Is an auto refinance right for you?

If you think you can get a more favorable interest rate, or you’d like to pay off the vehicle sooner, refinancing might be a good choice.

Tags: Financing, Cars, Loans
Published: November 14, 2019

If you’re in a different financial place than you were when you bought your car, consider a car refinance. Getting new terms could save you money, advance your payoff date or both.


When does an auto loan refinance make sense?

Changes in your life (or in the market) might allow you to refinance at a reduced interest rate, which means lower interest cost through the life of the loan. Here are some reasons why refinancing might be right for you:

  • Your credit score has increased: If your credit score is higher than when you first bought your car, refinancing could be a smart choice. Just a minor increase in your score might substantially change lenders’ assessment of your default risk. In turn, this might result in the offer of a lower rate.
  • Interest rates have shifted: Rates might have shifted since you purchased your car. Decreasing your interest rate by as little as 1 percent might be enough of a reason to change lenders. For example, if you borrowed $25,000 on a 50-month loan term with 4.7 percent interest, dropping down to 3.7 percent would save you about $135 per year.
  • You want to shorten the length of your loan: Refinancing to a shorter term will likely cause your monthly payments to increase but almost certainly lower your overall interest cost. If you have a long-term loan, such as a 72-month loan, and your income stream has increased since you purchased your vehicle, shortening the term may make sense.

Are there potential disadvantages to an auto loan refinance?

Refinancing carries few risks, but it’s not always the best choice. Take care to avoid these pitfalls:

  • Prepayment penalties: Check to see whether your current loan will issue a penalty for prepayment. In this case, refinancing could actually cost you more money.
  • Origination fees: Are you charged a fee when you take out a new loan? If the amount of interest you’re saving by refinancing is less than the cost of originating a new loan, you’re not coming out ahead. 
  • Extended loan life: Avoid any car loan refinance that will extend the life of your loan. While extending could reduce your monthly payments, it likely will cost you more interest over the long term.

Refinancing your auto loan can be a great way to save. Refinancing isn’t right for all situations, so it’s good to review all your options carefully.


Learn more about the different types of auto loans available.


Mortgage and Home Equity products are offered by U.S. Bank National Association. Loan products are offered by U.S. Bank National Association and subject to normal credit approval.