Factors to Consider When Choosing an Auto Refinance Company

tl;dr: Auto refinancing will cause a slight dip in your credit score, but it can still be worthwhile and might actually help your credit in the long run.If you’re thinking about refinancing your auto loan, you’ll want to know what will happen to your credit score. You might be wondering: Does refinancing hurt your credit? While credit scores can seem confusing and complicated, it is important to predict how certain financial moves will affect your credit history. In this guide to how refinancing can affect credit scores, we will discuss:What auto refinancing isHow credit scores are calculatedWhat is considered a good credit scoreThe impact of refinancingWhat to do about the impact on your credit scoreWhen refinancing is worth itHow Auto Refinancing Can Affect Your Credit Score: The Complete GuideWhat is Auto Refinancing?Auto refinancing is when you pay off your existing car loan with a new car loan. Your new loan will ideally have more favorable terms that will ultimately save you money. To understand how vehicle refinancing will affect your credit, we will need to look at how credit scores are calculated.How are Credit Scores Calculated?Credit scores are used to help lenders assess how likely you are to pay back your debts. Credit agencies typically look at five factors to determine your credit score:Payment historyAmounts owedCredit history lengthCredit mixNew creditHere’s a closer look.Payment HistoryThis is the most important factor in calculating your credit score, accounting for 35% of your FICO score. Do you have a history of on time payments? Lenders want to be sure you will pay back your debt on time.Amounts OwedThe amount of money you owe, your debts, are used to calculate your credit utilization score. This is the second most important factor in your credit score. This is calculated by dividing your total debt by your total credit limit. For example:Let's say, between all of your outstanding accounts, you currently owe $5,000. Your combined credit limit for all of these accounts is $50,000. 5,000/ 50,000 = .1 = 10% Credit UtilizationA credit utilization score below 30% is considered desirable for lenders. This score accounts for 30% of your FICO score.Credit History LengthThe age of your credit accounts make up 15% of your FICO score. They look at the age of your oldest account, the age of your newest account, and the average age of all accounts. Having older accounts and a longer credit history is more favorable to lenders.Credit MixHaving a diverse assortment of accounts is beneficial to a high credit score. A healthy mix might include a mortgage, auto loan, student loan, and credit cards. This indicates to lenders that you can manage your money across multiple accounts. A healthy credit mix accounts for 10% of your credit score.New CreditThe number of new accounts you have opened plus the amount of hard inquiries you have had on your credit account for 10% of your credit score. People often ask, “how long do hard inquiries stay on your credit?”. The answer is about one year. If you have had a significant amount of inquiries in this time period, it might be a red flag for lenders.What is Considered a Good Credit Score?Credit scores typically range from 350 to 850. People with the highest credit scores will more easily be approved for loans and credit applications, and will typically get the best interest rates and APRs. Using the above factors, credit bureaus calculate a credit score for every person with a credit history. 800 to 850: Excellent credit740 to 799: Very good credit670 to 739: Good credit580 to 669: Fair credit300 to 579: Poor creditHow Will Vehicle Refinancing Affect Your Credit Score?The short answer: Refinancing will cause a temporary dip in your credit score, but may help raise your credit score long term.The long answer: Here are the factors that determine how refinancing a vehicle will affect your credit score.Lower credit score (now):Hard credit checkCredit history lengthNew creditRaise credit score (later):Payment historyCredit mixAmounts owedHere’s the details.Refinancing will affect categories used to calculate your credit score: credit history length and new credit. Having a new account will negatively affect your credit history length, and the hard inquiries and new account will also affect the new credit category. However, it is important to note that hard inquiries only last a year on your credit score, so that will only be a temporary ding. Credit bureaus know that people contact multiple lenders when looking to open an account, so they allow a two week timeframe where all inquiries will count as one hard inquiry. In other words, don’t let fear of lowering your credit score hold you back from shopping around for the best rates.And, in the long term, having the loan that makes sense for you will make you more likely to make on-time payments, and once the credit checks are gone and the loan is no longer considered new credit, you’ll have a good mix of credit and build your credit history.How to Prepare and Reduce Impact on Your Credit ScoreTo reduce the impact that vehicle refinancing will have on your credit, be sure to: time your refinance to not come immediately before or after another hard credit check or new credit linedo research ahead so you know what you’re looking for and what will work for your budgetunderstand how credit scores are calculatedcomplete all of your applications in a short period of time (under two weeks) so that all hard inquiries will count as one inquiry