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After taking out a loan to buy a car, you may discover that there are better options available with better terms or lower interest rates. If this is the case, you can refinance your auto loan almost immediately.

You may have to wait a month or longer while your dealer and the local Department of Motor Vehicles (DMV) process your paperwork, but once that’s complete, you can pursue a new auto loan that better fits your financial situation.

Keep reading to learn more about how soon you can refinance a car loan after purchase, including reasons to refinance your car, pros and cons of auto refinancing, and the steps to take to refinance your car.

What Is Auto Loan Refinancing?

When you refinance a loan, you replace your existing car loan with a new one. Ideally, the new loan will have better terms and/or a lower interest rate, which may help you improve your financial circumstances.

Your interest is included in your monthly payment, and a lower interest rate means your monthly payments will potentially be more manageable and you’ll pay less over the life of the loan.

You can also lengthen or shorten the term of your loan. Lengthening this period can make your monthly payments smaller, but may mean you end up paying more interest in the long run.

When Should You Refinance Your Car?

How long do I have to wait to refinance my car? Typically, consider refinancing when one of the following occurs:

•   You can’t afford your payments. If you’ve lost your job or otherwise find yourself strapped for cash, your monthly payment or interest rate may become too expensive for you. Refinancing could help make your monthly payments more manageable.

•   You’ve built your credit. If you’ve built your credit since you took out your original loan, banks may be willing to offer you a less expensive loan than you’d previously qualified for.

•   You found a better deal. If interest rates drop or a lender is offering a promotional deal, you may want to refinance simply to save a little bit of money you can then use toward other financial goals.

No matter your reasons for considering a refinance, be aware that you are not eliminating your debt. Your original balance will stay the same, though the amount you pay over the life of the loan in interest and other fees may be different. What’s more, the refinanced auto loan may use your car as collateral, meaning your lender can seize your vehicle if you default on your loan.

Recommended: Refinance Commercial Auto Loan

How Long Should You Wait to Refinance an Auto Loan?

If you’re interested in car loan refinancing, you may submit an auto refi loan application with a lender whenever you’re ready. Waiting to apply may be right for you if you’re stalling to increase your equity stake in the car or waiting to build your credit score.

Equity is the appraised value of your vehicle minus any outstanding loan balance you owe on the car. For example, having an $8,000 car loan balance on a vehicle worth $12,000 means you have $4,000 in equity. It might not be the right time for you to refinance if you have an upside-down auto loan in which your car loan debt is greater than your car’s resale value.

Borrowers with good credit may qualify for more attractive interest rates than borrowers with bad credit. Refinancing when you’ve built your credit may qualify you for better auto refi loan rates.

Recommended: What Should Your Average Car Payment Be?

When Should You Refinance Your Car?

There is no set amount of time you have to wait before you refinance your auto loan. Below, we highlight different times when you may submit an auto refi loan application:

Immediately

Barring whatever waiting period there may be while your paperwork is sorted out, you may refinance a car loan immediately after buying the vehicle. This might be a suitable option for you if you’ve made a sizable down payment on the car and can qualify for better terms elsewhere. The initial financing you get from a bank, car dealer, or other source is not necessarily the best financing for you.

During the First 60 to 90 Days

You may apply for auto loan refinancing during the first 60 to 90 days of your auto loan contract agreement. This is the stage where you may have started making monthly payments on your loan. Refinancing at this stage may be right for you if you need a lower monthly car payment.

Six Months Into the Loan

Refinancing your auto loan six months into your term may be right for you if you can lock in a lower interest rate at this stage. Securing a lower interest rate reduces the cost of borrowing money. This can translate into sizable cost savings over the life of your loan.

Refinancing for a lower monthly payment in some cases may extend your term, and extending your term can saddle you with more interest charges over the life of your loan. A car refinance calculator can help you see whether a refinanced loan offer may increase or decrease your total interest costs.

Two or More Years In

You may pursue auto refinancing two or more years into your car loan, as well. At this stage, your credit score may have increased, you may have more equity in your car, and you may qualify for terms that work better for you. Or maybe you’re experiencing economic hardship and need a lower monthly payment. Whatever your circumstances, this may be an ideal time for you to explore whether auto refinancing is right for you.

Recommended: What Happens to a Car Loan When Someone Dies?

When Is It Better to Refinance Early?

Generally speaking, the sooner you refinance, the better. That’s because the interest rates you’re likely to get are usually better for newer vehicles than for older ones. As your car ages, you may have access to fewer favorable loans. In fact, some lenders won’t even consider refinancing loans for cars over a certain age.

What Are the Pros and Cons of Refinancing an Auto Loan?

While there are some real benefits of refinancing a car, there are some drawbacks to consider as well. Here’s a look at some of the pros and cons of refinancing:

When Shouldn’t You Refinance Your Auto Loan?

Here are several cases where refinancing may not be right for you:

Longer-Term Loans

Refinancing may not be ideal for borrowers with longer-term loans. If you’ve bought an exotic car with a 144-month auto loan, for example, refinancing might not make sense under those circumstances. Refinancing for a longer term may replace your existing loan with a more expensive loan product.

