How soon should you wait to refinance a car?
While you could refinance your car almost immediately after purchase, it's best to wait at least six months to a year to give your credit score time to recover, build up a payment history and catch up on any depreciation that occurred when you purchased.
While you might find more favorable rates advertised soon after you buy your new or used car, the downswing in your credit score means you probably won't get as favorable a rate as you would if you waited for your score to recover. The general advice is to wait at least six months before refinancing your auto loan.
Refinancing may lower your credit score a few points, but the impact to your credit score will only be temporary. Applying for a loan generates a hard inquiry. Refinancing may be worth it if rates have dropped since you took out your loan.
Lenders often require at least six on-time payments before they consider you eligible for refinancing. This is to lower the risk of default. If you can keep up with your current payments, you prove that you can handle your debt.
For a simple rate-and-term refinance, you can refinance at any time if it's a conventional loan, after seven months if it's an FHA streamline refinance, after 210 days (or six payments, whichever is longer) if it's a VA loan or after 12 months if it's a USDA loan.
| FICO Score | Average new car rate | Average used car rate |
|---|---|---|
| 661 to 780 (prime) | 7.01% | 9.73% |
| 601 to 660 (near prime) | 9.60% | 14.12% |
| 501 to 600 (subprime) | 12.28% | 18.89% |
| 300 to 500 (deep subprime) | 14.78% | 21.55% |
Six months is a long period, and it allows your credit score to recover from any temporary drops. If the objective behind refinancing your car is to get lower interest rates and monthly payments, waiting is the solution once again.
If you refinance and extend your loan's term, you are more likely to end up owing more than your vehicle's worth. This is called being upside-down or underwater on your loan. Your chances of going upside-down with a longer loan term increase because cars generally depreciate in value each year.
- Best Overall: PenFed.
- Best Big Bank: PNC Bank.
- Best Refinance Loan Marketplace: AUTOPAY.
- Best Credit Union: Consumers Credit Union.
- Best Online Lender: LightStream.
- Best for Low Minimum APR: OpenRoad Lending.
Most lenders will require: A regular source of income, a low debt-to-income ratio and good credit. Proof of residence, such as a lease agreement, mortgage statement or utility bill. Your car's make, model, year, vehicle identification number (VIN) and mileage to evaluate your car's worth.
What is the 80 20 rule in refinancing?
Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent). This also helps you avoid private mortgage insurance payments on your new loan.
Key takeaways. Refinancing does not require a down payment. However, you may be on the hook for fees like prepayment penalties or transaction fees.
Can you pay off a 72-month car loan early? Yes, you can pay off a 72- or 84-month auto loan early. Since these are long repayment terms, you could save considerable money by covering the interest related to a shorter period of time.
| Product | Interest Rate | APR |
|---|---|---|
| 30-year fixed-rate | 7.223% | 7.310% |
| 20-year fixed-rate | 7.100% | 7.207% |
| 15-year fixed-rate | 6.391% | 6.540% |
| 10-year fixed-rate | 6.155% | 6.346% |
Because refinancing involves taking out a new loan with new terms, you're essentially starting over from the beginning. However, you don't have to choose a term based on your original loan's term or the remaining repayment period.
Refinance closing costs commonly run between 2% and 6% of the loan principal. For example, if you're refinancing a $225,000 mortgage balance, you can expect to pay between $4,500 and $13,500. Like purchase loans, mortgage refinancing carries standard fees, such as origination fees and multiple third-party charges.
Car Loan APRs by Credit Score
Excellent (750 - 850): 2.96 percent for new, 3.68 percent for used. Good (700 - 749): 4.03 percent for new, 5.53 percent for used. Fair (650 - 699): 6.75 percent for new, 10.33 percent for used.
| Credit Score | New Car Loan | Used Car Loan |
|---|---|---|
| 700-749 | 12.65% | 12.90% |
| 600-699 | 17.84% | 18.09% |
| 451-599 | 22.56% | 22.81% |
| 450 or lower | 21.40% | 21.65% |
What is a good interest rate for a 72-month car loan? An interest rate under 5% is a great rate for a 72-month auto loan.
Can you refinance a car and get cash out? You can take equity out of your car in the form of a cash-out auto refinance loan that's up to the current value of your vehicle. You'll get cash back as a lump sum over the amount of your original loan balance.
What happens if you refinance before 6 months?
Conventional loans – you can do a rate-and-term refinance right away if you want, but typically not with the same lender. That's because, before 6-months, the lender may lose their original commission. On the other hand, if you want a cash-out to refinance, you'll have to wait for at least 6-months.
Lower Auto Loan Rates Could Make 2024 a Good Time To Buy or Refinance. While market predictions are bullish on the funds rate — and by extension, auto loan rates — finally coming back down in 2024, it's still not a guarantee. Powell and others at the Fed remain committed to their target of 2% inflation.
You can reduce your monthly car payments on an existing loan by negotiating with your lender, refinancing, selling your car or trading it in for a cheaper car. You can also get lower payments on a new car if you make a larger down payment and shop for an affordable vehicle.
Refinancing a car doesn't get you a new vehicle. Refinancing a car loan means reducing your payments while keeping your existing car. A trade-in may be a better option if you want a new vehicle. However, if you have recently refinanced your current vehicle, it shouldn't stop you from trading in your car for a new one.
A credit score of 700 gets you an interest rate of 3% to 6% on car loans for new cars and about 5% to 9% for second-hand cars.
