When it comes to refinancing your car, you can do so as many times as you want.
There is no legal limit on the number of times you can refinance a car. However, each time you will have to find a lender that is willing to lend you the money for a new loan. Each lender will have its own rules for refinancing, and if you have refinanced a number of times already, it is possible a lender will decide not to make a loan offer.
However, even if you have to search for a lender, refinancing can be worthwhile, saving you money in interest payments over the life of the loan and making monthly payments more manageable. That said, it’s important to look into new loans carefully and ensure that the cost of refinancing, including fees, doesn’t take too large a bite out of your potential savings.
Let’s take a look at how and when to refinance and what mistakes you should avoid.
Key Points
• There is no set limit to how many times you can refinance a car, but each refinance involves a new loan application and potential hard credit inquiry.
• It’s important to consider the timing of refinancing, as frequent refinances can lead to multiple hard inquiries, which may temporarily lower your credit score.
• Each refinance should be evaluated based on the potential benefits, such as lower interest rates or reduced monthly payments, against the costs and fees associated with the new loan.
• Different lenders have varying policies regarding refinancing, including minimum time requirements between refinances and specific eligibility criteria.
• Refinancing can change the terms of your loan, such as the length of the loan and the total interest paid, so it’s crucial to understand these changes before proceeding.
Car Loan Refinancing Basics
When you refinance a car loan, you are essentially replacing one loan with a new one. Ideally, the new loan will offer better terms and a lower interest rate than the old loan. That way, refinancing could improve your financial situation.
You might decide to look into refinancing if your original loan has become a bad fit in some way. For example, perhaps you’ve lost your job and your current interest rate means your payments have become too expensive for you. Or maybe your finances have changed for the better — for example, you may have built your credit score — and you are now more likely to qualify for a cheaper loan.
Whatever your reason for refinancing, be aware that you aren’t eliminating your debt. Your original loan balance will remain the same, and you’ll need to use the same collateral to secure the loan — in the case of an auto loan refinance, your car.
Factors to Consider Before Refinancing a Car Loan
Here are some factors to consider before refinancing a car:
• An auto loan refinance calculator can help you determine whether refinancing is right for you.
• Refinancing may be right for you if you can secure a lower interest rate.
• Extending your loan term may reduce your monthly payment, but your interest costs may increase.
• Refinancing for a shorter term may reduce your total interest costs, but your monthly payment may increase.
• It’s possible to refinance with bad credit.
• You could borrow extra funds with cash-out auto refinancing depending on your equity in the car.
• It can be difficult to refinance an upside down car loan.
• It can also be difficult to refinance a car with high mileage.
• You’ll generally need proof of insurance to refinance a car loan.
• You may not be eligible for refinancing if you owe less than $3,000 on a car loan.
• Refinancing can hurt your credit score if the lender does a hard inquiry credit check.
Refinancing Requirements
Here are some typical requirements for auto loan refinancing:
• Proof of identity
• Proof of income
• Proof of car insurance
• Your car is 10 years old or newer
• You owe at least $3,000 on your existing car loan
• The car is registered in your name
• Be current and not delinquent on your existing car loan
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How Many Times Can You Refinance a Car?
As mentioned earlier, you can refinance your car as many times as you want. Refinancing your car loan may be right for you if you can secure a lower car loan interest rate. (Refinancing for a longer term may increase your total interest costs.)
You’ll generally need to meet a lender’s minimum requirements to refinance your car. It’s possible to refinance your car loan multiple times if you can find willing lenders.
Keep in mind that refinancing typically comes at a cost. You may have to pay a title transfer fee each time you refinance your car loan. Fees can add to the cost of refinancing your car.
Reasons to Refinance Your Car
So, when should you refinance?
You may want to consider refinancing your loans when you’re either in a good spot financially or you’ve had some sort of financial setback.
For example, lenders look at your credit score when determining your creditworthiness, and that number helps them decide what terms and interest rates they are willing to offer you. If you’ve paid down debt and built your score since you took out your original loan, you may qualify for a new loan with lower interest rates.
But also, if you find yourself in a tough spot financially and need to find space in your budget, refinancing to a lower interest rate may help you save money.
In either situation, perhaps the best reason to refinance your car loan is to secure a better interest rate. All else being equal, a lower interest rate will mean that you pay less over the life of your loan. Your interest rate is included as part of your monthly car payments, and if it drops, so too should these payments, potentially making them easier for you to manage.
Is It Bad To Keep Refinancing Your Car?
If you continually refinance your car, there are a number of potential issues you could run into, including:
You Could End Up Upside-Down
First, as mentioned above, if you refinance to a loan with a longer term — even if you are offered a smaller monthly payment and lower interest rates — you can end up paying more over the life of the loan. What’s more, extending the life of your loan can potentially cause you to go “upside-down” or “underwater,” meaning you owe more on your car than it’s actually worth.