Meanwhile, replacing a longer-term car loan with a short-term auto refi loan may substantially increase your debt-to-income ratio. If your car loan term is seven years or longer, making extra payments on your existing loan may be a better option for you than refinancing it.

Going Upside-Down on Your Loan

As mentioned earlier, it might not be the right time for you to refinance if you have an upside-down auto loan in which your car loan debt 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. Replacing your existing auto loan with an underwater auto refi loan may not be right for you.

Prepayment Penalties and Fees

Another time when refinancing might not be right for you is if your existing car loan includes a prepayment penalty clause. A prepayment penalty is a fee that lenders may charge if you pay your loan off early.

Getting a refi loan in some cases may trigger a prepayment penalty. That’s because refinancing pays off your existing loan and replaces it with the terms and conditions of a new financing agreement. You can check your original loan agreement to see whether it includes a prepayment penalty disclosure.

Missing a Payment

Refinancing may not be the solution you need if you’ve missed a payment and find yourself delinquent on your existing car loan. Missing a payment can leave a derogatory mark on your credit report, and lenders at that point may be reluctant to offer you auto loan refinancing on terms that are right for you.

Refinancing Too Late in the Loan

Refinancing too late in the loan term may put you at risk of replacing your existing loan agreement with a more expensive loan product. Be sure to calculate the total price to refinance a car and determine whether refinancing saves you enough money to make the process worth it.

Refinancing isn’t necessarily cheap. Lenders may charge origination and processing fees, and states may charge a new title fee.

How Difficult Is It to Refinance?

Refinancing is typically a relatively simple process. After comparing your options and getting your paperwork ready, you can submit an application with the lender of your choice.

Once you’ve submitted your application and the required information, lenders may provide loan approval as soon as the same day. Online lenders, in particular, may offer a quick turnaround time, and subprime borrowers may qualify for bad credit refinancing.

How Long Does It Take to Refinance a Car?

In general, you can expect the refinancing process to take a few hours to a few weeks, depending on the lender and whether any additional information is needed to review your application.

The process may take longer if your previous lender takes a little while to apply the funds to pay off your loan. Or, the process could be dragged out if your application is incomplete or inaccurate, which is why it’s so important to make sure you’re organized and ready when you start applying.

What Are the Procedures in the Refinancing Process?

Here’s an overview of what you can typically expect in the process of refinancing an auto loan:

1. Supply Necessary Documents

The first step in the refinance process is to gather the necessary information and documents. Typically, you’ll need to provide the following:

•   Information about your existing loan, including recent statements

•   The make, model, year, and unique VIN for your vehicle

•   Proof of income

•   Proof of insurance

•   Your legal name and address

If you’re doing a same-lender refinance (which is possible), your lender may already have some of this information. Still, it’s a good idea to verify that it’s all correct to make sure your application — and the resulting offer — reflect your current situation.

2. Prequalify for Auto Loan Refinance

Next up, take some time to shop around for refinancing offers from various lenders and consider applying for prequalification. While prequalifying for a loan doesn’t guarantee approval, it can give you a better picture of what loan terms you may be able to get without dinging your credit score in the process.

Loan preapproval is another option as you’re shopping around for loans, as it can offer more concrete information on what loan terms you’re eligible for. However, it will require a hard credit pull, and the process is generally more rigorous than it is for prequalification.

Recommended: Preapproval vs Prequalify: What’s the Difference?

3. Apply for Auto Loan Refinancing

Once you’ve checked out your options and decided on the lender that’s the best fit for you, it’s time to apply for auto loan refinancing. You will need to complete an application, which is where the documents you collected at the start of the process will come in use.

This process will include a hard credit check. However, if you’re submitting multiple applications and submit them within a certain window of time — usually 14 to 45 days — they will typically only count as a single inquiry.

If you’re approved, you’ll sign the paperwork and receive details on the terms of the new loan.

4. Pay Off Existing Car Loan Debt

From here, you’ll need to make sure your old loan is paid off. While this is typically taken care of by your new lender, it’s smart to check in with your old lender to make sure everything is paid off in full before you quit making payments.

Once that’s taken care of, you’ll start making payments to your new lender. Make sure to mark down payment due dates — or consider setting up auto pay — to make sure you make your payments on time.

The Takeaway

There are no hard and fast rules about when to refinance, and you may choose to follow this path as soon as you find a loan that meets 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

How long after getting an auto loan should you wait to refinance?

It can be beneficial to refinance as soon as possible to take advantage of the lower interest rates typically offered for newer cars. Ultimately, however, you should make the decision to refinance when you’re able to find a loan with terms and an interest rate that meet your financial needs.

What are the pros and cons of refinancing?

Refinancing can potentially help you lower your interest rate, saving you money over the life of your loan, or change the length of your loan to make your monthly payment more manageable. There are some drawbacks to consider, however. Closing costs and other fees can eat into your savings. And if you extend the life of your loan, you may end up paying more in interest in the long run.

Will refinancing hurt my credit?

