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How to Refinance a Car Loan

Tap a step to see what refinancing your car loan actually involves.

  1. Understand when refinancing makes sense

    If your credit score has improved or market interest rates have dropped since you took out your loan, switching to a lower-rate loan can reduce your total interest cost.

  2. Check your current loan terms

    Before considering refinancing, confirm your current interest rate, remaining principal, and any prepayment penalty so you can calculate whether refinancing actually saves money.

  3. Compare new loan offers

    Compare auto loan products from banks, credit unions, and specialty auto lenders to find a lower rate and better terms than your current loan.

  4. Handle the lien transfer

    Refinancing typically requires releasing the lien held by your current lender and registering a new lien in the new lender's name on the vehicle title. In most cases, the new lender handles this process for you.

  5. Compare total cost, not just the rate

    Add up the interest you would save with the new rate, then subtract any prepayment penalty on the old loan and origination fees on the new one, to see whether refinancing is genuinely worth it.

Do the math before you commit

Even moving to a lower-rate loan can end up saving very little once you subtract your current loan's prepayment penalty and the new loan's origination fee. Exact rates and fees vary by lender, so get quotes from several lenders and compare based on total cost, not just the advertised rate.

A lien transfer is a title registration matter

Refinancing involves releasing your existing lien and registering a new one, which ties into your vehicle's title and registration paperwork. Requirements vary by country and state or province, so check your local motor vehicle registration authority for the exact process and any fees involved.

Frequently Asked Questions

Does a prepayment penalty apply when refinancing a car loan?

If your existing loan agreement includes a prepayment penalty clause, it typically still applies when you refinance, so check your loan contract carefully before switching.

Is refinancing a bad idea if my credit score has dropped?

Yes -- if your credit score is lower now than when you took out the original loan, a new loan could come with a higher rate rather than a lower one, so check your current credit standing before applying.