An auto loan is a secured loan that helps drivers pay for a new or used car purchase. A secured loan is a loan that’s backed by collateral: in this case, the car you’re financing. When you take out a loan on your vehicle purchase, you agree to pay back the borrowed amount—or forfeit the car to your lender.
Every car loan is different. You can finance a car through a dealership, a bank, a credit union, or another lender—and you’ll get different loan rates at each depending on a wide variety of factors like your credit score, your loan term, your income, and the lender you choose. That’s why it’s so important to compare auto loan rates from multiple lenders—it’s the only way to find the rate that’s right for you.
The great news? If you’ve got an existing car loan that’s more than you can handle, you may have the option to refinance your loan and replace it with a new loan that better fits your finances. Jerry can help with that. As a licensed refinance and car insurance broker, Jerry is the trustworthy super app car owners need to save on auto expenses.
| Date | First Name | State | Term | Old Interest Rate | New Interest Rate | Old Monthly Payment | New Monthly Payment |
|---|---|---|---|---|---|---|---|
| March 1, 2022 | Mackenzie | Pennsylvania | 72 | 18.12% | 13.28% | $357 | $309 |
| December 6, 2021 | Gary | South Carolina | 72 | 19.44% | 10.94% | $704 | $507 |
| August 4, 2022 | Cynthia | New York | 72 | 26.16% | 9.05% | $575 | $318 |
| May 12, 2022 | Kerry | Georgia | 72 | 22.32% | 8.25% | $721 | $285 |
| January 7, 2022 | Brittany | California | 72 | 4.68% | 8.25% | $425 | $280 |
Should you refinance your car loan?
The potential benefits of refinancing an auto loan are significant: a lower interest rate, lower monthly payments, and improved cash flow. Car loan refinancing could be a great way to free up cash quickly if:
- Your income or credit score has increased since you got your initial loan
- You originally financed your car through a dealership
- You want to change your loan term
- Average interest rates have gone down since the start of your loan
- Your car’s value is greater than the total amount left on your loan
But refinancing isn’t always the best option. In some cases, refinancing your auto loan could actually cost you money. For instance, if your lower interest rate comes with a longer loan term, you might end up paying more in the long term than if you’d stuck with your original loan. Think carefully about whether short-term savings are worth a greater long-term cost.
Auto loan refinance isn’t for everyone—and your eligibility depends on a few factors. You may not be able to refinance your loan if:
- You have multiple missed payments in the past six months
- You’ve taken out new loans or declared bankruptcy in the past year
- You recently changed jobs (or became unemployed)
- You’ve had a car repossessed in the past
Best auto refinance websites
There are a ton of sites out there that promise to help you refinance your auto loan—but which are scams, and which can you trust?
Auto refinance websites like LendingTree, Caribou, and RateGenius are safe options for anyone looking to refinance an auto loan. Drivers with lower credit scores or older vehicles may find decent refinance options with OpenRoad or LightStream. No matter where you look for refinance offers, your rates will still depend on your credit score, your vehicle, and a range of other factors.
But Jerry can do more than just refinance your auto loan. Unlike other auto refinance websites, Jerry doesn’t just look at your car loan: we see the full picture of your car-related expenses. While you’re refinancing your auto loan, you can also use the Jerry app to search for a better rate on your vehicle’s insurance policy, saving even more every month. On average, Jerry users save over $800 a year on insurance in under a minute—just by shopping in the app!
Auto Refinance FAQs
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How long do you need to wait to refinance a car loan?
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Is refinancing a car worth it?
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Does refinancing an auto loan hurt your credit?
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Can I refinance my car with the same lender?
Compare car loan rates
Why is it so important to compare auto loan rates? There are a few reasons:
- Every offer is different: lenders use different methodologies to calculate your rate
- Credit matters: some lenders offer better rates to borrowers with low credit scores
- It’s not all about interest rate: some lenders may offer you a better loan term
Different types of lenders approach auto loans—including refinancing loans—differently. For instance, if you finance your vehicle through a car dealership, you’re likely to pay more, since the dealer will factor in a profit margin for themselves. If you finance through a bank or credit union, on the other hand, you’re likely to get a better rate based on your relationship with the lending institution.
