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December 29, 2020 | auto

How to Refinance Your Auto Loan

Katie Duncan

Finance Writer

You’ve probably heard of people refinancing their homes, but did you know that you can do the same thing for your car? Auto loan refinancing is a relatively simple process that can save you hundreds in interest payments on your car loan. 

To learn more about the ins and outs of auto loan refinancing, we enlisted Amplify Credit Union’s Consumer Loan Officer, Valerie Figueroa. Here’s what we learned about the topic and the best way to go about refinancing your car loan.

Auto Loan Refinancing Basics

Refinancing is the process of paying off an existing loan with a new loan that has better terms. Borrowers refinance to change one (or both) of the interest rate or the repayment term. Getting a lower rate means not paying as much in interest for the duration of the loan. Changing the loan term allows you to make smaller payments over an extended period or pay your vehicle off sooner with larger monthly payments.

Generally, you need to keep payments on a loan for a year or longer and have a score that has improved 50-100 points to consider refinancing.

There are several situations where refinancing your auto loan makes financial sense. Generally speaking, auto loan interest rates improve for three reasons: Federal Reserve rate changes, competition between lenders, or improvements to your credit score.

Even though auto rates are not directly related to the Federal Reserve’s changes, like mortgage rates, there is some correlation. “As those rates go up and down, they tend to follow, those changes,” Figueroa says. 

She also points out how competition influences rates. “Increased local rate competition between lenders and high vehicle inventory can cause lower rates from the factory lenders.”

However, these changes usually don’t compare to the rate decrease if you refinance because of an improved credit score. “This is the single biggest factor that can affect the rate you receive,” Figueroa explains. “The quality of your credit score could mean the difference between rates in the 2%-3% range and 18% and higher.”

How to Refinance an Auto Loan

All that’s involved in auto loan refinancing is four easy steps:

  1. Determine if you can refinance and whether it will save you
  2. Apply for your new loan
  3. Do some number crunching
  4. Complete the refinancing

Let’s take a closer look at what happens in each step.

Determine if you can refinance and if it will save you money

Before you start applying for a new loan, make sure that you are in a position to refinance. You will also want to perform a complete review of your current finances and the available rates.

“Many times, your lender may have restrictions on when they refinance their loans,” Figueroa says. If this is the case, you’ll need to wait until that period has passed to begin the refinancing process. You’ll also want to make sure that there are no prepayment penalties for paying off the first loan early. Sometimes these penalties can be so steep that refinancing doesn’t end up saving you.

Similarly, you’ll need to ensure that your financial condition has improved enough to make a difference in the interest rate. Figueroa suggests keeping your original loan for a year or so. “Generally, you need to keep payments on a loan for a year or longer and have a score that has improved 50-100 points to consider refinancing.” 

That's why it's also important to check your credit before you start the application process. Each year, consumers are eligible for a free credit report from Equifax, Experian, and TransUnion, the three major credit bureaus. Visit to check the improvements to your credit score.

Apply for your new loan

Once you determine that it’s the right time to refinance, you are ready to apply for your new loan. Applying for an auto refinance will be similar to the first time you took out an auto loan. You’ll need to provide your contact and financial information again since the bank or credit union will need to reevaluate your standing as a brand new borrower. 

It’s always good to shop around and apply at several different financial institutions. This way, you can compare available rates and get the best deal possible. For example, if you’ve never banked with a credit union before, refinancing a car is the perfect time to start. Credit unions are not-for-profit institutions where local and personal engagement with customers is emphasized.

Though credit unions often have fewer locations than the Wells Fargos and Bank of Americas of the world, credit union members also reap additional benefits. These can include lower loan interest rates and higher interest rates on deposits.

Do some number crunching

Once you have the approved interest rates in hand, it’s time to do a little number crunching. Use an online refinance calculator to determine how much your monthly loan payments would be with your new loan and how much it will save you. 

It would help if you also determined whether or not you want to change the length of the loan. If you’re looking to reduce the term on your current loan, you’ll have higher monthly payments. Still, you’ll ultimately pay less interest over the life of the loan when all is said and done.

Others opt to pay more in interest over time but prefer the smaller monthly payments. This approach is not necessarily the best option, but it is far better than missing payments and damaging your credit. 

Complete the refinance

If you determine that the refinance is worth it, contact your lender - new or old - and complete the process. It shouldn’t be long before you have a new, cheaper loan that will soon save you money.


Refinancing an auto loan is the easiest way to save money on your car payments. If your credit score has improved over the past year, you may be ready to take out a loan with better terms. And remember, shop around for the best rate and keep an eye on community banks and credit unions.

Refinance Your Auto Loan

Talk to Amplify's consumer lending team and learn how you can save money on your auto loan.

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