Refinancing may temporarily lower your credit score. When you apply for a loan, lenders make what is known as a “hard inquiry,” which is entered into your credit report, causing a small reduction. Also, when borrowers take on new debt, they may be more likely to miss payments. A lower score reflects this possibility. However, monthly on-time payments could help build your score over time.

Can you refinance a car within six months?

Yes, you can refinance a car loan within six months if you meet a lender’s underwriting standards and qualifications.

Is it possible to lower car payments without refinancing?

Yes, it’s possible to lower car payments without refinancing. If you’re experiencing economic hardship and need a lower monthly payment, your lender may be willing to renegotiate the terms and conditions of your loan agreement. It’s possible your lender may agree to a loan modification if you request a lower monthly payment. A loan modification could restructure or amend your existing loan agreement in a number of ways, including a change to your loan term and monthly payment amount.

Photo credit: iStock/PeopleImages
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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

SOALR-Q225-032

If you fall behind on your auto loan payment, your lender may repossess your car. That means the lender can seize your vehicle to recoup some of the money it loaned you.

The bad news? It’s a double whammy. You no longer have a vehicle, and repossession can hurt your credit score. The good news? You may be able to get your car back, either by reinstating your car loan or through a process called redemption.

Here’s a look at the difference between these two strategies and how to know which, if either, is an option you can pursue.

How Car Repossession Works

When you take out a loan to buy a car, your lender will typically use your vehicle as collateral to secure the loan. That means that your lender has the right to take the vehicle away if you miss payments and default on the loan, also known as car repossession. The lender will usually sell the vehicle at auction in order to recover some of the money it loaned you.

Your loan contract will specify terms for repossession, defining what it means to default on your loan and laying out the consequences. In some cases, defaulting may mean missing just one payment. However, your lender will likely warn you that you’ve missed a payment and try to collect before repossessing your car. If the lender fails to collect and you’re in default, it can come and take your vehicle at any time and without warning.

Your car can also be repossessed if you fail to have proper insurance for your vehicle. Because your lender uses your vehicle to secure your loan, it has a vested interest in protecting it. If you allow your auto insurance policy to lapse, your lender may view that as a risk and use it as a reason to repossess your car.

What Is Reinstatement?

Reinstating your car loan is when you can make up any overdue payments, including covering the costs of the car repossession, and get your vehicle (and your loan) back after it’s been repossessed.

Reinstatement essentially restores the loan to its original state, allowing you to resume making payments on it as normal.

How Reinstating a Car Loan Works

If your car has been repossessed, all is not lost. You may be able to get it back by reinstating your loan.

Typically, you do this by bringing your loan up-to-date with a lump-sum payment that covers all past due payments, fees, and late charges.

Your right to reinstatement might be built into your loan contract, or state law may require your lender to allow it. To find out if your state allows reinstatement, contact your state attorney general’s office or the state consumer protection agency.

If reinstatement is allowed through your loan agreement or state law, you can contact your lender to request a reinstatement quote, but do so as soon as possible. Your lender is then required to send you a notice within 15 days with the amount necessary to make your loan current. But be ready: At that point, you may have as little as 10 to 15 days to reinstate your loan at that amount.

Note, too, that if the terms of the reinstatement notice aren’t feasible for you, your lender may be willing to negotiate.

When You Can’t Reinstate an Auto Loan

If your loan contract or state doesn’t specify your right to reinstate your auto loan, you may have to seek other options, such as redemption.

What’s more, be aware that even if you do have the option of reinstating your auto loan, you have only a limited amount of time to do so.

And if you don’t pay the necessary amount to bring your loan current under the terms of your reinstatement notice, or if your car is sold, you may forfeit your right to reinstatement.

Recommended: Refinancing With Bad Credit

When Redemption Is an Option

If you can’t reinstate your loan, another option may be loan redemption. When you redeem your car, you buy it back from your lender in a lump-sum payment. That likely will be more expensive than reinstating your loan, but it is more likely to be an available option.

Every state allows some form of redemption, and you typically can exercise this right until the lender sells the car. State laws differ in how long a lender must hold on to a car before selling it, how the lender can sell the vehicle, and how the lender has to notify you of your right to redeem.

Bear in mind that redeeming your car can be a costly process. You may have to cover costs, such as repossession expenses, towing charges, attorney’s fees, and late fees. As with reinstating your loan, the terms of redemption may be negotiable.

Reinstatement vs. Redemption

The following chart summarizes some of the differences and similarities of reinstatement and redemption.

How Long Does a Repossession Stay on Your Credit Report?

An auto repossession typically harms your credit report and will likely remain there for seven years. Like bankruptcies and collections accounts, repossessions are serious red flags for lenders if you are seeking credit in the future.

What’s more, failing to pay your auto loan on time can have its own negative impact on your credit score. Your lender can report you as delinquent on your loan for each month your payment is 30 or more days past due. This, too, can drag down your credit score, potentially for years to come.

Recommended: Refinance Car With Same Lender

The Takeaway

When your lender repossesses your car, it doesn’t necessarily have to leave you stranded. Reinstatement and redemption provide options for getting your car back, though the process can be costly.