in the allotted windowIs Refinancing Worth It?The short answer:Refinancing is worth it if:interest rates have gone doneyour credit score has gone upyour budget is tightyou want to add or remove a co-borroweryour car is worth more that your loanThe long answer:This depends entirely on your situation, but it is often worthwhile to take a temporary hit on your credit score to improve your overall financial health. If you refinance and take a ding on your credit, the hard inquiry will only remain on your score for one year. The age of your accounts will also lengthen over time, so your credit history length will not be affected permanently. If refinancing makes it easier for you to keep up on your monthly payments, it may help your credit score in the long run. Should any of the following apply to you, it may be worth refinancing your vehicle:Interest Rates are Going DownIf interest rates are trending downwards, it might be beneficial to refinance your car loan. Your overall savings will negate the temporary hit on your credit.Your Credit Score has IncreasedIf your credit score has increased, you have a better chance of qualifying for a lower interest rate. Check your credit score at one or all of the three major credit agencies (Equifax, Experian, and TransUnion) and see how your current credit score compares to your score when you originally took out your auto loan.You Need Extra Cash Every MonthIf money is tight, refinancing might alleviate your monthly payments. If you are in danger of making late payments or defaulting on your loan, this will severely damage your credit score. It is far better to refinance and take a small hit than risk defaulting.You Need to Add or Remove Someone as a Co-BorrowerIf you need to either remove or add a co-borrower to your loan, refinancing will allow you to do so.Your Car is Retaining ValueIt is important that your car is retaining its value if you want to refinance. Owing more than the car is worth is called being “upside-down” in your loan. You will have a hard time finding a lender if this is your situation.Now You Know How Refinancing Your Auto Loan Will Affect Your CreditWhether or not it is worth it to refinance your car loan will depend on your situation, but the benefits of refinancing will often outweigh the dip that you might see on your credit score. If you are wondering how to get approved for auto refinance, Auto Approve can help you compare quotes so you can start saving money today. Contact us today to get the ball rolling!GET A QUOTE IN 60 SECONDS

Maybe you’ve heard of refinancing, but what is an auto loan refinance, and how does car refinancing work? In this article, you’ll discover what refinancing is, how car refinancing works, and how it may be beneficial for you. We’re here to answer all your burning questions about the how, what, and why of refinancing a car.TL;DR:Car refinancing replaces your current auto loan with a new one, typically with better terms. People choose to refinance because doing so can lower your interest rate, reduce your monthly payments, or adjust your loan period. Key drawbacks to watch out for include prepayment penalties and temporary credit impacts.How Does Car Refinancing Work?Let’s start with the basics.Key DefinitionsLet’s at the definitions of “car loan” and “refinancing.”Car loan:A car loan is a secured loan that can help you finance a new or used car. A car loan works in a similar way to other types of loans. A financial institution will pay for your car and you will repay them in monthly installments with an additional fee (interest). Your car acts as collateral and, if for any reason you cannot repay the lender, your car will be taken away. It's because these loans have this collateral that they're considered "secured."Refinancing:Refinancing is paying off an existing loan with a new loan, ideally a loan that has better terms. Refinancing a car to better terms can help you save money, either in the long run by reducing the payment period or interest rate, or in the short term by reducing monthly payments.How Do You Refinance a Car?If it seems like car refinancing might be a good idea for you, you can start the process of refinancing today. It's a hassle-free process (especially when you use Auto Approve!) and can save you money in the short and long term. Here are the steps you should take to refinance your vehicle:Research your optionsCheck your paperworkApply to a few of your top choices for lendersCompare rates and optionsMake a decision and move forward with the refinanceLet’s take a closer look at these.1. Do Your ResearchMake sure you are as prepared as possible. Request a credit report, which you can do once per year for free, and make sure your credit score is good. Check that everything is accurate on your report. You can petition the credit bureau if there are any inconsistencies or errors. Look at your current loan contract and make sure you are aware of any penalties for which you may be responsible. Call your lender directly if you have any questions or want to review any of the fine print.2. Apply to a Few Different LendersThe application process is similar to your original car loan application. You will need the following to get started:A Photo ID, such as a passport or driver’s license.Your vehicle’s information, which may include the bill of sale, VIN number, make, model, and year of your car.Proof of income and financial history, which may include pay stubs, banking information, and your credit report.  