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If your auto loan payments are too high for your current budget—like they are for many Americans—you could save money by refinancing. Read on for tips on refinancing.

How Interest Rates and Credit Scores Make a Difference

Your interest rate affects how much you pay each month, so your goal in refinancing is to get a new loan with a lower interest rate than your current loan. Your credit score is primarily what affects the rate for which you'll qualify—the higher your credit score, the lower the interest rate you'll likely get. If your credit has improved since you first got your loan, you're more likely to qualify for a lower rate. So it's important to make sure your finances are in order before you apply.

Things to Consider

The biggest benefit of refinancing a car loan is saving money and giving your budget some breathing room. If you can reduce your interest rate even by a small margin, you could save a substantial amount in the long run.

Here's an example. Let's say the interest rate on your original 5-year loan is 4.5 percent and you're able to reduce it to 3 percent through refinancing. Your monthly payment would drop from $373 to $359. Now maybe $14 doesn’t sound like much, but you'd end up saving about $840 over the 5-year life of your loan.

But, be cautious. Your lender could try to get you into a more costly loan. For example, a lender might offer a loan with a much lower monthly payment, but with a 7- or 9-year term to pay it off. With a much longer term, you'd end up paying much more in the long run. Plus, some lenders tack on additional fees. Always ask what fees are involved before you apply, and double-check your refinancing contract before signing it.

Frequently Asked Questions

When should I refinance my car?

You can refinance your auto loan anytime, but the sooner you refinance, the more money you’ll save. That said, if you need to work on your credit, it makes sense to spend a few months to improve it, so you can qualify for the lowest possible rate.

How does refinancing a car work?

Think of refinancing as applying for a new loan. It works just like when you originally applied. You'll fill out an application with the same type of information you submitted for your original loan like proof of income. You'll also need to tell your lender about your current loan (e.g., monthly payment, remaining balance) and your car (e.g., make, model, VIN, mileage). Your lender will check your credit and, if you're approved, will tell you your options (interest rate, term, payments). If you accept, your old loan will be paid off, and you’ll start fresh with your new payments.

Can I refinance a car if I don't have great credit?

Although it may be harder to get approved, refinancing a car loan with less than ideal credit isn't impossible. Sometimes, it's as easy as finding a creditworthy co-signer. Or, you may need to wait a bit while you build a higher credit score or show you have a better payment history to prove your eligibility. Asking your lender about your refinancing options will help ensure that you can get a competitive rate.

Getting Started

If you’re considering refinancing your car loan, Navy Federal has low rates and low monthly payments. It’s fast and easy to apply online, by calling us at 1-888-842-6328 or visiting a branch.


This article is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.