Cars depreciate like crazy, so the terms of your auto loan should always be as favorable as possible. If they aren’t then refinancing your auto loan can provide some much-needed relief. The best auto refinance loans offer adjusted monthly payments with lower interest rates. Be sure to shop around to find the best refinance company for you.
Money360’s best auto refinance companies of 2018
- Best for online applications: LightStream
- Best for researching your options: MyAutoLoan
- Best for multiple quotes: Autopay
- Best for military members and their family: USAA
When evaluating the best auto refinance companies, we looked at the number of loans offered, interest rates, customer service, and reputation. Each of the companies makes it easy to shop around and find the best auto refinance rate for you.
Best for online applications: LightStream
While LightStream may be a newer company, it’s run by so you can rest assured that it has an established lender behind it that’s fully insured by the Federal Deposit Insurance Corporation (FDIC). The company offers fixed rate auto refinance loans from $5,000 to $100,000 with auto loan refinance rates starting from 2.49% APR with their AutoPay discount.
While many companies do offer online applications, LightStream does a complete online loan process from application to loan funding. If you complete your application, electronically sign your loan agreement, provide your banking information, and do the final verification process by 2:30 p.m. EST, you could receive your funds the same banking day (assuming that you qualify for the loan).
Best for researching your options: MyAutoLoan
MyAutoLoan isn’t actually a lender, but a clearinghouse, which means they act as a broker between borrowers and lenders. When you apply on their site, they’ll share your information with lenders who then approach you with the best auto refinance rates available. One great perk is that you don’t need to go through the full application process to see current interest rates, estimated loan payments, and the types of offers you might receive.
Most companies say they respond quickly to applicants; however, MyAutoLoan makes a point of advertising how quick and easy their application and approval process is for applicants. According to them, it takes two minutes to fill out their short and secure offer form. Then they’ll match you with up to four lenders, and you can receive an online certificate or check within 24 hours.
Best for multiple quotes: Autopay
With more than 10 years in business and an A+ rating from the Better Business Bureau, Autopay specializes in new auto loans, and auto refinance loans. Their online portal makes it easy to get multiple quotes at once so you can shop around. Additionally, you won’t have to worry about a hard inquiry on your credit report since their quote process uses a pre-qualification option.
The company offers multiple quotes as well as multiple types of refinancing, including traditional, cash back, and lease payoff. With traditional refinancing, you can lower your interest rate, reduce your monthly payment, and possibly shorten your loan period. Cash back refinancing allows you to possibly receive as much as $12,000 in cash back. The lease payoff refinancing could help you pay off your lease early and avoid fees, such as high mileage.
Best for military members and their family: USAA
Military members and their families may already be taking advantage of low APRs on new or used cars through USAA, but if not, you could get a lower APR by refinancing with them. USAA members can use the Auto Circle Program to take advantage of rates as low as 2.99% APR on 2017 or newer car models, and 3.49% APR on 2016 or older car models.
Other perks from USAA include no application fees, no prepayment penalty, and no payment for up to 60 days. You can apply online in as little as five minutes, and in most cases, get a decision instantly. Once approved, you can e-sign your loan immediately and then print your loan check instantly or send it to the dealer using your smartphone.
How to refinance your auto loan
If you want to find one of the lowest auto refinance rates available, here’s how you can ensure the process is as smooth as possible:
- Compile your current loan information: Put everything about your current loan (lender, term, rate, monthly payment) in one place so you can easily compare and contrast options when shopping around.
- Check your credit score and report: First, you want to make sure there are no discrepancies in your report that may hurt your chances of getting a better rate. Secondly, knowing your credit score in advance will give you an idea of what range of rates you may qualify for when refinancing.
- Shop around for the best auto refinance rates: Visit one of our recommended lenders to shop around and get multiple quotes. You’ll want to pull at least three or four quotes to get a good idea of what your best options are before making a decision.