It’s generally far better to avoid repossession in the first place. If you find your auto payments are becoming untenable, consider refinancing your auto loan to help make your monthly payments easier.

Refinancing before you fall behind on payments typically has a minimal effect on your credit score. Note that refinancing after a repossession can be difficult.

Another option that may be available to you is to trade in your vehicle for a less expensive car with cheaper payments.

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 redemption?

Redemption is the process by which you buy back your repossessed car, paying off the balance of your loan and any other fees and penalties.

What is reinstated repossession?

Reinstated repossession occurs when you pay off your past due auto payments, fees, and penalties to restart your auto loan.

Why might you choose to redeem your car?

You may choose to redeem your vehicle if reinstatement is not an option, your loan is nearly paid off, you have equity in the car that you don’t want to lose, or you want to lessen the effects of repossession on your credit score.

Why might you choose to reinstate your loan?

You might reinstate your loan for many of the same reasons that you would choose to redeem your car, including if your loan is nearly paid off, you have equity in the car that you don’t want to lose, or you want to lessen the effects of repossession on your credit score.

What do you need to do to redeem?

Notify your lender immediately that you want to redeem your loan, negotiate the terms of the agreement, and make your payment within the specified period.

What do you need to do to reinstate?

Find out if your lender or state law allows reinstatement. If so, notify your lender immediately that you wish to pursue it. Negotiate terms if necessary, and make all payments swiftly, within the specified time period.

Photo credit: iStock/welcomia

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-Q225-026

Probably the last thing on most car buyers’ minds when they walk into a dealership is the thought that they might die before they manage to pay off their loan fully. What happens to a car loan when someone dies is that the lender may demand repayment from a surviving spouse or repossess the car.

Unexpected deaths happen, and that’s why auto loan paperwork may contain a death clause that explains what happens to a financed car when the borrower dies. Below, we outline the potential consequences that can occur if a car loan borrower passes away before repaying the auto loan debt.

What Happens to a Financed Car When Someone Dies?

A car loan is usually a short-term debt. In 2024, the average car loan term is 68 months for a new car and 67 months for a used car, or close to six years, according to Experian data. Many borrowers may not expect to meet their demise during their loan repayment period, but it does happen. As mentioned above, lenders may demand repayment from a surviving spouse or repossess the vehicle if a car loan borrower dies before repaying the debt in full.

What Is the Car Loan Death Clause?

Lenders rely on the obligations borrowers agree to in their loan documents to help keep transactions on course. The car loan death clause is any language in a car financing contract that reinforces your obligation to repay the debt.

A car retail installment sale contract may highlight the merits of obtaining optional credit life insurance. If you buy and maintain life insurance on your car loan, the insurance company may pay off your remaining loan balance if you die unexpectedly.

How the Car Loan Death Clause Works

Alive or dead, when a borrower stops making car loan payments, a lender may decide that the unpaid debt is in default.

And because a car loan is usually a secured loan, with the car serving as collateral, the lender might move to repossess the vehicle to recover its money.

But that isn’t the only remedy a lender can or will use when a borrower dies. As long as timely payments continue, there are several scenarios in which the car could remain with a family member or friend — perhaps by transferring the loan to their name or auto refinancing the remaining balance with a new loan.

Who Could End Up Making the Payments?

Depending on the laws of where you live, several factors can go into deciding who’s responsible for making loan payments after a car owner dies. Here are a few possibilities:

A Co-Borrower or Cosigner

If your name is on a car loan as a co-borrower or cosigner, you can expect the lender to hold you responsible for continuing payments. Liability for the loan falls to you, and you would be expected to pay the principal and any finance charges on the car loan.

That means the lender can take steps to recover the money if you fail to make payments on time. If you want to keep the car — and protect your credit — you may have to do a little legwork to take the deceased’s name off the loan and change automatic payments to a different bank account.

Recommended: Can a Cosigner Become the Primary?

A Surviving Spouse in a Community Property State

In community property states, spouses are jointly responsible for any debts they take on after their marriage. So, even if you aren’t a cosigner or co-borrower, the lender could come to you looking for payment.

There are at least nine community property states, according to the IRS:

•   Arizona

•   California

•   Idaho

•   Louisiana

•   Nevada

•   New Mexico

•   Texas

•   Washington

•   Wisconsin

If you aren’t sure about the status of your spouse’s car loan, you can contact the lender for information.

A Surviving Spouse or Other Beneficiary

A surviving spouse who isn’t in a community property state and whose name isn’t on the car loan isn’t responsible for the loan. So, it may be your choice whether to assume payments if the car goes to you after probate. This is also true for any other beneficiary whose name is not on the loan.

How Does Probate Affect a Financed Car?

Probate is the legal process that may ultimately determine who is responsible for a financed car when the owner dies. Probate is generally the first step in settling an estate’s financial issues. It protects both creditors and beneficiaries. The rules may vary a bit from state to state, but here are some basics:

Assets and Liabilities Are Combined

When a person dies, their assets and liabilities — everything that makes up their net worth — pass on to their “estate.” That might be a home, investments, a car, and other valuables. Or it might be just a car, a small savings account, and some random possessions. You don’t have to be rich to have an estate. In this context, it just means what you own and what you owe.