You Might Have to Pay Prepayment Penalties
Beware of prepayment penalties. When you refinance, you’re essentially paying off one loan and taking on another. However, your first loan may charge you extra if you pay it off early. Before you refinance, make sure there are no prepayment penalties, and if there are, make sure they don’t outweigh the benefits you might gain by refinancing.
It May Hurt Your Credit
Refinancing your car loan may temporarily lower your credit scores. As you shop for new loans and look for the best rate, each lender you submit an application with will typically make a hard inquiry as they pull your credit score. Your credit report keeps track of hard inquiries, which can cause your score to dip for a short period. That said, typically multiple hard inquiries in a short period of time are not cumulative in the effect they have on your score.
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How Long Should You Wait to Refinance an Auto Loan?
After you take out a car loan, there’s no set length of time that you have to wait before you can refinance. Theoretically, you could do so right away. For example, perhaps the car dealer offers a cash rebate if you finance your purchase through the manufacturer. It might be possible for you to take this deal and then immediately refinance to a lower interest rate with a bank. You might even get a “new car rate.”
That said, realistically, you may have to wait at least a month while your dealer and the Division of Motor Vehicles process paperwork relating to the vehicle title and registration.
Also, banks may have their own rules about how soon they’re willing to consider refinancing an auto loan. They may require that you hold your old loan for a set period before they will make a new offer.
And a final note about the timing of potential auto refinances: it may make sense to refinance as early as you can, near the beginning of your loan. If you wait, you may end up extending the number of years you’re paying off your vehicle, which could mean you spend more money even if you can lower your interest rate and monthly payment.
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Can You Refinance a Car Loan with Over 100,000 Miles?
Refinancing a car with more than 100K miles on the odometer is possible. Lenders may be more concerned with the age of the vehicle than the amount of miles on it. In general, it can be difficult to refinance a car that’s more than 10 years old.
You may qualify for auto refinancing if your car is less than 10 years old and has fewer than 150K miles on the odometer. Lenders may also charge a higher rate of interest if you’re refinancing a car with over 100,000 miles.
The value of a car typically depreciates with use and age. An alternative to refinancing a high-mileage car is selling it and buying a new or used vehicle.
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When to Avoid Auto Loan Refinancing
Refinancing does not make sense if you stand to lose money in the deal. How might that happen?
New auto loans cost money. States will charge a new title fee, and lenders may charge any number of fees, including origination and processing fees. If the amount you save by refinancing is less than the cost of new fees, the process may not be worth it. But you’ll have to read the fine print and do the math to be sure.
It is possible to wait too long to refinance. Interest rates are usually better for newer vehicles, so the older your car gets, the less favorable the loans you may have access to are likely to be. Some lenders won’t even consider vehicles that are over a certain age.
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How Can You Ensure You’re Getting the Best Possible Rate?
Shopping around and comparing terms can help you find auto refinancing that’s right for you. You can check your rate and see whether you prequalify for any rate offers. Seeing whether you prequalify for auto refinancing typically involves a soft credit check that does not impact your credit score.
Once you shop around and compare rates, you’ll be free to apply for auto refinancing with the lender of your choice. Keep in mind that a lower interest rate doesn’t necessarily save you money if you refinance for a longer term.
Lenders may conduct a hard inquiry if you submit an application for auto loan refinancing. A hard inquiry can remain on your credit report for two years, and the initial impact can cause your credit score to drop several points.
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How to Lower Your Monthly Payment
Refinancing for a longer term can lower your monthly payment. Keep in mind that extending your loan term may increase your total interest costs, so this option may not be right for you if your goal is to minimize your interest costs.
In some cases, refinancing for a lower interest rate may lower your monthly payment depending on other factors. Your loan amount, annual percentage rate (APR), and term length will determine your minimum monthly payment.
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The Takeaway
While you can refinance your car loan as many times as you want, there are some factors that may limit how often you should do it.
Consider whether you will actually save money when you refinance. Remember that though you may lower your interest rates and monthly payments, fees associated with a new loan can reduce those benefits. And if you extend the life of your loan, you may end up paying more in the long run.
If you’re seeking auto loan refinancing, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your car in minutes.
FAQ
Can you refinance a car twice?
Yes, you may have the option of refinancing your car multiple times before paying off the debt and gaining 100% equity in the vehicle. As long as you can find a lender willing to give you an auto refinancing loan, you can refinance your car multiple times.
Is it bad to keep refinancing your car?
It’s not necessarily bad to keep refinancing your car, but refinancing may be more advantageous when the car is newer. There are risks you’re more likely to encounter when you try to refinance later in the life of your car’s loan, like going upside down on the loan.
How long should you wait to refinance an auto loan?
Theoretically, you can refinance as soon as you get your car loan. Pragmatically, it will probably take about a month for the various paperwork to be finalized. After that, you can typically refinance, though it’s best to make sure you do so only if you’ll be getting concrete financial advantages from it.
Photo credit: iStock/mixetto
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