- Apply and refinance: Once you’ve found the best auto refinance rate for you, you can start the application process, and in some cases, may receive a decision instantly or the same day.
Common pitfalls of refinancing your auto loan
You should only ever consider refinancing if you’re sure you’ll earn more favorable rates. That can include lower monthly payments, lower APRs, or the ability to work with a more responsive lender.
But refinancing your auto loan doesn’t come without risk. Here are some of the most common mistakes borrowers make when refinancing their auto loan.
Paying more over the long run
Lower monthly payments don’t always mean you’ll spend less over the long term. Lowering your monthly payments doesn’t change the total amount of your loan or your interest rate. It just means you’re extending the loan’s length.
While you might be paying less from month to month, you’ll end up paying more in interest over the life of the loan. Instead, try to refinance with an eye toward more favorable rates. Lenders may be receptive to lowering your APR if you’ve improved your credit score.
Hurting your credit score
Rate shopping is one of the most important parts of the refinancing process. It’s important that, should you choose to refinance, you do so with a more favorable loan at a company you trust.
But as you shop for better rates, some lenders may run hard checks on your credit history. Hard checks come from official organizations, and alert credit monitoring agencies that you’re looking to take on more debt. As a result, your credit score drops for a time.
If you refinance with the same lender, they may not have to pull a hard credit check. But if you’re looking to change lenders, be sure that you’re working only with reputable organizations. Limit the amount of personal information you submit until you know your ideal lender and loan.
How can I lower my interest rate on a car loan?
You can lower the interest rate on your car loan by following the steps above and doing a refinance, if you determine that’s your best option. Depending on your situation, refinancing your auto loan could save hundreds to thousands of dollars in interest. For instance, let’s say your original car loan was $20,000 over 60 months with a 5% interest rate. You have $15,000 over 48 months left and can refinance at a 3% interest rate. In this case, refinancing could save you $45.41 a month, which adds up to more than $2,000 in total savings.
Is it a good idea to refinance a car?
Refinancing isn’t for everyone; however, under the right conditions, you could save hundreds to thousands of dollars on your auto loan. It may be a good idea to refinance your car if interest rates have decreased since you first financed your car, or if you’ve improved your credit score by a significant amount since purchasing. Unlike refinancing your mortgage, the best auto refinance companies make it quick and easy to refinance your car loan — no formal, professional appraisal necessary!
Figure out the type of interest
When it comes to auto loans, there are two different ways that interest can be calculated: Simple interest loans and pre-computed interest loans. The same goes for refinancing your auto loan, so be sure to understand exactly what type of interest lenders are offering.
Simple interest loans offer a dynamic principal to interest ratio that changes based on the amount of principal owed, while pre-computed interest loans offer fixed rates.
Simple interest loans
In a simple interest auto loan, interest is calculated only on the principal still owed on the loan. Instead of paying a locked rate, interest is amortized — meaning that the more you pay down the principal, the less interest you will be charged.
Because simple interest is amortized, you’ll be paying more in interest than principal at the start of your loan. But as you pay down your principal amount, the less interest you pay, until your payments go more towards principal than they do interest. However, monthly payments remain the same.
Anyone with a simple interest loan can reduce the interest they’ll have to pay by contributing a little extra towards the principal whenever possible.
If you do choose a simple interest loan, be sure to carefully consider the length of your loan. While longer loans will net you a smaller monthly cost, less money will go towards the principal, and thus you’ll end up paying more in the long run.
Pre-computed interest loans
Pre-computed interest loans much more resemble a personal or fixed-rate loan. Instead of a more dynamic interest-principal ratio, buyers are required to stick to a fixed payment schedule.
Monthly payments have a fixed ratio towards interest and principal. While pre-computed interest loans can seem like the most secure choice, they don’t make as much sense for someone that wants the ability to pay their car off early.
Refinancing an older vs. newer car
There are a number of factors you should always consider if you’re attempting to refinance an auto loan. If any of these factors result in a worse loan, reconsider refinancing. Only refinance your auto loan if it will result in a better situation for you.
