go toward paying off your principal.

If you prepay your loan (meaning you make one or more larger payments than the amount due), you can pay down your principal faster, potentially decreasing the amount of interest you owe. Be aware that some lenders charge prepayment penalties, so check your loan agreement before making prepayments.

Is Car Loan Interest Tax Deductible?

Car interest is tax-deductible in limited cases. Traditional employees generally can’t deduct interest paid on a car loan, but self-employed taxpayers may deduct car loan interest if they use the car for business purposes.

A tax deduction can reduce the amount of income tax you may have to pay or increase the size of your tax refund. The car interest deduction is limited to self-employed taxpayers who pay interest on a car loan and use the vehicle for business purposes.

The amount of car loan interest a self-employed taxpayer may deduct is determined by how much the taxpayer uses the vehicle for business purposes. Self-employed taxpayers who use their vehicle 60% of the time for business may deduct 60% of their car loan interest when reporting profit or loss from their business. Always consult a tax professional to ensure proper documentation and eligibility.

Car Loan Interest vs. APR

As you shop for auto loans, in addition to interest rate, you may also see the annual percentage rate (APR) listed. These two numbers are usually pretty close together, but APR can give you more information about how much you’ll actually owe over the life of your loan.

While the interest rate is a percentage that shows you how much you will pay to borrow alone, APR is a percentage that shows you your interest rate plus any other fees you might owe. APR illustrates total costs for financing a vehicle. The federal Truth in Lending Act generally requires that all lenders disclose APR, which can make it a good metric to use when comparing the true cost of borrowing as you shop for a loan.

Recommended: What Is a Buyer’s Order for a Car?

What Determines Interest Rates on Car Loans?

There are a variety of factors that may influence a lender’s auto loan interest rate offers. We highlight some of these factors below:

Type of Lender

Some lenders, particularly captive finance companies, may offer 0% APR on new car loans for a certain number of years. The following lenders may offer their best rate to borrowers with excellent credit:

•   Banks

•   Credit unions

•   Buy here, pay here dealerships

•   Independent finance companies

•   Captive finance companies affiliated with auto manufacturers

New vs Used Financing

Used vehicles tend to carry higher interest rates than new cars. While the average interest rate for a new car loan was 7.1% during the first quarter of 2025, it was 11.3% for used cars.

Credit Score

Lenders may use your credit score as an indicator of how likely you are to pay down your debt on time. They see borrowers with higher scores as less risky and will typically offer them lower interest rates. In the first quarter of 2025, borrowers with the highest credit scores saw rates of 4.77% on average for new vehicle financing, while borrowers with the poorest credit scores saw interest rates of 15.75% on average.

Recommended: Does Financing a Car Build Credit?

Loan Term

Lenders see longer loan terms as riskier, so they may charge higher interest rates for them. This can lead to a phenomenon known as an upside-down loan. Cars generally depreciate quickly, and a long term and higher interest rate may mean you’ll eventually end up owing more on your loan than your car is worth.

Down Payment

A lender calculating car loan APR may offer you a lower interest rate based upon the size of your down payment. The more money you put down when you buy a car, the lower the interest rate a lender is likely to charge. It follows that the less money you put down, the more it will charge. That’s because your lender wants to balance the risk that you might default and leave them with a depreciated vehicle worth less than the amount you had left on your loan.

Interest Rate Environment

The interest rate environment can influence a lender’s decision-making concerning auto loan financing. When the Federal Reserve raises its fed funds rate target range to combat inflation, lenders may follow suit by raising their interest rates on consumer loans. Interest rates on consumer loans may be more affordable when the Federal Reserve lowers its fed funds target range to stimulate the economy.

Recommended: Gap Insurance Refund After Refinancing

Average Car Loan Interest Rates

The average car loan interest rate will vary depending on a person’s credit score and loan term and whether they’re buying a new or used vehicle. Here’s a look at key data highlighted by Experian:

Tips for Lowering Interest on Your Car Loan

If you want to pay less interest on your car loan, there are a few options that may help.

