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.
Key Points
• You can refinance your auto loan almost immediately after purchase. However, you may need to wait for your dealer and the local DMV to process your paperwork, which can take a month or longer.
• There is no required waiting period before refinancing. Once your initial loan is finalized and your vehicle’s title is processed, you can apply for refinancing.
• Refinancing might be beneficial if you’ve built your credit score, found lower interest rates, or have positive equity in your car.
• If you owe more on your loan than your car is worth (known as being “upside down” on your loan), refinancing might not be advisable.
• The refinancing process typically takes between two weeks to 15 business days. The duration may vary depending on how quickly your previous lender applies the new loan funds to pay off the old loan.
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.
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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.
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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.
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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:
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Pros:
• Lower interest rates: One of the best reasons to refinance your auto loan, lower interest rates allow you to save money and potentially pay off your loan faster.
• Lower monthly payment: Lower interest rates can translate to lower monthly payments, as could lengthening the term of your loan.
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Cons:
• Fees: Refinancing a loan costs money. Consider closing costs and other fees, which can eat into whatever savings you’d gain by refinancing. If they’re too high, refinancing may not be worth it.
• Higher long-term costs: If you extend the life of your loan, you could end up paying more in interest over the long run.
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.
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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.
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