But three different credit unions, or three different banks, could give you different interest rates, loan terms, and penalties. That’s why experts recommend getting at least three offers to compare before you sign on the dotted line. Comparing rates lets you see what you’re eligible for—and find the best deal based on your profile.
Should you finance through a dealership?
Financing through a dealership or an auto manufacturer’s financing division can make getting a car loan easy—but it may be more expensive than financing through a bank or credit union. While banks typically charge administrative fees, they’re usually less than the commission a dealership makes off of your loan.
If you feel that your dealer is pressuring you to accept an auto loan, proceed with caution. Remember that they have an incentive to get you to agree to a high-priced loan. You can use that incentive to negotiate a better deal, such as a rebate or a better interest rate, or you can compare loan offers from other lenders.
Car loan rates for young borrowers
While lenders can’t deny your loan application based on your age, young borrowers may have a harder time finding a good APR (annual percentage rate).
Why? The biggest challenge for young borrowers is a lack of credit. When you haven’t had a chance to build up a robust credit history, your score is likely lower than the average for older borrowers—making your loan options less favorable.
Another problem for young borrowers is the down payment required for an auto loan. In general, you should aim to put down 20% or more of the cost of your vehicle as a down payment—and if you’re able to put down more, your monthly payments will be lower. But if you’re under 25, you’re likely to have less in savings, which sets you up for higher rates and higher monthly payments.
16-25 | 25-35 | 35-45 | 45-55 | 55-65 | 65+ | |
|---|---|---|---|---|---|---|
| 5-10K | 4.86% | 3.89% | 3.24% | 2.59% | 1.94% | 1.62% |
| 10-15K | 15.62% | 12.49% | 10.41% | 8.33% | 6.25% | 5.21% |
| 15-20K | 14.81% | 11.85% | 9.87% | 7.90% | 5.92% | 4.94% |
| 20-25K | 15.97% | 12.78% | 10.65% | 8.52% | 6.39% | 5.32% |
| 25-30K | 15.05% | 12.04% | 10.04% | 8.03% | 6.02% | 5.02% |
| 30K+ | 14.69% | 11.75% | 9.79% | 7.83% | 5.88% | 4.90% |
Finally, very young borrowers might not qualify for a car loan at all. If you’re under legal contract age—19 years old in Alabama and Nebraska and 18 years old everywhere else—you won’t be able to take out an auto loan.
Loan rates vary by loan term
A shorter loan term is likely to carry a higher APR than a long-term loan.
Currently, the average loan term for an auto loan in the U.S. is 72 months. With a 72-month car loan, you’ll be paying off your loan for six years, but you’ll likely have a slightly lower APR than with a 60-month loan—and a higher APR than an 84-month loan.
Refinancing your auto loan for a shorter loan term could raise your APR, but lower your overall payments, while a longer loan term could lower your monthly payments.
Credit tier can matter
As a general rule, the higher your credit score, the lower your APR will be.
Your credit tier isn’t the only factor that affects your auto loan rates—but it might be the single most important. Buyers with credit scores above 780 qualify for the lowest interest rates: an average of 2.47% for new car purchases and 3.61% for used car loans.
As your credit score drops through the prime (660-719) and subprime (580-619) tiers, you’ll see your APR climb. For borrowers with credit scores below 540—the so-called deep subprime tier—interest rates are well above 10% for both new and used car loans!
That’s why refinancing is such a powerful option for car owners whose credit score has climbed significantly since the start of their original loan. If you’ve moved from subprime to prime or even superprime, you could qualify for a much better refinance deal. Check out the features below to see how your credit score could affect your auto loan rates.
Can you still get a car loan with bad credit?
Yes—but it may be difficult. If your credit score is below 540, you may have a difficult time getting financing for a new or used car purchase, and any offers you get may be less than favorable.
But getting a loan with poor credit isn’t impossible. Getting a co-signer, putting down a large down payment, or buying a less expensive car could improve your odds of approval.
Getting a car loan
If you’ve never applied for an auto loan before, the process can feel intimidating—and mystifying! In fact, getting an auto loan is a fairly easy process if you know what you’re doing.
