Owning a vehicle today often means financing it through a traditional bank or credit union, the dealership, or the online marketplace of auto financing. Even after thorough research, you may discover that you didn’t get the best deal possible on your auto loan. What are your options? If your situation changes, do you have recourse for your auto loan? These are just a few of the reasons people choose to refinance their auto loans. You may wonder how many times can you refinance a car, so let’s explore that question.
What Is Refinancing Your Car?
Refinancing is when you replace an existing loan with a new loan. You can refinance your home or vehicle for a variety of reasons, including:
- Improved credit score. If you improve your credit score, you may qualify for lower interest rates, saving you money over the life of your loan.
- Increased income. Whether you’ve changed jobs, positions, or received a raise, increasing your annual income may help you qualify for a lower interest rate.
- Decreased rates. Interest rates fluctuate with the market, and if they’ve dipped low enough, it may be prudent to consider refinancing your car.
- Positive equity. When you owe less than your vehicle’s value, the loan-to-vehicle (LTV) ratio may qualify you for a lower interest rate.
Just as there are times it makes sense to consider refinancing, there are certain situations where you may not want to consider refinancing your car, such as:
- Negative equity. If you’re upside down on your auto loan, you owe more than the vehicle’s value and may not qualify for any refinance, let alone one at a lower interest rate.
- Prepayment penalties. Your existing loan may have significant prepayment penalties that make it challenging to justify refinancing, even at a lower interest rate.
Every situation is unique, so you need to consider your financial situation and goals to decide if an auto refinance is right for you. It could be worth it to incur prepayment penalties or a higher interest rate if the alternative is losing your vehicle to repossession due to an inability to make your current monthly payments.
How Many Times Can You Refinance a Car?
The short answer to this question is, as many times as you want. There’s no legal limit on how many times you can refinance a car. That said, if you try to refinance a car too many times, you may have difficulty finding a lender willing to process a refinance. Lenders are in the business of making money off the interest on your loan, so if they believe that you’ll continue to refinance your vehicle, they may not extend you an offer at all.
The key here isn’t how many times you can refinance a car, but how many lenders you can convince to let you refinance a car. You can refinance a vehicle as soon as the original purchase is complete, but you may want to wait 90 days for the paperwork to be filed, or six months to protect your credit report from the hard inquiry for the original loan.
Risks of Multiple Refinances
There are a few risks associated with refinancing an auto loan multiple times. These include:
Lowering Your Credit Score
Multiple inquiries on your credit report can result in a lower credit score. Typically, you have a 10- to 14-day window to request quotes from various lenders to have it appear as a single inquiry used to compare offers before accepting one. If you refinance your auto loan, your lender will complete a hard inquiry on your credit report each time.
When refinancing to extend the term of your loan, you risk becoming upside down in the auto loan. This term means that you owe more on the loan than the vehicle is worth. Being upside down on an auto loan can disqualify you from future refinancing opportunities or create problems for you when you decide to trade in or sell the car.
Higher Overall Loan Cost
By refinancing multiple times, you may extend the loan to the point that the interest charges add up to more than you would have paid on the original loan. You risk paying a higher overall loan cost if you extend the refinance beyond the initial term. For example, your original loan for a new car is for $20,000 at 8.9% for 60 months for a total interest charge of $4,851.83. Six months into it, you decide to refinance to lower your monthly payment, and you go with 8% for 72 months on the balance of $18,374.95.
It may look like you’re paying approximately the same overall interest because this loan has a total interest charge of $4,821.46. That could appear to be a savings of $30, but you need to remember that you’ve already paid interest on the original loan for the first six months, for a total of $860.13. Even though you’ve lowered your interest rate and monthly payment, you’ve increased the total overall cost of the loan.
Best Auto Refinance Rates
If you decide that a refinance is right for you, spend the time researching and comparing various lenders to ensure you get the best value for your money. Interest rates can vary significantly from one lender to the next, and some lenders add administrative fees to their loans. Comparing loan terms, rates, and fees will help you determine the best refinance company for you. According to MarketWatch, the best auto refinance rates today are with the following companies:
- RefiJet. Rates start at 1.99% for $5,000 for 48 to 84 months, with a $395 administrative fee.
- Caribou. Rates as low as 1.99% to borrow $10,000 to $100,000 for 24 to 84 months, with a $399 administrative fee.
- myAutoloan. Rates start at 1.99% for $2,500 to $100,000 for 24 to 84 months with traditional, lease buyout, and cash-back refinance options.
Refinancing your auto loan can save you money if interest rates have dropped or your credit score has gone up, and it may even make sense to refinance more than once throughout the life of your auto loan. Taking the time to research and compare offers for refinancing will provide you with the knowledge to know if a refinance is right for you.
At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.