Refinancing rates are what lenders charge you to pay off your existing auto loan early and replace it with a new one
When you refinance a car loan, you're borrowing money from a new lender to pay off the old one in full. The rate that new lender charges you is your refinancing rate. It's a completely separate rate from what you originally paid—it can be lower, higher, or the same, depending on your credit, the lender, the car's age, and current market conditions.
The refinancing rate matters because it determines your new monthly payment and how much interest you'll pay over the life of the new loan. A rate that's 2 percentage points lower than your original rate can save you hundreds of dollars. A rate that's higher means refinancing costs you money and usually isn't worth doing.
Key Takeaways
- Your refinancing rate depends on your credit score, the lender you choose, how old the car is, and current interest rate trends in the market.
- Banks, credit unions, and online lenders all set different rates for the same borrower, so comparing offers from multiple sources is necessary to find the lowest rate available to you.
- The older your car or the more miles it has, the higher your refinancing rate will typically be, because the lender's risk increases.
- Your credit score has the single largest effect on the rate you're offered—a score improvement of 50 points can lower your rate by half a percentage point or more.
- Checking your rate with multiple lenders does not hurt your credit score when done within 14 to 45 days, depending on the credit bureau.
How your credit score affects the rate you're offered
Lenders use your credit score as the primary signal of how likely you are to repay the loan on time. A higher score tells them you have a history of paying bills when due. A lower score suggests risk. The difference in rates between a score of 620 and a score of 750 can be 3 to 5 percentage points—meaning a $20,000 loan would cost you thousands of dollars more in interest over five years.
Your credit score reflects your payment history, the amount of debt you're carrying, how long you've had credit accounts open, and recent inquiries into your credit. If you've missed payments on your current auto loan or other debts, your score will be lower and your refinancing rate will be higher. If you've paid everything on time and paid down other debts since you took out your original auto loan, your score may have improved, and you could may have access to for a lower refinancing rate.
Before you shop for refinancing rates, pull your own credit report from one of the three major bureaus—Equifax, Experian, or TransUnion—through annualcreditreport.com, which is the official free source. Look for errors. If you find a mistake, dispute it with the bureau directly. Correcting an error can raise your score by 10 to 100 points depending on what was wrong.
Why different lenders quote different rates for the same person
Banks, credit unions, and online lenders all use different criteria to decide who gets the lowest rates. Some lenders specialize in borrowers with lower credit scores and charge higher rates across the board. Others focus on borrowers with excellent credit and offer competitive rates only to that group. Some lenders care more about the age of the car; others care more about your income or employment history.
A credit union you belong to may offer you a rate that a national bank won't, because credit unions are member-owned and sometimes price loans differently than for-profit lenders. An online lender may offer a lower rate than your bank because they have lower overhead costs. Your current lender—the one holding your existing auto loan—may offer you a special rate to keep your business, or they may offer nothing at all.
This is why getting quotes from at least three different lenders is standard practice. The difference between the highest and lowest rate you're offered can easily be 1 to 2 percentage points. On a $20,000 loan over 60 months, that difference means $1,000 to $2,000 in additional interest paid to the higher-rate lender.
How the age and mileage of your car affect your rate
Lenders look at how much the car is worth and how much you still owe on it. The older the car or the higher the mileage, the less it's worth. If you owe more than the car is worth—called being underwater on the loan—lenders see that as higher risk. They may charge you a higher rate or decline to refinance you altogether.
Most lenders will refinance cars that are 10 years old or newer, though some will go older. A car that's 15 years old will get a higher rate than a 5-year-old car with the same borrower and same credit score. A car with 150,000 miles will be charged a higher rate than one with 50,000 miles. Some lenders use the Kelley Blue Book value or NADA Guides value to determine what the car is worth; others use their own valuation tools.
If your car is very old or has very high mileage, you may find that only a few lenders will refinance you, and the rates they offer will be noticeably higher. In that situation, refinancing may not save you money, and it's worth doing the math before you proceed.
Market interest rate trends and how they affect what you're offered
The rates lenders offer change based on broader economic conditions and what the Federal Reserve does with short-term interest rates. When the Fed raises rates, lenders typically raise the rates they charge borrowers. When the Fed lowers rates, lenders usually lower theirs. This happens over weeks or months, not overnight.
