Refinancing your vehicle loan could potentially save you money. You might want to refinance to lower your interest rate or extend the life of your loan to reduce your monthly payment. Refinancing an auto loan can make sense in certain circumstances, so understanding how an auto refinance works and where to find the best auto refinance companies can be beneficial.
What Is an Auto Refinance?
Refinancing means replacing your existing loan with a new one. Borrowers refinance for a variety of reasons, such as lower interest rates or higher credit scores, ultimately lowering their monthly payments. Understanding how a refinance works will help you better understand whether it’s a cost-prohibitive or financially sound decision.
Financial institutions will only borrow up to your vehicle’s actual value. You might still have options if you owe more on your vehicle than what it’s worth through your current loan. Some lenders will allow you to pay the difference between the amount owed and the value, then refinance your loan for your vehicle’s current value. If you need to pay a difference, consider that amount when calculating whether a refinance is a good idea.
Your current situation might also determine whether an auto refinance is best for you. Suppose you can no longer afford your monthly car payment. In that case, a refinance might lower your monthly costs but increase the overall interest paid, meaning you’d pay more for the vehicle in the long run through a refinance. This could still be financially sound if you’re facing repossession, and losing your vehicle will inhibit your ability to work.
When You Should Consider an Auto Refinance
It could be an excellent time to consider an auto refinance if you’ve experienced any of the following situations:
- Your credit score has improved. Bad credit scores typically result in higher annual percentage rates (APRs) on loans, so if you’ve improved your credit score, you might be able to lower your APR to save money.
- Your income has increased. Whether you’ve received a promotion or changed jobs, if your income has increased you might qualify for a better rate.
- Interest rates have dropped. Interest rates vary based on the economy. If interest rates have dropped significantly since your original auto loan, you might qualify for a lower rate.
- Your vehicle is worth more than you owe. With a lower loan-to-value (LTV) ratio, you could qualify for lower interest rates on an auto loan.
You should pause before considering an auto refinance if you are in one of the following scenarios:
- You owe more than your car’s value. If you’re upside down in your current auto loan, it might not make sense to pay the difference between loan and value to refinance, and you also might only qualify for higher APRs if you qualify at all.
- Your current loan has prepayment penalties. Some financial institutions tack on a prepayment penalty to make up for interest lost if you pay off your loan early, so you’ll want to consider this to determine if it’s worth it.
Ultimately, your situation will be the final factor when deciding if an auto refinance is right for you. Consider all your options and calculate the overall cost or savings before moving to refinance. If you choose to refinance your auto loan, research and compare several options to find the best auto refinance companies.
Best Auto Refinance Companies
According to Money, which started as a print magazine in 1972 and continues as an online source for questions on personal finance, the best auto refinance companies (as of August 2022) include:
RateGenius: Best Marketplace
RateGenius is a refinance platform that uses a marketplace with more than 150 lenders available to refinance your vehicle. You can complete the application process over the phone or online to get several offers from various lenders. You can compare loan terms and rates before selecting a loan option. RateGenius was founded in 1999 in Austin, Texas, to connect lenders and borrowers through technology. Each lender sets the specifics for its loans. Currently, APRs begin as low as 3.09% with no maximum loan limit and terms of 24 to 98 months.
RateGenius does not have a minimum credit score requirement but does use your credit score to determine your APR. Trustpilot gives RateGenius 4.8 stars out of 5 based on 10,615 certified reviews on its website.
Auto Credit Express: Best Low Credit Score
Auto Credit Express, now a part of the Internet Brands Automotive Group, has specialized in refinancing for customers with bad credit since 1999. The average rate on a refinance loan is 5% but will vary by the lender along with loan terms. Auto Credit Express requires you to have the following to qualify for an auto refinance loan:
- Proof of $1,500 minimum monthly income
- U.S. or Canada proof of citizenship
- Able to purchase car insurance
- Guaranteed fixed income or employed full-time
- Proof of residency via utility bill and working phone number
Trustpilot gives Auto Credit Express 4.6 out of 5 stars from 3,179 reviews, resulting in excellent ratings of 81%. You can apply online in three easy steps.
myAutoloan: Best for Fair Credit
Another financing marketplace is myAutoloan, a part of Horizon Digital Finance LLC, which started in 2003. Rates start at 1.99%, with no payments due for up to 90 days for qualifying borrowers. myAutoloan offers auto refinances from $2,500 to $100,000 for 24 to 84 months. A minimum credit score of 600 is required to qualify. Refinancing options include:
- Traditional. It replaces your current loan with a new loan.
- Lease payoff. It might help you avoid fees such as mileage fees if you’re buying your leased vehicle.
- Cash-back. If your loan-to-value is lower than the amount owed, you could qualify for a cash-back refinance to borrow against your vehicle’s equity.
myAutoloan receives 4.2 out of 5 stars from Trustpilot based on 815 reviews. After completing the online application, you can get up to four offers in minutes.
Whether you’ve improved your credit score, increased your income, or need help making your monthly payment, an auto refinance could be a good financial decision. Research several companies and compare quotes to ensure you get the best value. Be sure to check out these best auto refinance companies to get started.
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.