First, when you’re selecting a loan, you can choose one with a shorter term. Though this will increase the size of your monthly payments, you’ll pay less interest over the life of the loan.
Prepaying your loan can also reduce the amount of interest you pay if you have a simple interest loan. As you pay off your principal, the amount of interest you pay will get smaller faster.

Just look into whether your loan carries any prepayment penalties. Even if it does, you might be able to save money by paying your loan, or part of your loan, early.

You might also consider refinancing your loan, especially if interest rates drop or you build your credit score. When you refinance, you can pay off your old loan with a new loan that hopefully offers you a term or interest rate that better fits your needs.

Recommended: What Credit Score Is Used for Refinancing?

The Takeaway

Once you understand how interest is calculated, the factors that can affect it, and how it differs from APR, you’re in a better position to compare auto loans and find the one that’s right for you. You’ll also have a better sense of the strings you can pull if you ever want to pay less interest on your loan, whether by prepayment or refinancing.

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 car loan interest tax deductible?

Car loan interest is tax-deductible in limited cases. Traditional employees generally can’t deduct interest paid on a car loan, but self-employed taxpayers may deduct car loan interest if they use the car for business purposes.

Does paying a car loan off early mean you pay less interest?

Yes, paying off a car loan early typically means you pay less interest overall. Since interest accrues over time, reducing the loan term cuts down the total amount paid. However, check for prepayment penalties, as some lenders charge fees that could offset your savings from early payoff.

Can you calculate car loan interest manually?

Yes, you can calculate car loan interest charges manually if you know the interest rate and the outstanding loan balance. This applies to simple interest car loans in which the interest you owe each month is a percentage based on your loan balance. Interest on a precomputed interest loan is calculated by the lender upfront.

What is the formula to calculate car loan interest?

The formula to calculate how much interest you owe when making a monthly payment on a simple interest car loan is (interest rate/number of payments per year) x loan balance. The interest rate is expressed as a decimal in this formula. For example, a 5% interest rate would be expressed as 0.05. Getting $25,000 in car loan financing with a 5% simple interest rate would include a $104.17 interest charge in the first monthly payment as calculated under this given formula.

Photo credit: iStock/busracavus

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.

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

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-Q225-028

A buyer’s order for a car is a business document that highlights key details about the dealer, buyer, and motor vehicle being sold if all parties agree to the transaction. A dealer prepares this document whenever a prospective car buyer wants to purchase a specific car off the lot.

A car buyer who signs a buyer’s order is making a formal commitment to purchase the vehicle under the terms specified in the written agreement. The buyer’s order becomes a binding agreement when all parties sign the document. Read on to learn more about a vehicle purchase order and its purpose.

What Is a Buyer’s Order?

A buyer’s order for a car — also known as the car purchase order — is a business document highlighting key details surrounding the sale and purchase of a motor vehicle. A dealer prepares this document whenever a prospective car buyer wants to purchase a specific car off the lot.

A buyer’s order may include the following information:

•   The vehicle identification number or VIN

•   The make and model of the car

•   Information about the customer or buyer

•   Information about the dealership or seller

•   An itemized breakdown of the vehicle’s sale price and related fees

•   Customer down payment details

The dealer may give you a copy of the buyer’s order before finalizing any sales agreement. A buyer’s order includes details about the parties involved in the buyer-seller negotiations. It also highlights the sale price of the vehicle and any related fees.

A buyer’s order becomes binding if and when all parties sign the document. A signed buyer’s order means the dealer intends to sell the vehicle to a customer who agrees to buy the vehicle.

Once signed, the buyer’s order cannot be canceled unless the buyer applies unsuccessfully for dealer-arranged financing. For example, dealers may cancel the buyer’s order if a financial institution does not approve the retail installment sales contract between the buyer and seller.

The Purpose of the Car Buyer’s Order

The purpose of the car buyer’s order is to put everything in writing concerning the potential sale of a vehicle. The buyer’s order provides a detailed description of the vehicle and an itemized breakdown of the vehicle’s total sale price, including taxes and fees. This captures how much you’ll spend on a car.

