How Many Times Can You Refinance a Car?

If you’re wondering how many times you can refinance a car, you might be in a tough financial spot. Maybe you need to lower your monthly auto loan payment, or maybe you want to try to get cash out of your vehicle.

Fortunately, there’s no limit to the amount of times you can refinance. But on the other hand, this move may not always make financial sense.

How many times can you refinance your car?

As long as you meet your lender’s eligibility criteria, you face no legal limit to the number of times you can refinance a car loan. You can refinance your loan as often as you would like.

Refinancing an auto loan has many potential benefits, including possibly lowering your monthly car payments with a lower interest rate or longer loan term. You can also leverage your equity in the vehicle with a cash-out refinance that will put more money in your pocket.

However, refinancing can be expensive. Some lenders impose extra charges, such as origination fees or prepayment penalties, for replacing your original loan with a new one.

Plus, extending the life of the loan can increase the amount of interest charges that you pay over time, adding to your total cost of borrowing.

When should you refinance your car?

Now that you know more about how often you can refinance a car — as well as some of the pros and cons of making that decision — here are some times when it’s a good idea to refinance your car loan, and other times when it’s not.

Signs you should refinance your car

 You need a lower monthly payment: If your monthly payments are too high to handle, finding a lower interest rate or choosing a longer loan term can help make them affordable.

 Your credit score has improved: Your credit score is often the single biggest determining factor for the interest rate you’re given on a loan. Improving your score before applying may get you a better rate and lower your total payment amount overall.

 Market rates are dropping: If market interest rates are dropping, you might also be able to secure a better rate on your auto loan. As a rule of thumb, the refinance should reduce your interest rate by at least a full percentage point in order to make financial sense.

 You have equity built up in your vehicle: The amount of equity you’ll need in your car to do a cash-out refinance will depend on your lender. Some will allow you to finance up to 100% of the amount your car is worth, while others may require a lower loan-to-value ratio.

 You’re having problems with your current lender: If your current lender has issues, such as poor communication or excessive fees, it may make sense to refinance with a new lender.

Signs you should wait to refinance

 Your credit score has dropped: If your credit score has fallen since you last applied for an auto loan, you may find it much harder to secure a lower interest rate. You may want to work on improving your score before applying.

 You can’t afford the fees: Aside from a prepayment penalty and origination fee, you may be also expected to pay registration and title transfer costs when you refinance your car loan.

 Your vehicle is old or has plenty of miles: If your vehicle is old or has a lot of miles on it, refinancing might not be worthwhile, since your car may not run long enough for you to pay off your new auto loan.

 You have negative equity in your vehicle: An upside-down car loan occurs when you owe more money on your auto loan than the car is worth. In that case, selling your car with a loan may be a better option.

 Your car loan is still relatively new: Since car loans come with upfront costs, it could take you a while to break even on the refinancing and see the savings from your new interest rate. If you refinance while your loan is relatively new, you might not be able to recoup the costs of borrowing.

How to refinance a car loan

LendingTree has a step-by-step guide on how to refinance an auto loan, but here’s the basic process from start to finish:

How refinancing affects credit

Usually, a loan application will generate an inquiry on your credit report known as a hard credit pull, which can temporarily ding your score, especially if you have a lot of new inquiries at one time. New inquiries generally stay on your credit report for two years, so it’s best to only apply for new credit when it’s truly necessary.

But there’s an exception during what’s known as “the rate-shopping window.” Since the credit bureaus want to encourage borrowers to shop around for loans, they allow for a two-week period where all new inquiries for the same type of funding count as one single inquiry.

With that in mind, it won’t hurt to shop around for an auto refinance loan. Just do your best to either choose a lender who offers auto loan preapprovals, which don’t impact your credit score, or else do all your rate shopping within the same 14-day window.

Alternatives to refinancing your car

If you decide that refinancing your car loan isn’t the right choice for you, there are plenty of other options at your disposal.

• Replacing your car with a less expensive model: If you can’t afford your loan payment, it could mean that your car is too expensive. If you have some equity in your vehicle, you should be able to sell your car or trade it in for a more affordable model.
• Asking your lender about debt restructuring options: Many lenders offer debt restructuring options, like payment deferral or loan modification, to borrowers who are experiencing financial hardship. Call your lender to see what options may be available to you.
• Considering other financing products: If you were thinking about a cash-out refinance for your auto loan, there may be more affordable options available, such as a home equity loan, a personal loan or a 0% APR credit card. Be sure to do your research on all of these options so you have a better idea of which one is the best fit for you.