The court-supervised probate process typically applies only to assets that were solely owned by the deceased at the time of death. If there’s a cosigner or co-borrower on the car loan, remember, the payments would become their responsibility. But if the deceased was the only one named on the loan, the car would likely be a probate asset.

Debts Are Paid and Assets Are Disbursed

The probate court will put an executor or administrator in charge of making sure the estate’s debts are all paid and the assets are disbursed to the appropriate beneficiaries. But working through all of that can take a while, so the executor or administrator may use the estate’s money to pay ongoing bills — including car payments — until the estate is eventually settled.

That doesn’t mean the car will automatically go to an heir at the end of the probate process, however. At some point, the executor might find it necessary to liquidate all or some of the estate’s assets to pay off the deceased’s remaining debts (credit cards, bank loans, etc.) And that could include selling the car — especially if it’s worth substantially more than the remaining loan balance.

On the other hand, if there is enough money left after other debts are paid, the estate might be able to pay off the car loan in full. If that’s the case, a beneficiary may receive the car at the end of the probate process without having to take on any payments. (The car title can’t be transferred until probate is finished.)

Finally, if the car is still available but the estate can’t pay it off, a friend or family member who’s willing to cover the loan balance may be designated as the car’s legal heir. Or, if no one is interested, the estate might just allow the lender to repossess the car. The lender would then sell the car to recover its loss and return any leftover funds to the estate.

Repossession of a Car After Death

It’s unlikely a lender will automatically repossess a car after learning of a borrower’s death. But if the family stops making timely payments — maybe because they can’t afford it or the obligation gets away from them in their grief — the lender may take steps to recover the money it’s owed.

Involuntary Repossession

The lender could decide to repossess the vehicle and put the proceeds toward the outstanding loan balance. And if the sale doesn’t cover the balance, the lender may continue to pursue payment from a co-borrower or cosigner, or a surviving spouse in a community property state.

The lender can’t force the surviving spouse in a non-community property state or other heirs to pay off the remaining debt, but it could choose to file a claim against the estate in probate court.

Voluntary Repossession

Then there’s voluntary repossession of car after death. Of course, you don’t have to wait for the lender to force the issue. If no one wants to take responsibility for the car — by making the payments or selling it to pay off the loan — the family may ask to have the car picked up through voluntary repossession.

What Are Some Car Loan Payment Options?

If you learn you’ve inherited a financed car, you may have a few options to consider:

Credit Insurance

If the car’s owner purchased optional credit insurance when he or she signed for the loan, you may not have to make any more payments, even if your name is on the loan. Credit insurance covers all or some of the remaining balance when the borrower dies.

The Estate Pays Off the Loan

To avoid tension with other beneficiaries, you may want to discuss whether the car loan will be fully repaid along with other debts when the estate is being settled, and how that might affect your overall inheritance.

Refinancing the Loan

If you’re taking over repayment and your name isn’t on the original loan, the lender will likely want you to refinance into a whole new loan. If your credit is a little shaky, it might help to enlist a cosigner with good credit to improve your chances of getting a better interest rate.

Sell the Car to Repay the Loan

Do you even need this car? If you thought you wanted the car, then changed your mind, It may make sense to sell the car to repay the loan. Selling the car may be right for you if the resale value is greater than the outstanding auto loan balance.

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

How to Assume a Car Loan After the Owner Dies

If your name isn’t on the existing auto loan but you want to legally take possession of a vehicle after the owner’s death, there are a few steps you can follow to make sure things stay on track.

Be Sure the Lender Gets a Copy of the Death Certificate

If the car is part of the deceased’s estate, the executor generally will take care of this step. If that isn’t you, you may want to follow up to be sure the lender knows the car owner died, but payments will continue.

Find Out If Someone Is Making Payments

If loan payments stop, even temporarily, the lender could decide to repossess the car. Check with the loan’s cosigner or co-borrower, the estate’s executor, or anyone else who might be covering the payments to ensure the loan is up to date. Or contact the lender about making payments.

Transfer the Title

If you’ll be taking over responsibility for paying for the car, it’s a good idea to have the car transferred to your name as soon as possible — and the lender may require it. Once you’re sure the car is legally yours, you can contact your state’s Department of Motor Vehicles for information about the documents you’ll need and the fees you’ll have to pay.

Contact Your Insurance Agent

Don’t forget to add the car to your auto insurance policy as soon as possible. Your agent can help you determine what coverage is required, or you can research and shop for a new policy online.

Find the Best Way to Pay for the Car

Unless the owner purchased credit insurance or the estate pays off the car, you’ll likely have to find a way to cover the cost. Even if the lender allows you to take over the car loan, you may want to consider other options.

If the balance owed isn’t too high, you could decide to simply pay off the entire loan amount.
Or you might want to refinance to secure a new loan with a lower interest rate or lower monthly payment. Refinancing a car loan with a 650 credit score is possible.

