Is Now the Time to Refinance Your Car Loan?

-- Updated April 2026 –

Article summary

• When you refinance your car loan, a new lender pays off your existing debt and gives you a new loan agreement. This process can help you secure a lower interest rate, reduce your monthly payment or pay off your car sooner.
• It makes sense to explore new loan offers if market rates have dropped, your credit score has gone up, or you simply need a more affordable monthly payment.
• You should hold off on refinancing if today’s interest rates are higher than your current rate, you are almost done paying off your car, or you owe more money than the vehicle is actually worth.

Car prices and borrowing costs have risen in recent years, leaving many drivers with higher monthly payments than they expected. If your financial situation has improved—or if interest rates have shifted—you may be wondering: Can you refinance a car loan?

In many cases, the answer is yes. Refinancing an auto loan allows you to replace your current loan with a new one, ideally with better terms. According to Experian, consumers saved more than 2% on their car loan rate when refinancing in the fourth quarter of 2025. Depending on your situation, refinancing could lower your monthly payment, reduce the interest rate or help you pay off the loan sooner.

What to know before you refinance your car loan

What does it mean to refinance a car loan?

When you refinance a car loan, a new lender pays off your existing loan and replaces it with a new loan agreement. The new loan typically has a different interest rate, monthly payment or loan term.

People choose a car loan refinance for several reasons, including a lower interest rate, reduced monthly payment, a change in the loan term or the removal of a co-signer. Since 2024, consumers have saved an average of $61 per month on their refinanced auto loans, according to Experian.

Here's when it may make sense to refinance your auto loan

You didn't compare financing options when you bought your car.

If the excitement of buying a new car led you to accept dealership financing without exploring other lenders, refinancing could help you secure a better rate. Comparing loan offers through services like AAA Auto Loans may reveal more competitive financing than what you currently have.

Something better (like a lower interest rate) comes along.

If market interest rates have dropped since you first financed your vehicle, you may qualify for a lower rate. Even a small reduction in interest can lower your monthly payment and potentially reduce the total amount you pay over the life of the loan.

You want a lower monthly payment.

Extending the loan term can reduce your monthly payment. However, stretching the repayment period can mean paying more in interest over the life of the loan.

Your credit score has improved.

Your credit score (which you can obtain by requesting a copy of your credit reports) is shaped by your credit history, the amount of credit card debt you hold and more. As such, your credit score has a big impact on the rate you get on an auto loan.

If your credit score has increased since you first financed the vehicle, you may qualify for lower car loan refinance rates. Borrowers with good and excellent scores tend to get the best auto loan refinance deals. 

Here's when you should hold off on auto loan refinancing

Refinance rates are not in your favor.

Before refinancing, compare current auto loan rates with the interest rate on your existing loan. If today's rates are higher, refinancing probably won't save you money.

You’re nearing the end of your loan term.

Refinancing tends to have the greatest impact earlier in the life of the loan. If you're close to paying off your vehicle, even a lower interest rate may only reduce your monthly payment by a small amount. Those savings may not be enough to offset any refinancing fees.

The loan term would be extended too long.

Just like when buying a new car, don’t let the low monthly payments of a longer loan term tempt you. As vehicles lose value over the years, stretching the loan out too long could leave you owing more than the car is worth, especially if depreciation outpaces how quickly you’re paying down the balance.

You’re upside down in your current auto loan.

If you owe more than the car is worth—often called having negative equity—refinancing may be difficult. Some lenders won't approve a refinance loan in this situation, and those that do may require excellent credit or other strong financial qualifications.

The bottom line

Refinancing can be a useful tool for car owners looking to manage their auto loans more effectively. If you qualify for a lower interest rate or more favorable terms, a car loan refinance may reduce your monthly payment or save you money over time.

Before moving forward, compare offers, review fees and use a refinance car loan calculator to make sure the numbers work in your favor.