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Is the time right to refinance your car loan?

Interest rates are still hovering near historic lows for mortgages, but did you know that those same super low rates also may make it wise to refinance your car loan?

A family is washing their recently refinanced car at home.

You may have heard of refinancing a mortgage but did you know you can also refinance a car loan?  If you decide to refinance, you may save money in a number of ways. 

Here's how to decide if you would have a cost advantage and benefit:
  • Your current interest rate is high. When you first bought your car, you may not have qualified for the best rate. Or, since you originally took the loan, your credit score may have improved, entitling you to a better, lower rate. In some cases, rates in general may be lower and can be applied to your balance.
  • You want to lower your monthly payments. A lower interest rate can reduce your monthly payments without increasing the term of the loan.
  • You want to pay your loan off sooner. If you qualify for a lower interest rate, you can continue to make the same monthly payments and pay off the loan faster than you originally planned because more of the monthly payment will be applied to principal.

Sounds great, right? For some people, it's a beneficial financial choice. One way to decide is to use a calculator tool to estimate your potential savings.

Considerations that may stand in the way

  • Age of your car. In general, the newer the car, the better. To your lender, an older car has lower collateral value so you may not have an option to refinance the loan balance if it exceeds the vehicle's current value.
  • Prepayment penalties. Check that your current lender doesn't require you to pay a penalty for paying off your loan early.
  • Other fees. State re-registration fees can vary significantly. Check with your state for the amount to be sure refinancing is worth as much to you as you expect. Also check for any fees your new lender will charge you for the refinance as those fees will impact the value of the new loan.

Can you refinance with the same lender?

  • If you have made your payments on time and your credit is in good standing, it may be possible to refinance with your current lender. To see if you qualify contact your lender.
  • Consider your options. If you are unable to refinance with your current lender, shop around and compare quotes to make sure they line up with why you want to refinance.

How does refinancing a car work?

Many lenders offer the option to apply online, allowing you to explore from the comfort of your own home. To verify your identity, check your credit and process your application, your lender may ask you to provide the following:

  • Proof of employment and income
  • Proof of residence
  • Proof of insurance
  • Credit history
  • Vehicle information
  • Existing car loan details

Once you’ve completed the application, the length of the review process can vary. If you get approved, the lender wil provide the terms of the loan including interest rate, loan amount and any applicable fees. At that point, you can compare and decide which lender you want to refinance with.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. State Farm makes no guarantees of results from use of this information.


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