When to Refinance a Car Loan (and When Not To)

Updated September 2026 · 5 min read

Refinancing replaces your current auto loan with a new one, ideally at a lower rate. It is worth doing when you can cut the rate by about 1-2 percentage points or more and you still have enough of the term left for the saving to beat any fees. It is rarely worth it near the end of a loan.

The break-even math

Suppose you owe $20,000 at 9% with 48 months left. Your payment is about $498 and you will pay roughly $3,900 in remaining interest. Refinance to 5.5% over 48 months and the payment falls to about $465, with about $2,300 of interest. That is a saving of roughly $1,600.

If the new loan charges a $200 origination fee, you still come out about $1,400 ahead. If the rate drop is only half a point, the fees may eat the gain.

Good reasons to refinance

• Your credit score improved since you bought the car.
• Market rates fell.
• You were pushed into a high dealer-arranged rate.
• You want a shorter term to pay less total interest.

Reasons to skip it

• Less than about a year left on the loan - little interest remains to save.
• The rate drop is under 1 point and there are fees.
• The new term is longer, which lowers the payment but raises total interest.

How to do it

Compare at least three lenders, including a credit union. Ask for the APR, not just the rate, and get the total interest on the payoff quote. Confirm there is no prepayment penalty on the old loan, and that the new loan does not add fees that cancel the saving.

Use the car loan payoff calculator to see how extra payments compare, and the auto loan calculator to price the new loan.

Frequently asked questions

Does refinancing hurt my credit?

A hard inquiry causes a small, temporary dip. Auto loan inquiries within a short shopping window are usually counted as one.

Can I refinance a lease?

No, but you can buy out the lease and finance the buyout with a new loan.