How Many Times Can Borrowers Refinance a Car, and How Often?

There’s no legal limit to the number of times you can refinance your car loan or how often you can refinance. As long as you can find an organization willing to lend you the money, you can refinance your car loan.

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Each lender has its own rules for refinancing, and the company may reject your refinancing application if you’ve already refinanced several times. It’s a good idea to apply for refinancing with several lenders. That way, you can choose the offer with the best interest rates and the lowest fees. If a few companies decide not to offer you a loan, you’re still likely to have many refinancing options.

Even if it lowers your payments, refinancing can end up costing you more than keeping the original loan in some cases. In other circumstances, people who have improved their credit scores can get loans with lower interest rates. They can often save money by refinancing. However, refinancing too often can be a bad idea. In this article, we’ll discuss how refinancing works, how it affects your credit score, when to refinance, when to avoid it, and the answers to some of the most frequently asked questions about refinancing.

How Refinancing Works

When you apply for refinancing, the lender usually asks about how old your vehicle is and its mileage. The lender will also want to know how much money you have left on your car loan. Most lenders will only refinance vehicles that are less than 10 years old and have fewer than 100,000 miles. As your car becomes older and its value goes down or depreciates, refinancing could become difficult.

A car loan is a front-loaded, amortized loan. At the beginning of a car loan, when the principal or the amount owed is higher, the borrower pays more in interest. Toward the end of the loan, they pay more toward the principal. This means that lenders can make more money from people who refinance early in their loans, and borrowers can get better interest rates. If a loan has less than a year left, refinancing may not be worth it.

How Refinancing Affects Your Credit Score

You can apply for refinancing with multiple lenders. As long as you make all your applications within the same 14-day window, they’ll only count as one credit inquiry on your credit report. A hard inquiry on your report will lower your credit score slightly, but it will only stay on your record for a year.

When you refinance, you’ll affect your credit history length. When you pay off one loan with a new loan, you decrease the average age of your accounts. New credit only accounts for 10 percent of your credit score, so refinancing won’t hurt your score much. In the long term, it could even help your credit by making your monthly payments lower. That way, making them early or on time will be easier. Payment history is 35 percent of your credit score. Avoiding late payments or repossession by refinancing can help you increase your score in the long term.

When to Refinance

If you have good credit, you may be able to get a cash rebate by financing your vehicle through a car dealership. Then, you can refinance your vehicle almost immediately after the purchase. That way you can get a lower annual percentage rate (APR) and keep the rebate. Along with saving money on interest, refinancing can make your monthly payment obligations easier to meet.

If your credit is improving, waiting six to 12 months before refinancing could be a better decision. You can show lenders that you have made consistent, full payments on your existing loan. When your credit score improves, the interest rates you can qualify for are likely to improve as well. In many cases, even with the fees you’ll need to pay, you can save money by refinancing and getting a lower APR.

If you have a late-model vehicle, you may be able to qualify for a lender’s lower new car interest rates. With an older vehicle, you could need to pay a higher rate. If you get a promotion and your salary increases, your debt-to-income ratio could improve, increasing your credit score and letting you qualify for a better interest rate. You can also use your higher income to pay off some of your car loan when you refinance. That way, you’ll need to pay less interest.

If you get laid off from your job or decide to take a job with a lower salary, the interest rate for refinancing could go up from your original rate. However, refinancing and extending the term of your car loan could be worth it to reduce your monthly payments and make them more affordable. It’s a good idea to check available rates at the bank or credit union you already use. Many financial institutions offer better interest rates to existing customers.

When to Avoid Refinancing

Unless you have excellent credit, it’s a good idea to wait at least six months before you refinance a car loan. Waiting can keep refinancing from lowering your credit score too much. It’s also a good idea to avoid refinancing the same loan multiple times. If you’ve already refinanced several times, a lender could decide that you might have financial difficulties. If a bank doesn’t think you can make reliable, on-time payments, it may charge you a higher interest rate or decide not to lend you the money for refinancing.

Only people who need lower payments should refinance if the new loan will end up costing more than the original one. Even if the interest rate is lower for a new loan, the total amount the borrower pays might be more. A longer term for a car loan increases the amount of interest you must pay over the life of the loan.

When you refinance with a longer term, you can also risk becoming underwater or upside down on your car loan. This means you could owe more for the new loan than your car is worth. If you want to sell the vehicle, you may not be able to pay off the entire loan with the money you receive.

Refinancing usually comes with a title fee from the state you live in, origination fees, application processing fees, and other expenses. When you refinance, it’s a good idea to consider the annual percentage rate or APR. It’s a combination of the interest rate and fees. This number is a percentage of the principal — the amount you owe on the loan without interest or fees. Before you agree to refinance, read your loan agreement carefully. When you refinance with some companies, they include an extended warranty or guaranteed asset protection (GAP) insurance.

These products can cost hundreds or thousands of dollars, but choosing one may not bring your monthly payments up much if you purchase it while refinancing. An extended warranty or GAP insurance can protect you from needing to pay for many types of repairs. It can be worth the extra money in some circumstances.

However, you should make sure you understand exactly what the plan covers and how much it will add to your monthly payments. If you want to keep your payments as low as possible, it’s a good idea to look for a new car loan that doesn’t contain any additional add-ons. Some car loans also charge prepayment penalties. If you decide to refinance a loan with a prepayment penalty, you could have to pay a high fee. The fee could even be more than you might save with a lower interest rate.

If you want to lower your monthly payments, selling your car, truck, or SUV and buying a less expensive vehicle could help you save more money than refinancing. If you fall behind on the payments for your car loan, it can also help you avoid repossession.

Frequently Asked Questions About Refinancing

Learning the answers to some of the most frequently asked questions about refinancing can help you save money on your auto loan:

What Is a Good Credit Score?

The best credit scores are between 720 and 850. People with scores between 690 and 719 still have relatively good credit. Those with fair credit have scores between 630 and 689. People with credit scores below 630 could have trouble qualifying for refinancing. They may need to pay higher interest rates than borrowers with better credit scores.

What’s the Average APR for a Car Loan?

The average annual percentage rate or APR you can get for a car loan depends largely on your credit score. According to U.S. News, in August 2022, people with good credit paid an average of 8.9 percent for new vehicles and 9.2 percent for used ones. People refinancing with good credit paid an average of 4.6 percent APR. However, people with credit scores below 450 are considered subprime borrowers. They often need to pay an average of over 21 percent APR.

Can You Remove a Cosigner by Refinancing?

If your credit has improved since you purchased your vehicle, you can often have a cosigner removed when you refinance. That way, the person who cosigned your original loan won’t need to worry about becoming responsible for any of your debt in the future. If you don’t want to refinance, you may be able to get your current lender to remove the cosigner from your loan. However, you’ll need a good credit score and a reliable payment history.

What Is Pre-Qualification?

With many lenders, you can pre-qualify for an auto loan or refinancing. After you complete the application, the financial institution does a soft credit check. This type of check doesn’t hurt your credit score, and you can find out what the interest rate, APR, and other terms of the loan will be. That way, you can compare terms from several lenders and take your time to decide which one is best for your needs.

After you choose a lender, the company will do a hard credit check and offer you a finalized auto loan contract. When you sign the agreement, you can take home your new vehicle and start making payments. You can consider refinancing in the future as well.

With Car and Driver, you can find a variety of research about buying or refinancing a vehicle. We can help you find a car you’ll love and shop for a great auto loan. Even if you have a repossession on your credit report, you may be able to qualify for a new auto loan.

Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.