Recommended: When to Refinance Your Car

The Takeaway

Auto loan debts generally need to be repaid even if the borrower dies with an outstanding balance. Lenders have no obligation to forgive the unpaid debt, and they may have the right to repossess the vehicle. Anyone who inherits a deceased borrower’s car loan debt may have the option of refinancing 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

What happens to a car loan if the borrower dies?

When the owner of a financed car dies, the loan doesn’t disappear. And, unfortunately, deciding who can legally inherit the car or assume the loan payments can sometimes take months or longer. Meanwhile, unless the owner purchased credit insurance, the lender will expect the monthly payments to continue, or it may repossess the vehicle.

Are you responsible for loan payments if you inherit a financed car?

If you expect to inherit a financed car and you hope to keep it, you may want to do some research into the probate process to be sure things go as smoothly as possible. If you think you’ll be making payments, this also may be a good time to look at your refinancing options, so you can be sure you’re getting the best loan possible.

Who pays the car loan if the borrower dies unexpectedly?

The borrower’s estate may pay off the car loan if the borrower dies unexpectedly. An insurance company may pay off the loan if the deceased borrower had active credit insurance coverage on the car loan. A surviving spouse, in some cases, may be responsible for repaying the deceased borrower’s car loan. Any cosigner or co-borrower on the loan may also assume responsibility for repaying the debt.

Photo credit: iStock/nortonrsx

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.

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Refinancing your auto loan after repossession is possible. If your car gets repossessed, knowing what to expect and what your options are for refinancing can make the situation a little less intimidating.

Losing your vehicle to repossession is not necessarily permanent. Lenders may be willing to negotiate new terms following a repossession.

Learn more about refinancing your car after repossession, including how to get your car back from a repossession, refinancing after a repossession, how a repossession affects your credit, and more.

When Can a Car Repossession Happen?

If you’re unable to pay your monthly loan payment on your car, the bank can repossess it. Now you’re without a vehicle to get to work, and you’re likely at a loss about what to do next.

A car repossession can happen if you default on a secured auto loan. A secured auto loan is a traditional car financing contract in which the lender has a lien or security interest in the vehicle until the loan is paid off. The security interest gives the lender the right to seize or repossess your vehicle if you default on the loan. A default can occur if you fall into delinquency and fail to make required car loan payments.

A number of situations can make it difficult to pay your loan. You might have lost your job and not have the funds to cover your bills. Or maybe you have an upside-down auto loan, meaning you owe more than the vehicle is worth and are struggling to pay it down.

Some lenders may be flexible and provide you with a little leeway if you’re having a temporary financial issue. The key is to communicate with your lender.

Recommended: Refinance Car Loan With Same Lender

How to Get Your Car Back From a Repossession

Whether you can get your car back after being repossessed depends on several factors, including how many months you’ve gone without making a payment on your loan. If it’s been a month or two, your lender may work with you to let you catch up on late payments and get your vehicle back. If it’s been longer, the lender may sell your car at auction to recoup the cost of the loan you didn’t finish paying.

In addition to catching up on past-due payments, you may also have to cover costs associated with the repossession process, which could include towing and vehicle storage.

It’s important to understand that even if your car is seized and sold at auction, you may still be on the hook for paying the balance on the loan. If the auction sells the vehicle for less than you owe, you will still be responsible for paying the difference, including any outstanding principal, interest, and fees. Let’s say you owe $3,000 and the car sells for only $2,000. You would still owe your lender $1,000, even though you no longer have the car.

Can You Refinance a Car Loan After Repossession?

So, can you refinance an auto loan after repossession? Yes, refinancing your car loan after repossession is a possible option to explore.

If you want to refinance after repossession, it might make sense to refinance with the lender you already have a loan with. But realize you’ve got a lot working against you there, since that lender has already seen you miss payments and has had to go to the trouble of repossessing your car. However, your lender might consider giving you a refinance if you refinance over a longer period for a lower monthly payment.

If your original lender refuses, you’re not out of options for refinancing your auto loan after repossession. Check if you qualify with a bank or another auto lender. If you don’t, perhaps because your credit scores dipped from delinquency and repossession, consider adding a cosigner to qualify for an auto loan refinancing at a decent rate.

Recommended: Pros and Cons of Car Refinancing

Watch Out for Predatory Lenders

When you start looking for refinancing options after your car is repossessed, you may come across lenders who seem ready to bend over backward to get you the refinance loan you need. But that comes at a price.

These lenders may say that even if you have bad credit, you can qualify for a car loan. This could be appealing if you do indeed have bad credit, but look out for astronomical interest rates, hidden fees, and other tactics associated with predatory lending. Read the fine print carefully and don’t let a sales rep pressure you into any financing you’re not fully on board with. Ask important questions regarding your possible new loan, including:

•   What’s the monthly payment?

•   For how many months will you have to make payments?

•   What’s the APR on the car loan?

•   Do the finance charges on the car loan use simple or precomputed interest?

•   What’s the total cost of the loan?

•   Are there any prepayment penalties or other fees?

•   Finally, if your gut says something is fishy, just walk away.