You can't control what the broader market is doing, but you can track it. The Federal Reserve's website publishes the federal funds rate, which is the rate banks charge each other for overnight loans. Auto loan rates tend to move in the same direction as this rate, though not by the exact same amount. If you're considering refinancing and rates have been rising, waiting a few months might not help—but if rates have been falling and are expected to continue falling, waiting could get you a better rate.
Lenders also adjust rates based on how much demand they have for auto loans. If a lender is very busy and has plenty of customers, they may raise rates. If they're trying to attract more business, they may lower rates. This is why the same lender might quote you different rates on different days.
What rate you should expect based on your situation
Rates vary widely depending on all the factors above, so there's no single "normal" refinancing rate. However, you can use some general benchmarks. If you have a credit score above 750, no recent missed payments, and a car that's 5 years old or newer with reasonable mileage, you should expect to see rates in the range of 4 to 7 percent from multiple lenders. If your score is between 650 and 750, expect 6 to 10 percent. If your score is below 650, expect 10 percent or higher.
These ranges shift based on what the Fed is doing and what month it is. Rates in 2024 are different from rates in 2023. The only way to know what rate you'll actually be offered is to get quotes. When you do, make sure you're comparing apples to apples—same loan amount, same loan term (36 months, 60 months, etc.), and the same type of vehicle.
Before you accept a rate, calculate whether refinancing actually saves you money. Subtract your new monthly payment from your old one, multiply by the number of months remaining on the new loan, and subtract any fees the new lender charges. If the number is positive, refinancing saves you money. If it's negative or close to zero, it probably isn't worth the effort.
How to compare rates from different lenders
Start by gathering quotes from at least three sources: your current lender, a credit union you belong to or are may be able to access to join, and one online lender. Tell each lender the same information: the exact loan amount you need, the term you want (usually 36, 48, or 60 months), and the vehicle details. Ask for the interest rate, any origination fees, and the total amount you'll pay in interest over the life of the loan.
When you request a quote, the lender will do a hard inquiry on your credit report. Multiple hard inquiries within 14 to 45 days (depending on which credit bureau) count as a single inquiry for credit scoring purposes, so your score won't drop significantly if you shop around quickly. After 45 days, each new inquiry is counted separately and will lower your score slightly.
Write down each quote and compare the total interest cost, not just the interest rate. A loan with a 6 percent rate over 36 months costs less in total interest than a 5.5 percent rate over 60 months, even though the rate is higher. Once you've chosen the lender with the best offer, they'll send you documents to sign, and the new loan will be funded and sent directly to your current lender to pay off the old loan.
Frequently Asked Questions
Can I refinance if I'm underwater on my current loan?
Some lenders will refinance you if you're underwater, but they'll charge you a higher rate because the risk is higher. Others won't refinance you at all. If you're significantly underwater—owing $5,000 more than the car is worth, for example—refinancing may not save you money even with a lower rate, because you're rolling the extra debt into a new loan.
How often can I refinance my car?
There's no legal limit on how many times you can refinance, but lenders may be reluctant to refinance you if you've refinanced multiple times in a short period. Each refinance involves a hard credit inquiry, which lowers your score slightly. Refinancing makes sense when rates have dropped enough to save you money after accounting for any fees involved.
Does refinancing hurt my credit score?
The hard inquiry lowers your score by a few points temporarily. Closing your old loan and opening a new one also affects your credit mix and average account age, which can lower your score by 5 to 10 points. The impact is usually temporary—your score typically recovers within a few months if you make on-time payments on the new loan.
What if the refinancing rate I'm offered is higher than my current rate?
Don't refinance. A higher rate means you'll pay more in interest over time. The only exception is if you need to extend the loan term significantly to lower your monthly payment because you're in financial hardship—but even then, you'll pay more total interest, so it's a trade-off worth calculating carefully.
Can I refinance a car I'm still paying off?
Yes. You refinance while you still owe money on the original loan. The new lender pays off the old loan in full, and you start making payments to the new lender instead. You must still owe money on the car for refinancing to make sense—if you own it outright, there's nothing to refinance.