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Refinancing a Car Loan—What to Consider

June 09, 2021 · 3 minute read

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Refinancing a Car Loan—What to Consider

You’ve probably heard of “buyer’s remorse”—that sense of regret people experience after making a big purchase like a car.

What you don’t hear so much about is borrower’s remorse—the dissatisfaction car buyers sometimes feel when they realize the financing they got through the dealer is costing them more than they thought.

Even the toughest hagglers can miss things when they hit the dealership’s business office and begin negotiating loan terms. But that doesn’t mean you can’t pump the brakes, pull over, and try again. Refinancing a car loan certainly isn’t for everyone, but it could be a potential option. If you’re wondering whether refinancing your car loan is a good financial fit for you, read on.

When Refinancing a Car Loan Might Make Sense

Refinancing is the process of getting a new loan that essentially replaces the existing loan. The process involves filing a new loan application and lenders will generally evaluate potential borrowers on factors like their credit score and history in order to determine their new loan terms and interest rate.

Generally, borrowers refinance in order to secure a better interest rate or preferable terms. For example, a lower interest can help borrowers pay less in interest over the life of the loan.

Sometimes, borrowers may extend their repayment to secure lower monthly payments. This can make the loan payments more affordable on a monthly basis but ultimately makes the loan more expensive in the long run. So, when might it make sense to refinance a car loan?

You Think You Can Do Better than that “Dealer-Sourced” Loan

When you finance your car through a dealer, it can feel as though you’re going through some mysterious selection process. Generally, the dealer forwards your information to its chosen lenders, then collects bids that outline the terms they’re willing to offer, including the interest rate. Those offers are presented to you and you make a choice.

Know that you don’t have to buy a car with dealership financing. If you’re interested in buying a car, it’s possible to borrow a loan with a private lender. It may make sense to get pre-approved for a loan before heading to a dealership .

Your Overall Financial Position Has Improved

Perhaps your car loan was offered to you at a time when your finances weren’t as solid as they are now. If that’s the case, and your financial position has improved since you took out a car loan, you may be able to qualify for a personal loan at a better interest rate than your original auto loan. With SoFi’s Personal Loan Calculator, you can compare what you’re currently paying to the estimated payments you might have with a new SoFi loan.

Individual financial circumstances and credit scores aren’t stagnant. Maybe you’ve gotten a better job, or paid off some other debts, or have been working on making consistent payments on debts. Borrowers who’ve seen improvement in their financial situation or credit score , may want to consider refinancing.

Interest Rates Have Improved Since The Borrowing The Original Loan

Another reason to consider refinancing a car loan is if interest rates have changed since you originally bought the car. Interest rates on auto loans are influenced by benchmark rates, like those set by the Federal Reserve.

If the federal reserve rate is low, interest rates for borrowers may also be lower. But as the federal reserve rate increases, the cost of borrowing money is also likely to increase.

Refinancing with a Personal Loan

With an unsecured personal loan, it is possible to apply for the remaining amount of the car loan. If you’re considering car refinancing, you may find that lenders have minimum loan amounts—for example, SoFi’s minimum personal loan amount is $5,000 (and more in some states due to legal requirements).

The length of your current loan is an important consideration, too—but the length of a new loan could also be a deciding factor.

If you can’t pay off the refinanced loan in the same or less time than the one you have scheduled, it may not make sense to apply for a new loan. Yes, potentially lower payments could give you some financial breathing room, but if your goal is to get out of debt, you may want to try to stick to the shortest loan term you can manage.

The Takeaway

Refinancing a car loan may make sense for borrowers who can secure a better interest rate or otherwise more preferable terms than they have on their existing car loan. If a borrower’s financial situation has improved, or if benchmark interest rates have fallen, it may make sense to look into refinancing options.

SoFi offers competitive rates to qualifying borrowers and there are no origination fees or prepayment penalties on SoFi personal loans. Lantern by SoFi can also help you find competitive interest rates for auto loan refinancing.

Do your research and run the numbers. Life doesn’t always offer do-overs, but refinancing a car loan may make sense in certain situations.

If you’re considering refinancing, see how a personal loan from SoFi might be able to help.


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SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.

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
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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.
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