Recommended: Refinancing With Bad Credit

How Long Does a Car Repossession Affect Your Credit?

Does refinancing hurt your credit? Yes, refinancing may cause a temporary dip in your credit score if the lender conducts a hard pull inquiry into your credit report, but having your car repossessed can cause greater damage.

A car repossession can affect your credit in the following ways:

•   Repossession can leave a derogatory mark on your credit report for seven years from when you stopped paying your auto loan.

•   Having a repossession recorded in your credit report can make it more difficult to get another loan.

•   You’ll have late or missing payments on your auto loan, which may be reported to credit bureaus.

•   If your car is repossessed, you may have a collection account on your credit report reflecting that.

•   You may also have a court judgment if the collections company is unable to collect the balance you owe.

Is Voluntary Surrender Better Than Involuntary Repossession?

One way to potentially lessen the impact of a car repossession — including the embarrassment of having it towed from your driveway — is through a voluntary surrender.

Some borrowers with delinquent car loans may prefer voluntary surrender over having their car taken at an unsuspecting time through repossession. Voluntary surrender happens when you contact your lender and volunteer to give up the car rather than having it repossessed involuntarily. This shows your willingness to be responsible and can save you the hassle of an involuntary repossession. Nonetheless, voluntary surrenders may appear on your credit report.

What Is a Voluntary Surrender?

Rather than waiting for your car to be taken, you can reach out to your lender to inform them that you are unable to continue paying on the loan. You can then make arrangements to give up the vehicle on your own accord. This is called a voluntary surrender.

A voluntary surrender may lead to the following outcomes:

•   When you reach out, the lender may want to work with you to find a way for you to continue paying the loan.

•   The voluntary surrender may appear on your credit report as a voluntary surrender, which can show other lenders that you were cooperative in trying to work out a solution on your auto loan.

•   Your credit scores may be impacted.

A voluntary surrender is a derogatory event, but some creditors may view it as less egregious than an involuntary repossession. That being said, losing your vehicle to repossession is not necessarily game over. You may be able to get your car back by reinstating your car loan.

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

The Takeaway

Refinancing an auto loan after a repossession can be challenging, but it’s not impossible. By understanding your credit situation, exploring lender options, and demonstrating financial responsibility, you may be able to secure better terms or even qualify for a new loan down the line.

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 after your car has been repossessed?

Yes, you can refinance after your car has been repossessed, but it’s difficult. Repossession severely impacts your credit, making it harder to qualify for traditional refinancing. However, some lenders offer options for those with poor credit, especially if you’ve rebuilt your credit and can show financial stability and consistent income.

What does it mean to be upside down on a car loan?

To be upside down on a car loan means you owe more than the current value of the vehicle. It’s also known as being underwater.

Can you get a loan after a repossession?

Depending on your qualifications, you may be able to get a consumer loan after repossession. This includes the possibility of getting another car loan, but the financing may come at a higher interest rate than what you had previously qualified for.

Photo credit: iStock/MCCAIG

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-Q225-003

In 2025, student loan debt remains a major obstacle to financial wellness for millions of American workers. While education is often viewed as the gateway to opportunity, the rising costs of higher education have left many employees burdened by debt throughout their careers.

With ongoing legislative changes, program delays, and economic uncertainty, navigating the student debt landscape has become increasingly complex. For HR professionals, this presents both a challenge and opportunity —- the challenge of creating benefits to address employee concerns about student debt, along with the opportunity to build a more engaged, loyal, and financially resilient workforce.

Here’s a look at the latest developments in student lending — and how HR can play a role in supporting and empowering employees burdened by education debt.

Key Challenges Employees May Be Facing

Despite federal efforts to ease the burden of student loans, 2025 has ushered in a new set of uncertainties. Here are some of the most recent changes in federal loan repayment that may be impacting the financial health of your employees.

Resumption of Collection Activities

The Department of Education (ED) resumed collections on defaulted students on May 5, 2025, after a roughly five-year hiatus. The action affects over five million borrowers who are now in default, with an additional four million in late-stage delinquency. Consequently, nearly 10 million borrowers could soon be in default, representing almost 25% of the entire federal student loan portfolio.

The ED has restarted collections through the Treasury Offset Program (TOP), which allows for the offset of income tax refunds and certain federal and state payments. If borrowers continue to miss payments going into the summer, Federal Student Aid will place them in administrative wage garnishment. This means up to 15% of their disposable income can be withheld from their paycheck and sent to their loan holder.

Legal Uncertainty Surrounding Repayment Plans

The Saving on a Valuable Education (SAVE) plan, designed to lower monthly payments and eventually forgive remaining balances, is currently on ice due to a court ruling that blocks its implementation. The roughly eight million borrowers who signed up for SAVE are now in an interest-free forbearance, and the future of the plan remains uncertain. The same court ruling also paused the forgiveness feature of the Pay As You Earn (PAYE) and Income-Contingent Repayment (ICR) Plans.

A final resolution on these programs may come from the Supreme Court or through Congressional action.