Proof of residence, such as a mortgage statement, lease agreement, or utility bill. Note that PO boxes are not acceptable as proof of residence.Proof of insurance. 3. Compare Rates After all of your applications are submitted, you should start hearing back with different car loan APRs and terms. Compare all of your offers and choose the one that gives you the best rate and makes the most sense for your personal situation. When you use Auto Approve for this process, one of our agents will talk you through the best options and help make sure you understand your new contract completely. (Oh, and when you refinance with Auto Approve, there are no mark-ups, so you're actually getting the best rate available every time!)4. Sign and Start Saving MoneyOnce you have picked the best car refinancing option, sign on the dotted line and start seeing the benefits of refinancing immediately. How To Time Your Car RefinanceNow that we know what a car refinance is, let’s talk about how to decide if it’s a good time to refinance.Three key factors to consider:Interest ratesYour credit scoreYour budgetLet’s dive deeper into these three considerations.Check Interest RatesInterest rates are adjusted based on how the economy is performing. If the economy is not performing well, or is anticipated to not perform well, banks will lower their interest rates to encourage spending. If interest rates are lower than when you first took out your auto loan, it may be a good time to consider refinancing. Rates have fluctuated greatly over the past several years, so there is a good chance you can get a lower APR now than you could previously.Check Your Credit ScoreYour credit score is one of the most important factors in securing an auto loan with good terms. Credit scores are generally categorized as follows:800 to 850: Excellent credit740 to 799: Very good credit670 to 739: Good credit580 to 669: Fair credit300 to 579: Poor creditIf your score has increased from good to very good (670 to 740), or from very good to excellent (740 to 800), it could be a great time to consider refinancing. The most favorable rates and terms are given to those with very good and excellent credit. Even if your score has increased within your bracket, but you haven’t crossed into a better category, it still might be worth getting a few quotes to see if you can get a better rate. Consider Your Income and ExpensesIf your income has droppedIf your expenses have gone upRefinancing might be a good option to give your wallet some breathing room. If you lengthen your payment period, you can pay off the loan over a longer amount of time, reducing your monthly payments significantly. How Does Auto Refinancing Work to Benefit You?There are many! Here’s a few of the top ones.Save money overallPay off the loan soonerPay less monthly1. Save Money with a Lower Interest Rate You may be able to secure a lower interest rate, especially if you got your loan through a dealership or when rates were higher.This is true when rates fluctuate, when your personal financial situation improves, and – commonly – when you didn’t get the best rate available to you in the first place. Many people who financed their vehicles through dealers received marked up rates, meaning they’ve been eligible for a better deal from the get-go. This is the primary motivator for people to refinance. By lowering your interest rate, you are lowering your monthly payments and will end up saving money over the course of the loan.2. Save Money with a Shorter Payment Period When you refinance, you may be able to change the terms of your payment period and shorten the period. This can save you money overall, as the sooner you pay back the loan, the less interest you will ultimately pay.3. Reduce Your Monthly Payments with a Longer Payment Period If money is a bit tight for one reason or another, car refinancing can allow you to lengthen your payment period and pay less monthly. This will allow you to pay off the loan over a longer amount of time, reducing your monthly payments significantly. You will end up paying a bit more over the length of the loan because you will be paying interest for a longer period of time, but it can give you breathing room if you need it.Benefits sounding pretty good?If you’re already convinced, find out how much you can save right now with Auto Approve. With just a little information about your car and current loan, we can help you get a sense of how much you could save, no commitment required. Get your free quote now!Possible Drawbacks of Auto RefinancingThere are some situations where refinancing might be the wrong choice. If you have an unfavorable existing loanIf you’ve just had your credit checked or are about to have your credit checkedWhen your existing loan is too new or too oldHere’s a quick rundown.1. When Your Existing Loan Has Prepayment PenaltiesSome loans build in prepayment penalties to offset the lost interest that comes with paying a loan off early. These penalties can be quite high, so it is important to read the terms of your loan and decide if the savings from refinancing will outweigh the fees from prepayment. If you are unsure, call your lender directly to find out how much it will cost.2. When You Need a High Credit Score for Another ApplicationWhenever you apply for a loan or credit card there is a credit check, and hard credit checks (as opposed to soft checks) and new lines of credit can negatively affect your credit score for about a year.This is because how new your credit is affects your score – but, as long as you maintain a good history of paying on time, this new credit will actually help your score