Your credit score
Here at Money360, we consistently stress the need for a good credit score. If you’re not there yet, that’s okay. However, you’re likely to face a higher APR when you refinance.
Even if you have bad credit, there are a number of steps you can take to lower your APR, such as adding a cosigner with a higher credit score, shopping around for competitive rates, and negotiating with potential lenders.
Your down payment
Making a higher down payment on your loan will always reduce the amount of interest you have to pay by lowering the principal. Even though your APR will remain the same, paying down the principal reduces the overall cost of the loan, and will reduce monthly interest payments as a result.
The length of your loan
Loan length and APR have an inverse relationship: The shorter the length of a loan, the higher the APR, and vice-versa. Lenders tend to offer longer loans to those with good to excellent credit, while those with bad to poor credit are usually offered shorter loans with a higher APR.
You may feel confident in your ability to pay off a shorter loan, on time and in full. If you are, fantastic! Doing so may result in an increase in your credit score, as well as a lower rate on any loans you might have to take out in the future.
If you aren’t confident, reconsider the refinancing process.
Age of vehicle
It’s an unfortunate truth, but cars have the fastest depreciation of any investment out there: All new vehicles depreciate by approximately 10% the moment you drive them off the lot.
The inverse is true for refinancing your auto loans: Newer cars are more likely to receive a lower APR than an older or used car. Lenders consider newer cars to be more solid investments — borrowers have more time to pay off the loans, and the vehicles themselves are less likely to break down.
The flipside is that newer cars tend to require higher loans. So if you have an older or used vehicle, you may see a higher APR, but with a lower overall loan. Monthly costs should still be less.
Adding a cosigner
Adding a cosigner with better credit can help those with average to poor credit lower their rates when they refinance. But adding a cosigner can come at the expense of personal relationships. If you fail to pay, or default on your loans, the cosigner is liable.
On the other hand, if your credit score has improved you might want to consider removing a cosigner. Refinancing an auto loan is a rare opportunity to remove a cosigner without harming either person’s credit score.
To a lender, the more mileage there is on your car, the likelier it is that it will have to go in for repairs. As a result, refinance auto loans for newer cars that are driven more often are likely to see a higher APR than a used car with less overall mileage.
Let’s say you’ve got a car worth $30,000, and you have $10,000 remaining on your current loan. Times have gotten a bit tight, and you’re looking for a new loan with a lower APR.
One of the first things a potential lender is going to look at is your Loan-to-Value Ratio (LTR). An LTR helps a lender determine liability by measuring assets (the price of your car) versus liabilities (the cost of your remaining loan). For lenders, the lower the LTR, the better.
Since you only have $10,000 remaining on your car, your LTR averages out to around 34%. As a result, you’ll probably be able to refinance your car with more favorable terms.
Can I refinance an upside-down auto loan?
Your car’s market value can drop for any number of reasons: age, unexpected repairs, mileage, etc. If your auto loan costs more than your car’s market value, you’ve got an upside-down loan. And unfortunately, most lenders won’t lend you more than what your car is worth.
But if you’re dealing with an upside-down loan, you still have some possible options.
Negotiate with the lender
If you suspect the value of your car has dropped, approach your lender as soon as possible. Most lenders will work with you if you come to them in good faith. You may be able to find more favorable terms on your original loan.
Your original lender may choose to keep your loan as is, but it can’t hurt to approach them as a first step.
Decrease your negative equity
The online automotive resource Edmunds.com recommends three strategies for (when you owe more on the loan than the car is worth).
First, hold on to the car and make bigger payments. It’s best to try and break even on your original loan before selling. Otherwise, you run the risk of rolling over negative equity onto your new car loan.
Second, consider refinancing your existing debt into a new car loan. This option will result in higher monthly payments, but borrowers might qualify for loan incentives that can help ease negative equity.
