Best Car Loan Refinancing Companies

Car refinancing is the process of replacing your current car loan with a new one, typically with a different lender. The new loan is used to pay off the balance of the old loan, and you are then left with the new loan terms to fulfill.

Auto refinancing might be the best option for you if:

• Your credit score has gone up. If your credit score was less than ideal when you applied for a car loan, you might be dealing with high interest rates. Once you’ve put in the work to raise your credit score by making on-time payments on your current loan, refinancing could give you a shot at a car loan with a better interest rate.
• Interest rates on car loans have dropped. Maybe you had to purchase a car when interest rates weren’t at their lowest. If you can secure a lower interest rate than what you currently have, refinancing could potentially save you a significant amount of money over the life of your loan.
• You’re struggling to make your monthly car payments. In addition to a lower interest rate, refinancing can also be a way to extend your loan term and lower your monthly payments. If your monthly payments have become too much of a burden, look into extending your loan term by refinancing.

Types of auto refinancing

Auto refinance companies offer different options depending on whether you are refinancing a standard vehicle, like a car or truck, or if you are refinancing a specialized vehicle, such as a motorcycle, RV or boat. Most auto refinancing companies will only refinance personal vehicles instead of commercial vehicles.

• Traditional refinancing: This is the most common type of auto refinancing in which you take out a new auto loan. Ideally, the new auto loan will have a lower interest rate or more favorable terms so that you can save money.
• Cash-out refinancing: Also known as cash-back refinancing, this option allows you to borrow more than you owe on your current loan. Not all lenders offer this option, but if you find one that does, cash-back refinancing can be helpful if you need a lump sum of cash for expenses like home improvements or debt consolidation.
• Auto leaseback: This is a financial arrangement where you sell your car and then lease it back from the buyer. It is an option to free up cash tied up in your vehicle’s worth while still keeping the usability of the vehicle.

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Each auto loan refinance company has different eligibility requirements, but many lenders look for the following:

• A solid credit history: Not all lenders will require good or excellent credit, but many will expect a credit history free from bankruptcies and serious delinquencies.
• Proof of employment or income: Lenders often require proof of stable income to ensure you can afford the new loan payments. This can be in the form of paycheck stubs, tax returns or other income documents.
• A minimum outstanding loan balance: Some refinancing companies require that you owe a certain amount of money on your current loan in order to be eligible for refinancing. This amount might be anywhere from $5,000 to $10,000, depending on the lender you choose.
• A clean title: To refinance your vehicle, you need a clean title in your name. If you have a lien, the current loan must be paid off before you can refinance.
• Proof of insurance: You'll need to provide proof of auto insurance to the lender. Some lenders might also require gap insurance, which is coverage that pays the difference between what you owe on your financed vehicle and what it's worth if it's totaled or stolen.
• Proof of residency: Some lenders may require proof of your current residence.

Some refinancing companies have higher credit score requirements than others but may be able to refinance your car loan at a lower interest rate as a result. If you have excellent credit, make sure you take full advantage of it by comparing the refinancing rates of multiple lenders and negotiating with your lender of choice.

Can I refinance my car with bad credit?

“Refinancing a car with poor credit is possible; however, it is extremely challenging,” said Mark Beneke, owner of Westland Auto Sales in Fresno, California. “Most lenders look for borrowers with good credit as they tend to pose a lower risk of default. There are some lenders out there that specialize in working with challenging credit situations but this typically comes with less favorable terms.”

If your goal for refinancing is to get a car loan with a lower interest rate, you’ll have access to better rates by improving your credit score first. If your goal for refinancing is to extend your loan term and possibly lower your monthly payments, you could refinance by working with a lender that specializes in bad credit car loans.

While auto loan rates change regularly, you can check your rates by applying online or through a local car refinancing company. If you’re interested in refinancing your car online, some auto refinancing companies have rate calculators on their websites that let you see the rates available to you if you enter some basic personal information like:

• Your location
• Your current loan balance
• Your current monthly car payment
• Your current interest rate
• Your desired refinance amount
• Your desired loan term
• Your desired interest rate

When you receive an auto refinancing quote, check to see how long the company locks in the interest rate. Some auto refinancing companies lock in rates for just 30 days, while others may lock rates for up to 60 days.

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Applying for auto refinancing is a simple process and similar to applying for a personal loan. Once you've decided that auto refinancing is a good fit for you, start by requesting free quotes from lenders; many will give you an estimate without a hard credit check.

Keep repaying your old loan until the process is complete so that you don’t incur any late fees or consequences.

You will want to compare rates and terms to see which company will save you the most money. Additionally, many car refinance companies offer the option for co-signers, which can help you lock in a better rate if your credit score or income level is not as high as you would like.

Once you have chosen the company, the application should be quick and straightforward — many are done online. Your application will be reviewed and you will receive your offer, which will include your rate, your loan terms and any fees. Once you sign this final offer, your new lender will pay off your old loan and your new loan will begin.

Refinancing your car can help you save money if you can secure a lower interest rate. However, you will also need to note that while an auto refinance might lower your monthly car payment, you could be paying more over the life of the loan.

“If you truly cannot make ends meet because a payment is too high and refinancing will allow you to have enough money to get through the month without going into further debt, then refinancing is a great option,” said Benske. “However, in our experience, refinancing a vehicle will typically only ‘free up’ under $100 per month and there are better ways to truly save $100.”

Consider these pros and cons before deciding if a car refinance is the best option.

If you are using auto refinancing to access funds, there are other options available, such as a personal loan or refinancing your home. However, if you are looking into refinancing your car because you cannot afford the monthly payment, these alternatives can help.

• Sell your car and lease instead: This option depends on your current vehicle and how much it would sell for, but leasing often comes with lower monthly payments compared to financing a car purchase. With a lease, you're only paying for the car's depreciation during the lease term rather than the full value of the car.
• Consider downsizing to a less expensive car: Again, this option depends on how much your current car is worth, but if you own an expensive or larger vehicle than you need, downsizing to an older, smaller model could help you save money.
• Debt consolidation loan: While you won’t be able to roll your auto loan into a debt consolidation loan, you can use it to help you manage other debts. For example, if you are balancing several credit card bills, rolling them into one manageable personal loan can help you have more funds for your car payment.
• Credit counseling: If you're struggling with your auto loan because of broader financial issues, consider seeking advice from a credit counseling agency. Many credit counseling companies offer free consultations and budgeting advice.