Best auto loan refinance rates for August 2024

A closer look at our top auto loan refinancing lenders

Not all refinance auto lenders are created equal. Some boast an online-only experience, while others are geared for in-person support. Many lenders also have specific eligibility requirements around vehicle age or loan amount. Consider the ins and outs of our top auto loan refinance lenders. 

What car refinancing is and how does it work?

Refinancing a car loan is essentially just taking out a new car loan — so the steps for applying are mostly the same. You'll need your driver's license, Social Security number and proof of income and insurance, as well as details about your car. If approved, you'll use the funds from your new loan to pay off your old car loan, then begin making monthly payments with your new interest rate and terms.

Pros and cons of refinancing an auto loan

When should you refinance your car loan?

Refinancing your car loan comes down to saving you money. If you are struggling to afford your vehicle payments or think you could receive more favorable terms, it’s a good idea to consider refinancing your current loan. Here are the main scenarios where refinancing is the right choice.

1. Your credit has improved: Competitive rates are reserved for drivers with very good or excellent credit — scores of 740 and above. So, if your credit score has risen since you signed off on your initial loan agreement, refinancing could save you money on your monthly payments.
2. You financed through a dealership: Dealer financing likely did not present you with the best available rates and terms. You might be able to get a better deal if you shop elsewhere and refinance your initial vehicle loan.
3. You can’t afford your monthly payments: If you are struggling to make your monthly vehicle payments and are at risk of losing your vehicle, it is a good idea to refinance your loan. This way you can extend your terms to lower your monthly costs. Keep in mind that you will have to pay more interest over the life of the loan. 
4. You have positive equity: If you have positive equity in your vehicle, or the value of your vehicle is worth more than you owe, the cash-out refinance process could present you with some extra money and improved loan terms. 
5. You have issues with your current lender: If you are struggling with your lender, refinancing may help avoid future problems. But look out if there are prepayment penalties enforced, which could outweigh your savings.
6. Interest rates dropped: Even if there hasn’t been a boost in your credit, if interest rates have changed with the prime rate then you may be able to secure improved rates — especially if a lot of time has passed.  

When should you not refinance your car loan?

While the potential for a lower monthly payment is promising, it cannot always become a reality. Consider the following times when refinancing is likely not the best financial move.

1. When you’re close to paying off your loan: Unless you desperately need to reduce your monthly payment, refinancing close to the end of your loan is a risk. Lenders usually have a minimum term requirement, which can make it difficult. And even if you do gain approval, you can be left overextending and paying more. 
2. When you owe more than the car is worth: The further along you are on the loan, the more likely you are to become upside down. 
3. When interest rates are high: Interest rates are at elevated levels right now, so if you have an average interest rate, you might not be able to find anything better in the current environment. 
4. When your car doesn’t meet lender requirements: Lenders have restrictions on your financial background and the age and mileage of your vehicle. If you do not meet these conditions, a refi might not be possible. 
5. When fees will outweigh your savings: Some lenders enforce prepayment penalties, which can trigger if you pay your loan earlier than agreed upon. Ensure that you will not be stuck with high fees if you decide to refinance your current loan.

How to refinance an auto loan

To successfully refinance your auto loan, follow these steps:

1. Decide if refinancing is the right financing move: There are two main situations where refi makes sense: you can secure a better rate or you need a lower monthly payment. 

2. Review your current loan: Most lenders require a minimum of $3,000 to $5,000 in order to refinance, check your payoff amount along with your terms before starting the process.  

3. Check your credit score: Check your credit score to see if it has improved since your original loan approval. The higher your credit score, the better your new rate will be. While you can still refinance with bad credit, you'll want to consider the risks first.

4. Estimate your car's value: Estimate your vehicle’s value and compare it with how much you owe on your loan. If you’re upside-down — meaning you owe more than the car’s worth — you’ll struggle to refinance. 

5. Determine your savings: Available interest rates vary by lender so shop around with at least three different providers. Be sure to compare potential rates with your current loan. 

6. Get your paperwork in order: Gather the necessary documentation and details of the current loan so you can walk away with better rates and terms.

FAQs about auto loan refinance