in the long run. And, fortunately, there's a fourteen day window allowed by the big three credit bureaus that allows for all credit inquiries in that span to count as one credit hit.All that said, if you're applying for a mortgage or starting a new lease, it might be wise to wait until after that is settled to refinance your vehicle.3. When The Timing of Your Loan Isn’t RightWhile you can technically refinance at any time during the life of your loan, there are certain times where it will not make sense or be beneficial to refinance. You’ve had your existing loan for less than six months. It takes some time for your credit score to bounce back after taking out a loan, so waiting at least six months will be helpful if you hope to get a better interest rate than before. If this is your first loan, it is recommended to wait at least a year to prove that you have a history of on time payments.You have less than two years left on your loan. Car loans accrue interest over time. Because of amortization, your earlier payments pay off more interest than your later payments. As you near the end of your loan, you are paying less and less on interest and more and more on principle. The longer you wait to refinance, the less beneficial it will be to do so.That’s Everything You Need to Know About How Car Refinancing WorksRefinancing your car loan is a simple process that can save you money.And Auto Approve can make the process easier and faster! Simply fill out some basic information and we can help you start comparing rates today. We never mark up your rates, because we're passionate about passing savings on to you. GET A QUOTE IN 60 SECONDS

The short answer: Any time you wantYou can refinance your car loan anytime, as long as you meet lender requirements. There’s no mandatory waiting period. That means the best time is when you’re able to improve your loan terms and pay less. For most borrowers, that means anytime from about 10 months after they first got the original loan until about a year before the end of the loan.When To Refinance Your Car Loan: The EssentialsWhat exactly is refinancing?Refinancing is replacing your existing auto loan with a new loan to get a better rate or better terms, typically by changing lenders.Here’s how it works:Search: You find a better deal for your car loanSwitch: Your new lender pays off your original loanStart: You start paying your new lender based on the new termsWhy would you want to refinance your car?Refinancing your car can help you get a better interest rate, pay less monthly, or both.Too many people assume that their auto loan is something they are locked into from the day they finance a vehicle until the end of the loan. But not so! Many people are overpaying on their auto loans, paying higher rates than they’re eligible for, or otherwise stuck with terms that may no longer make sense for their lives. That’s where car refinancing can come to the rescue.A car refinance can help you:Get a lower interest ratePay less monthlyPay off the loan soonerAdd or remove a co-borrowerWhen can you refinance your car loan?Right away! Contrary to popular belief, you are not obligated to wait any amount of time before refinancing your car loan.You only need to:Meet any eligibility requirements for your new loan.Be mindful of any terms on your old loan that might affect the refinance in order to refinance.Read the small print to make sure you’re getting a better deal than the one you already have! And one more state specific consideration: You may need your new registration before refinancing, which may slow down the process by 4 to 6 weeks.When is the right time to refinance a car loan? The truth is, it’s never a bad time to consider a car loan refinance, because refinancing can save most people money. It all depends on your unique situation. The factors to consider to decide whether now is a good time to refinance your particular loan include: How long you’ve had your current loanWhere you got your loanYour current rateThe rates available based on the current economic environmentPersonal changes, like your credit score and budgetHere’s the best news.When you refinance with Auto Approve, a dedicated agent will help you understand what’s available to you, all of the loan terms and eligibility requirements, and identify the best deal for you and your unique situation. And, once you’ve found the best deal for you, we handle the paperwork – even the DMV!Get your free quote now.Factors To Help Decide Whether Now Is A Good Time To Refinance Your Car LoanHere’s what you need to consider.TimeHow long you’ve had your current loan will affect how much you can save. For example: If you’ve just gotten a new loan, your credit score might appear lower because of the recent credit check.More detail:Too early or too late in the life of the loan, and you may not be able to find a deal that works for you. That’s because, depending on the loan, there may be fees associated with paying your original off early. Plus, the new lender will want enough left on your loan to make a lower rate make sense for them. Make sure to read your loan paperwork carefully.That said, if you’re unhappy with your loan, it’s always worth checking.SourceWhere you got your current car loan matters, because different lenders offer different deals. For example: You might have gotten a 7% rate at a dealership, but been eligible for 5%. More detail:Dealership financing, in particular, usually includes markups over and above the rate you’re eligible for. If you got your vehicle financing through a dealership, you’ll