Refinancing a Car Loan: How Does It Work?

Have you obtained a car loan at some point in the past? Are you having difficulty making the repayments? Or do you simply feel that the interest rate is too high? Refinancing a car loan could, in the long run, save you a significant amount of money. When you refinance, you substitute your current loan with a new one of different terms. Auto refinancing is the process of paying off your current loan with a new one. This process can have varying outcomes for new car loans. Before refinancing a car loan, it’s important to understand your reasons for doing so and the outcomes you are seeking.

Here’s how to determine whether refinancing a car loan is the right move for you.

When should you refinance a car loan?

When you first took out your loan, you may have had a less than perfect credit score. While you were able to get approved for a bad credit car loan, the interest rates were much higher than you expected or had hoped for. Most people refinance to save money, and refinancing is certainly a great way to achieve this. This goal can take multiple forms, such as:

  1. Lowering monthly payments.
  2. Reducing interest rates.
  3. Adjusting loan term lengths.
  4. Removing co-signers from loans.

At this point, you may have stabilized credit situation. Car refinance is perfect for this. You can make a plan that best fits your individual circumstances whilst still leaving you in a financially stable situation.

Possible outcomes from refinancing a car loan

Not all call refinancing deals are the same, but customers who choose to refinance tend to seek one of the following outcomes:


Most of the time, people seek car loan refinancing to lower their monthly payments. This goal makes sense because monthly car loan payments can immediately impact a household’s monthly finances. However, your monthly payments should not be the only thing to bear in mind when it comes to refinancing.

You can lower your monthly car loan payments by getting a lower interest rate, extending your loan term or by doing both.

Typically, the best way to achieve this particular goal is to significantly extend the number of months over which you pay for your car. However, when you extend your loan term, it’s possible that you will end up paying more for your car in total than you would without extending it.

Nonetheless, if your lenders allows you to extend your loan term and gives you a lower interest rate, you may both lower your monthly payments and pay less in total for your car.


While intertwined with the goal of lowering monthly payments, some people refinance primarily to lowering the interest rates on their loans.

If, over the course of your car loan, you have improved your creditworthiness, then you usually can get a new car loan on your car with a lower interest rate, and when you lower your interest rate, you may reduce the total interest charges you pay on your car loan. This is assuming that your car loan term is not extended or not extended by too many months.


Some seek refinancing a car loan with the intention of changing their loan term lengths. However, this has a lot more to do with lowering monthly payments than simply changing how many months over which a customer pays for their car.


There are a host of personal reasons why someone might want to refinance to remove someone from or add someone to their car loans. Refinancing is an straightforward way to take someone off your car loan because the refinance process gives you a new loan with a new contract.

Every refinancing deal is unique and every refinance customer has their own unique reasons for applying. We recommend working with an in-house auto financing company that takes the time to learn about your needs and provides you with a car loan that fulfills those needs.


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