The business document lets a prospective car buyer see whether any add-ons or ancillary products would contribute to the vehicle’s total sale price. Ancillary products can include guaranteed asset protection or GAP insurance. The buyer’s order also lists the balance due on delivery.

Rebates, down payments, and the value of any trade-in vehicle can lower your balance due on delivery. A car purchase order may include the full details of any trade-in vehicle involved in the transaction negotiations between a car buyer and car dealership.

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4 Items You Can Negotiate on a Buyer’s Order

Prospective car buyers may negotiate the following items upon seeing the unsigned buyer’s order:

1. Vehicle Selling Price

You may negotiate the vehicle selling price upon seeing the unsigned buyer’s order. The dealer may be willing to lower the sale price if you make a compelling case for a price reduction or are simply savvy at bargaining.

2. Document Fees

You may negotiate document fees before signing a buyer’s order. Dealers may charge document preparation fees, processing fees, or customer service fees to maximize their profit in selling a new or used vehicle. However, as a prospective car buyer, you could ask for a document fee discount.

3. Trade-in Credit

You can negotiate trade-in credit before signing a buyer’s order. Some dealers may undervalue your trade-in vehicle, but you may persuade them to reconsider the appraised value by presenting market research. One of the key tips for selling a car is researching the market, and that tip can also be applied when trading in a vehicle.

4. Add-ons

You may negotiate add-ons before signing a buyer’s order. You have no obligation to buy GAP insurance or any other add-ons, but dealers may receive a kickback if they sell you ancillary products.

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What Other Documents Are Involved in a Car Purchase?

Other legal documents a car buyer may sign include the following:

Retail Installment Sales Contract

Many buyers get car loans. A retail installment sales contract is a written agreement between the dealer and buyer outlining the financing terms of the negotiated transaction. This document may list your annual percentage rate (APR) and monthly repayment obligations on the finalized car loan financing arranged by the dealer.

Bill of Sale

A bill of sale is a legal document describing a specific vehicle and the terms and conditions of buying that vehicle from a dealer. A signed buyer’s order may constitute a bill of sale, or a bill of sale can be an additional document issued after all parties sign the buyer’s order. The differences between a vehicle purchase order and bill of sale are highlighted below.

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Buyer’s Order vs Bill of Sale

What’s the difference between a buyer’s order and a bill of sale? A buyer’s order and bill of sale in some cases, can be the same document, but differences can vary across states.

One of the differences between a buyer’s order and a bill of sale is that the buyer’s order may have a comprehensive line-item breakdown of the transaction, including the base price of the vehicle, down payment, and sales tax.

A bill of sale, meanwhile, typically lists the purchase price of the vehicle without including an itemized breakdown of the costs or credits.

However, it may be more detailed. Some state Department of Motor Vehicles (DMVs) may require or recommend a bill of sale whenever a motor vehicle transaction occurs in the state.

Similar to a buyer’s order, a bill of sale can include the following information:

•   A full description of the vehicle being sold

•   The date of sale

•   The name, address, and signature of the person buying the vehicle

•   The name, address, and signature of the person selling the vehicle

•   The purchase price

•   The vehicle identification number

Other Car Financing Options

While many dealers offer car loans, there are other car financing options you may consider:

Bank Car Loans

Bank car loans can help you buy a new or used car from a dealer without having to sign a retail installment sales contract at the dealership. The way how a car loan works is you borrow money from a lender, purchase a vehicle from a seller, and then repay the loan over a set period under the terms and conditions of a loan agreement. Commercial banks can provide you with direct loan financing and a promissory note for buying a new or used car.

Private Party Auto Loans

A private party auto loan can provide you with financing to buy a used vehicle from a private seller. The seller may offer this kind of loan, or you can do a search for other options. You may find personal loans you can use for this kind of auto purchase.

Leasing vs Buying

When considering the option of leasing vs. buying a car, you could finance a vehicle through a standard three-year contract with a leasing company. Car leases typically include lower monthly payments than new car loans, but again, you’re renting vs. purchasing.