Lastly, you could refinance into a new car lease. Like a new loan, you’ll have higher monthly payments. But you won’t have to worry about resale value, because the car will go back to the dealer at the end of the lease. And you may even qualify for lower monthly payments.
However, if your finances are currently tight, you might have to find independent funding.
Consider a personal loan
If your original lender is unwilling to work with you, you could consider getting a personal loan. Just remember that compared with an auto loan, a personal loan may be harder to qualify for and carry a higher interest rate.
As always, you should consider refinancing only if it will result in a better long-term situation.
Can I refinance my auto loan with a bank or credit union?
The short answer: absolutely!
Banks and credit unions offer just as wide a variety of loans as other types of lenders. And if you qualify, you might get more favorable rates. However, both banks and credit unions have their pros and cons:
Refinancing auto loans with banks
- Financial stability
- Relationships a
- Choosy about credit scores
Banks are the most stable financial institutions around today. You won’t typically need to worry about a bank going out of business. And banks favor relationships – if you’ve been a customer with a bank for years, you may get a low rate you won’t find elsewhere.
But banks are still for-profits and tend to be much pickier with who they lend money to. If you have a poor to average credit score, you may have to look elsewhere.
Refinancing auto loans with credit unions
- Low interest rates
- Open to low credit scores
- Membership criteria
- Less variety
Credit unions are owned and operated by their members and may be more willing to consider a lower credit score. Since their emphasis is on serving the community, it’s possible you may find lower interest rates when you refinance.
But credit unions have to serve a specific community, and you may need to qualify for membership. And because credit unions are nonprofits, they may lack the loan variety of banks.
Can I refinance my auto loan twice?
On paper, there are no limits to how often you can refinance your auto loan. If you can find a willing lender, you can refinance. Your reasons for doing so should be the same as the first time you refinanced.
The process is mostly the same. You should shop around and find the best rate before you sign. But there are other things to consider, including the age of your vehicle and extra fees.
Refinancing twice with an older vehicle
At this point, chances are your car is older and has a few more miles. Again, you should only consider refinancing if you stand to gain more favorable terms. That may be more difficult to do with an older car.
Older cars are more likely to break down. That’s risky for lenders, and they’re more likely to offer higher interest rates as a result. If you’re making less money than you used to, it may not be wise to refinance a second time.
Extra fees of refinancing twice
Borrowers face fees whenever they refinance. Refinancing comes with title fees, origination fees, and sometimes a prepayment penalty.
You could refinance with a slightly lower interest rate but end up paying more money in the long run if the terms include multiple fees.
Check your initial refinance before you move forward with a second. Make sure that your current loan does not come with a prepayment penalty. Refinancing means your new lender pays off your current lender. If your initial refinance comes with a prepayment penalty, you’ll have to pay even more in fees.
Make sure to protect yourself when refinancing
Throughout the auto loan finance application process, it’s crucial that you protect yourself. Take care when handling your personal information and don’t respond to unsolicited loan offers, especially those that come to you via email and ask you to click a link to apply – they might be phishing scams that want to steal your personal information. Instead, type in the website URL yourself.
You should also know your rights as a borrower (the can help with that). Your loan should be based on your income and other debts, credit score, the loan term, and the amount you’re borrowing – not your race, gender, occupation, or neighborhood.
Beware of the hard sell, too. Know your credit score and have a good idea of the rates you should be offered. If a company is offering you a loan at a higher rate when you qualify for a lower one, it could be that it’s trying to line its pockets with your money. If something doesn’t feel right about an offer, just walk away. There are plenty of reputable lenders out there eager to give you the best deal possible in order to earn your business.
Auto loan refinancing can help you lower your car loan interest rate and monthly payment, but only in certain situations. Extending your car loan, even at a lower interest rate, runs the risk of developing negative equity in your car, and paying more in interest than you need to. If you choose to refinance your car loan, go into it with a clear understanding of how much you’ll actually be spending over the course of your new loan, and look for a lender that’s flexible, transparent, and easy to work with.