Refinancing an auto loan can save money for vehicle owners struggling with high monthly payments or looking to reduce their overall interest costs, financial experts say.
The process involves replacing an existing car loan with a new one, typically at a lower interest rate or with different terms. Borrowers who have improved their credit scores since taking out their original loans or those who initially secured financing with poor credit may benefit most from refinancing.
"When your credit improves or interest rates drop, refinancing will have an immediate impact on your budget by putting funds back into your monthly budget," said Yolanda Martinez, Branch Manager of Advancial Federal Credit Union.
According to Experian's third quarter 2025 data, borrowers with super prime credit averaged an interest rate of 4.88%, while those with poor credit faced rates around 15.85%.
Rates have remained elevated compared to pre-2022 levels due to Federal Reserve interest rate hikes to combat inflation, though the Fed has begun cutting rates, which should gradually bring auto loan rates down through 2026.
When you should refinance your auto loan
“Refinancing isn’t right for everyone,” said Martinez. “If current rates are lower than what you’re paying on your current loan, it may be a great opportunity to refinance. You should always discuss your options with an expert before making a final decision.”
The process typically costs between $50 and $150 in fees, though some lenders waive these charges.
However, extending the loan term to lower monthly payments is not recommended as it will typically increase the total amount paid over the life of the loan.
“Borrowers should also avoid refinancing if they owe more than the vehicle's current value or if they're close to paying off the existing loan,” Martinez said.
Most lenders require borrowers to have owned their vehicle for at least six months before refinancing. Vehicles typically must be less than 10 years old with fewer than 100,000 miles to qualify.
The refinancing process usually takes two to three weeks from application to completion. Borrowers should shop rates from multiple lenders, including credit unions and online lenders, before committing to a new loan.