Recommended: Does Financing a Car Build Credit?

The Takeaway

A buyer’s order is one of the documents you may encounter when shopping for a car. It includes key details about the transaction negotiations between you and a car dealer, as well as information about the car itself. You can further negotiate the vehicle selling price and other items before signing a buyer’s order, or you can walk away without signing anything.

A signed buyer’s order can serve as a binding agreement once you’ve agreed to the details and have secured financing.

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 is a buyer’s order?

A buyer’s order is a business document that a car buyer can sign if interested in buying a vehicle from a dealer. It highlights key details about the car dealer, car buyer, and the motor vehicle for sale. It also includes information about the sale price of the vehicle and becomes legally binding if all parties sign it.

How does a buyer’s order work?

A car dealer produces a buyer’s order whenever a consumer expresses interest in buying a particular vehicle. A buyer’s order describes the vehicle and itemizes the expenses that would become binding if all parties sign the document. Prospective buyers can negotiate items on the buyer’s order before signing the document or can walk away.

What other legal documents are involved in the purchase of a car?

You may sign a retail installment sales contract and bill of sale if you buy a vehicle from a dealer using dealer-arranged financing. A buyer’s order could constitute a bill of sale if signed by all parties, or a bill of sale could be an additional document issued after all parties sign.

What are the steps of the car buying process?

Among the key steps of the car buying process are setting your budget, looking at lenders, getting preapproved for a car loan, and then shopping around for a vehicle. Once you decide on a car and a price (a buyer’s order is typically involved), you’ll need to execute the paperwork, obtain car insurance in most U.S. states, and register your vehicle.

Photo credit: iStock/Denis_Dryashkin

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SOALR-Q225-027

If you’re buying a new or used car, you may find a better deal or more options in another state. While purchasing and financing a car in another state is possible, the process can be more complicated than buying a vehicle closer to home.

Knowing the steps involved and how to prepare in advance can make it easier to finance a car out of state. Here’s a guide to how the process works.

Can You Finance a Car Out of State?

If you find a car you like in a neighboring state, you might have wondered, can I finance a car in another state? The good news is, yes, you can finance a car out of state. However, individual states have different car title and license fees, as well as different tax laws. If you’re financing a car out of state, you’ll need to find out the regulations involved. Check with your state’s Department of Motor Vehicles (DMV).

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What You Should Know Before Buying a Car Out of State

If you’re thinking about buying a car in another state, consider these factors:

Sales Tax

Some states, like Montana and New Hampshire, don’t charge sales tax on vehicles. However, unless you register the car in that state, you can’t take advantage of the savings. You pay sales tax in your home state — where you register the vehicle — not the state where you buy it.

For example, if you live in Vermont and buy a car in New Hampshire, you’ll still owe the 6% sales tax charged by Vermont. However, New Hampshire residents pay no taxes on a car they buy in Vermont.

Title and Registration

You need to register the vehicle in your own state, but first, you need to get it home. If you’re buying a car from an out-of-state dealership, they’ll typically take care of the title and registration paperwork as part of the transaction. They should give you a temporary registration so you can drive the car back to your state, where you can do the vehicle registration.

However, if you’re buying a used car from a private seller, you’ll likely need to handle the paperwork yourself. You can apply for a temporary registration at your DMV. Be sure to look up the process ahead of time so you’ll know what’s required.

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Safety and Emissions

If your state requires a safety inspection, the out-of-state dealer you’re purchasing the car from should be able to do it. You’ll also have to make sure the car meets your state’s emissions requirements. These requirements vary by state. Look up the emissions regulations in your area. The dealer should be able to do both the testing and inspection for you.

Private Sales

Buying a car from a dealer is the easiest way to purchase a car out of state, since they take care of most of the paperwork. However, if you buy a car from a private seller, you’ll need to work with your state’s DMV as well as the DMV in the state where you’re buying the car to ensure you carry out the sale correctly, including the registration and car title process, plus the sales tax. You may also need to take the vehicle to an inspection station for safety and emissions testing if those are requirements in your state.

