When refinancing a car loan pays off
Refinancing replaces your car loan with a new one, ideally at a lower rate. It's worth it when the interest saved beats any fees, without stretching the loan so far that you pay more overall.
Example: $20,000 left at 9% over 48 months is $497.70 a month. Refinancing to 6% for the same 48 months drops it to $469.70, saving $28.00 a month and about $1,344 in total.
Before you refinance
- Credit improved since you bought the car? That's the most common reason rates drop.
- Dealer financing is often marked up; credit unions frequently beat it.
- Longer terms lower the payment but can cost more interest and leave you owing more than the car is worth.
- Check for prepayment penalties and title transfer fees in your state.
Shopping for a new car instead? Use the car payment calculator.
Frequently asked questions
Is it worth refinancing a car loan for 2%?
Often, yes, if there's a year or more left and fees are small. On $20,000 over 4 years, 2 points saves roughly $900.
Does refinancing a car hurt your credit?
A hard inquiry and new account cause a small, temporary dip. Rate shopping within about two weeks counts as one inquiry.
When should I not refinance my car?
When the loan is nearly paid off, the car is worth less than you owe and lenders won't approve it, or fees and a longer term would erase the savings.
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