How Long Until I Can Refinance My Car?

Updated on May 3, 2021

You recently bought a car, but in the brief time since, you’ve noticed interest rates have dropped or you’ve had a change in your personal life. As a result, you want to refinance, but aren’t sure if it’s too soon to do so.

There aren’t any specific guidelines on when you can refinance a vehicle. You could theoretically do so just a few months after you originally financed (or sooner), which would allow you more potential to save. While you may garner a lower interest rate, your existing contract, your credit score, and other factors will impact the amount. Here are a few things to think about beforehand.

When Does It Make Sense to Refinance a Car Loan?

There are a number of situations in which it may make sense to refinance your auto loan, even if you recently purchased the vehicle. You may want to consider refinancing in these situations:

• You bought your car at a time when interest rates were high, and they’ve since dropped. Interest rates tend to rise and fall with market developments and the levels set by the Federal Reserve. Rates also depend on inflation to some degree, as well as the state of the economy. Typically, rates drop when lenders want to encourage people to spend.
• Your credit score has increased significantly since you financed your car. If your lender uses risk-based lending, a practice that offers applicants different rates depending on their risk of defaulting on the loan, then you may benefit from refinancing if your credit score has improved since initially financing your vehicle. Even if a lender doesn’t use risk-based lending, an increased credit score may allow you to be approved for a loan at a financial institution that offers a better rate than what you originally were given somewhere else.
• You want to have a co-signer or joint owner removed. You may have originally financed your vehicle jointly or were required to add a co-signer by your lender, but since then, your circumstances may have changed, either personally or financially. In most instances, you’ll need to refinance the auto loan to remove the co-signer.

What Should I Know Before Refinancing?

Say you financed your car with a 6% interest rate, but you see a lender offering 5%. Sounds like a good offer, right? Not necessarily. There are more factors that play into refinancing than just the interest rate.

Once you’ve determined that it makes sense for you to refinance, you’ll need to consider a few factors before starting the process.

• Determine if you’ll incur any fees. You’ll need to find out if your lender imposes a fee on those who pay off their loans before a certain date, like a prepayment penalty. Some contracts include this in fine print, and the lender uses it as an incentive for you to stick with them through the life of your loan. If your auto loan is through PSECU, there’s no fee for paying off your loan early.
• Calculate your new estimated payment. Compare what your monthly payment is now and what it would be if you refinance. If you’re only saving a few dollars, it may not be worth it to refinance.
• Review your credit history. Remember that lenders take your payment history into consideration when reviewing a loan application. Having good credit could get you a better rate. Your payment history is a factor that impacts your score significantly. So, if you’ve missed payments on your current loan, you may be less likely to get approved for refinancing.

Refinance Your Auto Loan With PSECU

If it seems like refinancing your auto loan is the right choice for you, consider joining PSECU. You can use our financial tools, like our financial calculators, to estimate your new payment. Our loan refinancing process is easy, with low rates and flexible terms to make car ownership even better.