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How to Finance a Car Out of State

These are the steps to take to finance a car out of state.

1. Do Research

You can shop around online to find the car you want to buy. If it’s a used vehicle, look at the car’s vehicle history report, which you should be able to access via the National Motor Vehicle Title Information System using the vehicle identification number (VIN). A vehicle history report could alert you to potential red flags such as past accidents or flood damage to the car. In addition, always try to see a car in person, if possible, and have it inspected by a mechanic before you agree to buy it.

2. Understand the Car’s Value

When financing a car out of state, look up the car’s fair market value with Kelley Blue Book or Edmunds. When calculating the total cost of the car, be sure to factor in your state’s sales tax plus licensing and registration fees.

3. Contact the Dealer or Seller

Contact the dealership and let them know which car you want to buy. They may be able to put a hold on the vehicle to give you time to get there. If the car is being sold by a private owner, arrange a day and time for you to see and inspect the car.

4. Get Car Insurance

Contact your insurance company and let them know about your plans to buy a car out of state. Then, start the process to take out a policy on your new car (you’ll need car insurance before you register the vehicle). Ask your agent if you’ll be covered by insurance while driving your new car home.

5. Get Preapproved for an Auto Loan

Shopping for an auto loan can help you compare and find the best rates and terms for your needs, and getting preapproved for a car loan can help facilitate the sales process when you buy the vehicle.

Preapproved car loans give an estimate of the amount you can borrow, along with an estimated interest rate. You can show this information to the dealer when you sit down to negotiate the deal.

Later, if interest rates drop or you build your credit score, you may want to consider an auto loan refinance, which might save you money down the road.

6. Finalize the Transaction

When you reach an agreement with the dealer for a car loan, you can sign all the necessary paperwork to buy the car. The dealer can make any title and temporary registration arrangements for you.

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Pros and Cons of Financing a Car in Another State

There are some advantages and disadvantages to financing a car out of state. Weigh the pros and cons before you cross state lines to make your purchase.

One benefit is that you might find a better selection of cars in another state, especially if the inventory is limited in your own state.

Also, you could save money by buying a car elsewhere. Car prices vary by region. You might find the car you’re looking for at a cheaper price in another state.

However, there are drawbacks. Buying and financing a car out of state is more complicated. You may need to put in significant time researching how to find the right vehicle. In addition, there’s more paperwork to do. A dealer can take care of most of it if you’re buying a new car, but you’ll have to do it yourself if you’re purchasing a vehicle from a private seller.

Finally, there might be other costs, such as travel or shipping expenses, that could make the transaction more expensive.

Here’s a side-by-side comparison of the pros and cons of financing a car out of state.

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The Takeaway

Buying and financing a car out of state can be complicated, but if you can purchase the car for a lower price, it may be worth it. Just be sure to do your research in advance to make sure you’re complying with your home state’s regulations for the car title and registration, as well as any taxes involved. Getting preapproved for a car loan could help make the financing process easier and smoother.

And in the future, you may want to consider car loan refinancing, which could lower your payments, shorten your loan term, or extend the length of your 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

Can you finance a car in a different state?

Yes, you can finance a car in another state. However, you’ll need to register the car in your home state, so be sure to get a temporary registration from the dealer that you can use when you drive the vehicle home. Also, it’s worth noting that you’ll need to pay the taxes required in your state, and not the state you’re buying the car in.

What are the disadvantages of financing a car out of state?

Financing a car out of state typically involves more paperwork than buying a car in your own state. It might also be more expensive if you have to pay to ship or transport the car to your home.

Can you finance a car from another country?

Yes, you can finance a car from another country, but it’s more complex than domestic financing. Lenders may require higher credit standards, international documentation, and import regulations compliance. Some international auto dealers offer financing options, or you may need to secure a loan through a bank or third-party lender.

Photo credit: iStock/AleksandarNakic

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.

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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