want to look into refinancing as soon as possible.Rate EnvironmentInterest rates aren’t just about you, they fluctuate with the economy. For example: The federal interest rate in July, 2022, was 2.5%. In July of 2023 and 2024, it was 5.5%. In July 2025, it was 4.5%. These might sound like small changes, but on a big loan, they can add up to hundreds or thousands of dollars.More detail:If you got your current loan when interest rates were historically low a few years ago, your current rate may be hard to beat. However, rates have also been higher than they are now in the past few years – it all depends on timing.That said, if your financial picture has changed, or if you want to refinance for other reasons – like to add or remove a co-borrower, or to lower your monthly payment because of budget constraints – it’s certainly still worth it to get a quote.Personal FinancesYour personal finances, like your credit score, income, and debts, affect the rates you’re eligible for.For example: If your credit score was 650 when you bought your can 2 years ago, but is now 725, you’ve likely entered a new credit bracket and will be eligible for better rates.More detail:Essentially, if you are in a better place financially now than you were when you got your loan, even if nothing else on this list has changed, you are likely eligible for a more favorable loan.Should You Refinance Your Car Loan? Frequently Asked QuestionsCan refinancing benefit me?First, check your eligibility! You may be eligible for a lower interest rate if:Rates have gone down since you financed your vehicleYour credit score has gone up, orYou didn’t get a good deal in the first placeMost auto loans are amortizing loans, which means you pay a fixed monthly payment with interest that is already built into that payment. Here are the possible benefits:Lower interestLower interest would mean a lower monthly payment, if the terms of the length of the loan stay the same. Pay less monthlySome people instead choose to refinance to change the length of their loan, so they pay less monthly but over a longer period of time.Finish paying off the loanSome might choose to pay more monthly in order to have their loan paid off sooner.Change the loanRefinancing also allows you to add or drop a co-borrower from the loan.Stretch your budgetLastly, refinancing can give you up to three month’s break in payments while the loans change over.When you use Auto Approve to refinance, an Auto Approve representative will help you understand your options and make sure you get the right deal for your unique situation – then do the paperwork for you.Get your free, no-commitment quote today to see how much you could save.How can I improve my credit score?Make timely payments.Keep your credit utilization low.Avoid unnecessary credit inquiries.Maintain a healthy mix of credit types. About 10-12 months is enough time to see a change in your credit score, which you can use as leverage to negotiate a better loan rate. Learn more about credit scores and refinancing here.When should I try to refinance my car loan?Now! Now is always the best time, if you think it might be beneficial to you. Reasons to start your refinance right now:The refinance process is simpleThere is no risk for you to find out your available optionsWith the right refinance, you can start saving money immediatelyIn general, the two main reasons why people refinance their vehicles are to lower their monthly payment or lower their interest rate. So if you’re still thinking about timing, consider:Whether paying less monthly or overall could help you outWhether your circumstances have changedWhether vehicle values or interest rates have changedWhat do I need for refinancing my car?For most lenders, you will need to collect:Information about the current loan and lender, including your account numberYour current total loan balanceVehicle information including the make, model, year, and VIN of your carRead more about the requirements to refinance a car here.What are refinancing mistakes to avoid?Here are some of the most common pitfalls to avoid when refinancing an auto loan:Prepayment penalties do exist, which means you may have to pay extra if you pay off a loan before a term is up. Look up the details of your loan and inquire what this fee is going to be.Waiting too long to refinance. The longer you wait in the life of the loan, the less sense it makes to refinance. Missing payments. Don’t miss any payments! Even if you think that the refinancing process has paused your payments, triple-check before you halt payment for the previous loan. Refinancing A Car In 2025: The Short Versiontl;dr: Is this year good for refinancing? Here’s what you need to know:Rates and auto values have fluctuated dramatically over the last decade.Many dealerships mark up prices so you end up paying a higher rate than you were eligible for even at the time of purchase.If your life situation has changed, you may be able to save money by refinancing.Because of these factors, there’s a good chance you can lower your monthly car payment right now.So, Is Now a Good Time to Refinance A Vehicle?In terms of timing, it’s always wise to check to make sure you’re not paying more than you need to be. Whether or not now turns out to be a good time to refinance for you personally, now is definitely a good time to get a free quote. Companies like Auto Approve can help you get a sense of whether you’re overpaying and what you might be eligible for in just a few minutes, with no commitment and no hard credit check.GET A QUOTE IN 60 SECONDS