When Is the Best Time To Refinance a Car?

Refinancing is a great way to save money on your car payments, but make sure you do it when it makes the most sense. Read this article to learn the best time to refinance your car.
Written by Brady Klopfer
Reviewed by Carrie Adkins
The best time to refinance a
car loan
usually depends on your financial situation. If you want to change your monthly payments or interest rates, it's time to consider refinancing.
Unless you purchase a car straight up with cash, you’re going to have to finance it. Financing a car just means that a lender pays for the price of the car, and then you make monthly payments to the lender, with interest.
It’s not uncommon for people to refinance their auto loan. When you refinance a car, you’re just having a new lender pay off the original lender so that you can start a new payment plan with the new lender.
But how do you know when it’s the right time to refinance your car?
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The best times to refinance a car

When you’re overpaying on your current car loan

It’s pretty common to end up overpaying on a car loan, which can mean your interest rate is too high, or your monthly payments are just a bit too exorbitant.
This can happen for a few reasons, but the most common is that car dealerships and lenders can be a bit predatory. They’ll take advantage of how excited you are to get a new car, and use the opportunity to give you a large monthly payment, or a sky high interest rate.
If you realize that you’re overpaying, it’s time to consider refinancing.

When there’s been a substantial lowering in interest rates

Interest rates usually fluctuate with the economy. The national price of automotive interest rates will be high one year, and low the next.
If you notice that interest rates nationally are down from when you purchased your car, it’s a good idea to consider refinancing. You can take advantage of better interest rates with a new lender.

When you’ve had a change in financial status

Financial status changes for everyone from time to time. Maybe you’ve gotten a hefty promotion, and you’d like to take on higher monthly payments so you can pay less in interest and get your car paid off sooner. Maybe you’ve lost your job or taken on other financial obligations, like medical payments, and you want to lower your monthly payment so that you can be more comfortable financially.
Whatever the reason, if you’ve had a change in financial status and want to find a car payment plan that better suits your situation, it’s time to think about refinancing.

When your credit has improved

One nice side effect of buying a car is that it can greatly improve your credit score, assuming you’re consistently making your payments on time. Which means that, if you’ve been paying off your car for a year or two, you might notice that your credit score has gone up.
The better your credit, the better your financing. If your credit score has considerably improved, try refinancing your car, and you’ll likely get a better interest rate.

What is the benefit of refinancing your car loan?

There are a lot of reasons why you might want to refinance your vehicle, but the two most common are purely financial. First, you might want to refinance your car so that you can get a lower monthly payment. And second, you might want to refinance your car to lower the interest rate.
The former is to save money in the short term, and the latter is to save money in the long term. Sometimes you might even be able to do both when you refinance your car. Either way, the purpose of refinancing is to put yourself in a better financial situation than you are with your current loan.
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