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How soon can you refinance a car loan?

Technically, you can refinance your car loan as soon as you can find a lender that's willing to give you a loan. However, there are some downsides to refinancing too soon after getting your car loan.
At Credit Union of Southern California (CU SoCal), we make refinancing a car loan easy.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our auto loans, home equity lines of credit, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
Read on to learn more about how soon you can refinance a car loan after purchase.

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What does it mean to refinance an auto loan?

Refinancing an auto loan is when you apply for and get a new loan to replace your existing car loan. There are some situations where it might be a good idea, for example, if you think you can get a lower interest rate or more favorable terms. The benefit of getting a lower interest rate is having lower monthly payments. Learn more about how to refinance a car.

Best time to refinance a car loan

The best time to refinance a car is when you can get a significantly lower interest rate on a loan, meaning at least a full percentage point. Interest rates fluctuate and refinancing can lower your credit score, so you should run the numbers to make sure the savings are worth it.
Many car buyers ask, “when can I refinance my car” and “how long should I wait to refinance my car?” From a practical standpoint, you may need to wait at least two to three months to refinance a car loan after purchase. During the first few months of a car loan the car title will be processed and transferred to you. The new lender you choose will need to see the title to do a refinance. Waiting longer, such as six months to a year, will give your credit score a chance to recover from the credit inquiry and loan that will be on your credit report after you get your first loan.

When you should consider refinancing your car loan

These are some examples of when it makes good financial sense to refinance a car loan:
  • High interest rate on current loan. If you notice that interest rates have dropped a full percentage point or more, run the numbers on a vehicle loan calculator and see how much money you can save.
  • Your credit score has improved. The interest rate that lenders charge on a loan are in part determined by the borrower’s credit score. If your credit score has significantly improved since you got your loan, you may be offered a lower interest rate.
  • You took a rebate over a 0% APR deal. Car buyers like rebates because they save money up-front, but in the long-term you’ll save more money with a 0% APR loan. If taking a rebate left you with a higher interest rate, refinancing could save you money.
  • Monthly payments are too expensive. If you’re not able to afford your monthly payments and are just scraping by, then you should look for a lower interest rate.

When might refinancing a car loan be a bad idea?

There are also times when refinancing an auto loan might not be a good idea. Here are some examples:
  • New interest rate is higher. The goal of refinancing is to save money, so if rates have increased it’s wise to keep your low rate.
  • You plan on making other big purchases. All lenders look at a person’s credit score as part of the loan application process. Having a mix of types of credit or loans can raise your credit score, but if you take on too much debt in too short of a timespan, you may get turned down for additional credit and loans. Or, if you get the loan you will likely pay a high interest rate that the lender will charge to cover the risk of loan non-payment.
  • You’ll get a longer loan term. The “loan term” is the length or duration that the loan will be in existence. Common auto loan terms are 2, 3, 4 or 5 years. The longer the loan term the lower your monthly payment will be, but you’ll pay more money in interest over time. Refinancing to a longer loan term will likely cost you more in the long run.
  • There’s a prepayment penalty. Some lenders charge a fee or penalty if a car loan is paid off too soon. Before agreeing to a new loan always ask if there is a pre-payment penalty.
  • You're upside down on your car loan. If you owe more on the loan than the car is worth, that’s called being “upside-down.” In this case, a lender may not issue a loan.
  • You've been making late payments. Making late payments will result in damage to your credit score. A new lender will see your reduced credit score and either turn you down for the loan or charge a high interest rate. In either case you are better off not refinancing. If you have bad credit

Benefits of refinancing a car loan

  1. Lower interest rate. Getting a lower rate will save you money.
  2. Lower monthly payment. With a lower interest rate, you will have a lower monthly payment.
  3. Add or remove co-signer. If you co-signed a loan for someone or have a loan co-signer, refinancing is one way to put the loan in the name of one person only.

How many times can you refinance a car loan?

There is no limit to how many times you can refinance a car loan. Because car loan terms are short (two to five years), it doesn’t make sense to refinance your loan more than once, if you can get a lower rate. Frequent refinancing will lower your credit score and may prevent you from getting approved for other loans and credit.

Why savvy consumers choose CU SoCal

For over 60 years CU SoCal has been providing financial services, including car loans, mortgages, Home Equity Loans, HELOCs, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

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Credit Union of Southern California (CU SoCal) is a leading financial institution empowering those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County to reach their goals and build strong financial futures. CU SoCal provides access to convenient money management services and offers competitive rates and flexible terms on auto loans, mortgages, and VISA credit cards—turning wishing and waiting into achieving and doing.


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