Potential Changes to PSLF

The Public Service Loan Forgiveness (PSLF) program, which promises debt forgiveness for nonprofit and government workers after 120 qualifying payments, is facing renewed scrutiny. An executive order signed by President Trump seeks to limit which employees can qualify for loan forgiveness by changing what counts as public service. If these changes are implemented, some nonprofit organizations could lose their eligibility for the PSLF program.

Supporting Employees With Student Debt

HR departments have a unique opportunity to support employees in their financial journeys. While traditional benefits such as health insurance and retirement savings remain important, today’s workforce increasingly values financial wellness programs that address immediate concerns — chief among them, student loan debt.

Helping employees navigate their student debt repayment journey can lead to meaningful organizational benefits, including:

1. Reduced Financial Stress

According to SoFi at Work’s Workplace Financial Well-Being 2024 survey, employees spend nearly 14 hours a week stressing about finances, over half that time (8.2 hours) during working hours. Perhaps not surprisingly, one in three employees say financial issues impact their ability to focus at work, and nearly 25% say the stress reduces their productivity and confidence on the job.

Employer efforts to alleviate financial stress can lead to increased productivity, reduced absences, and improved overall employee well-being. When workers aren’t preoccupied with looming payments or default risks, they can bring more focus and energy to their roles.

Improve Loyalty and Retention

By actively addressing the student debt crisis and offering support, company leaders can foster a culture of support and empathy within the organization. This can create a positive work environment where employees feel valued and supported in their financial journey. Those employees may feel less inclined to look for a different employer, increasing your organization’s retention rates.

Employees may also be more engaged and connected to their work when they feel their employer takes their financial wellness seriously.

Increased Financial Literacy

HR can also play an educational role, helping to demystify the often-confusing world of student loans. By providing clear, accurate information — through webinars, one-on-one counseling, or curated resources — benefits teams can empower employees to make informed decisions about repayment strategies, consolidation, and forgiveness options.

That can be especially valuable for borrowers with loans in default. For example, if they’re considering enrollment in an income-driven repayment (IDR) plan, you may provide access to a student debt consultant who can help them compare the various options and choose a workable repayment plan.

Key Benefits to Consider

As HR teams explore ways to support employees with student debt, a variety of benefit options are emerging as both impactful and feasible.

Direct Student Loan Repayment Assistance

One of the most straightforward ways to assist employees is by contributing directly to their student loan payments. Under current law, employers can offer up to $5,250 annually in tax-free student loan repayment assistance through 2025. This benefit can be structured as a monthly subsidy, annual lump sum, or performance-based incentive.

Direct repayment support not only helps employees chip away at principal faster but also signals a strong commitment from employers. When paired with financial counseling or other resources, this benefit can have a highly positive impact on employee morale and financial health.

401(k) Student Loan Match

An innovative employer benefit gaining traction is matching employees’ student loan payments with contributions to their retirement accounts. Thanks to changes under the SECURE 2.0 Act that went into effect in 2024, employers can make 401(k) matching contributions based on employees’ qualified student loan payments.

This addresses the common dilemma many young workers face: choosing between paying off debt and saving for retirement. By offering both, employers can help workers build long-term financial security without sacrificing immediate obligations. It’s a win-win that encourages both debt reduction and future planning.

Recommended: Why Financial Wellness Is Important in the Workplace

Financial Education and Counseling Services

In addition to monetary support, HR can offer programs that build financial literacy and empower smarter decision-making. Partnering with financial wellness platforms or nonprofit organizations, employers can provide workshops, online tools, and access to certified counselors.

These resources can help employees:

•   Understand repayment options (e.g., income-driven repayment, refinancing, consolidation)

•   Navigate forgiveness programs (e.g., PSLF and forgiveness through IDR plans)

•   Avoid default and wage garnishment

•   Strategize for long-term financial goals alongside debt repayment

The Takeaway

As we navigate the evolving landscape of student debt in 2025, one truth is clear: employers have a powerful role to play in supporting the financial wellness of their teams. For employees burdened by uncertainty, resuming payments, and potential wage garnishments, HR support can be the difference between ongoing stress and a path to stability.

By offering thoughtful benefits — ranging from financial education to direct loan repayment and retirement matching — company leaders can foster a workplace where employees feel valued and supported.

SoFi can help. We’re experts in the student lending space. SoFi at Work offers student loan information, refinancing, and repayment platforms, along with a range of other benefits tools that can help you build a successful and loyal workforce.

Photo credit: iStock/filadendron

Products available from SoFi on the Dashboard may vary depending on your employer preferences.

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SoFi Student Loan Refinance Loans, Personal Loans, Private Student Loans, and Mortgage Loans are originated through SoFi Bank, N.A., NMLS #696891 (Member FDIC), (www.nmlsconsumeraccess.org ). The 529 Savings and Selection Tool is provided by SoFi Wealth LLC, an SEC-registered investment adviser. For additional product-specific legal and licensing information, see SoFi.com/legal. 2750 E. Cottonwood Parkway #300 Cottonwood Heights, UT 84121. ©2025 Social Finance, LLC. All rights reserved. Information as of November 2025 and is subject to change.


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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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