That’s why Jerry created a simple seven-step checklist to help you ace the auto loan process. Here’s how car loans work.
1. Check your credit—and be ready to build it.
Your credit score is one of the single biggest factors that sets the terms of your auto loan—and a small difference in scores could mean paying a lot more for your loan.
Never finance a car without checking your credit score first. You’ll want to ensure that everything in your credit report is correct and report any errors or incorrect information to get a more accurate score.
Be aware that the credit scores you get from banks or free personal finance apps may not be the same scores that auto loan lenders use to set your rate. They’ll be working with specialized scores that emphasize your history of paying off auto loans—so if you have a history of falling behind on car payments, your auto loan credit score will be negatively impacted.
If your credit is poor, it may be worth waiting a while to rebuild it before applying for a loan. It’s a good idea to wait if:
- You’re within a few points of a higher credit tier
- You have the potential to increase your income in the next few months (e.g. if you’re applying for new jobs)
- Your credit score is low enough that you don’t qualify for many loans
2. Compare at least three auto loan offers.
Never take the first car loan offer you get. While it might be the best option for you, you won’t know that until you’ve compared offers from a few different lenders.
Ideally, you should compare at least three offers before picking an auto loan—and if possible, compare offers from different types of lenders. You could get your auto loan from a dealership, a bank, an online lender, or a credit union, and comparing rates might reveal a significant difference in the terms you qualify for from different institutions.
In general, dealerships will give you the worst loan terms—so it’s especially important to compare other rates if your first offer comes from the dealer selling you the car.
3. Get preapproved for a loan before you head to the dealership.
That’s right—before you even set foot on a dealer’s lot, you should already be preapproved or prequalified for an auto loan.
What’s the difference—and why does it matter? Prequalification gives you a ballpark estimate of your potential loan amount and interest rate, and typically only requires a “soft” credit check (i.e. one that won’t hurt your score). Preapproval, on the other hand, comes with a hard credit pull and more concrete loan terms: it will lower your credit score, but give you greater bargaining power at the dealership.
Going to the dealership with preapproval in hand puts you in the driver’s seat throughout negotiations. When you know the terms of your loan in advance, you’ll have a clearer idea of what you can (and can’t) afford—and you’ll demonstrate to the dealer that you’re a serious buyer.
4. Know what’s negotiable.
Speaking of negotiations, you won’t just need to do them at the dealership: you can also negotiate with your lender for a better loan deal!
Your loan repayment term, APR and interest rate, prepayment penalties, and additional fees are all negotiable. This is another way that comparing rates can help you—if you know what other lenders are offering, you may be able to leverage those offers into a better loan agreement.
5. Pick your car based on your loan offer.
Maybe you’ve got your car all picked out already—but if your loan offer isn’t enough to finance a new Mercedes, you might need to rethink your budget. A car loan for a new Lexus might be a better fit for your finances.
That’s just one more way that preapproval can make your job at the dealership easier. When you know what you can afford, you’ll be able to find the car that’s right for you.
6. Make a sizable down payment.
It’s possible to get an auto loan payment without any down payment—and if you don’t have a lot in your savings account, buying a car with zero down may be your only option.
However, despite the up-front savings, a car loan with zero down payment will likely increase your long-term costs due to higher interest rates, a longer loan term, and the risk of becoming upside down on your loan.
By making a bigger down payment—experts recommend 20% or more if you can afford it—you can lower your monthly payments and reduce the amount you’ll pay in interest.
7. Read the terms of your loan agreement carefully before you sign.
It should go without saying that it’s important to read your loan contract before you sign the agreement. But what should you look out for?
When you’re reviewing the documents, be on the lookout for:
- Car loan fraud red flags like refinancing enrollment fees
- A proposed APR that exceeds the APR cap in your lender’s state
- Hidden fees, like documentation fees and registration costs
- Unnecessary add-ons like gap insurance and extended warranties (you may want these, but they’re usually cheaper elsewhere)
- Early payoff penalties
Review the loan amount, total purchase price, APR, finance charge, and total of payments to make sure that you aren’t signing your name to something you didn’t agree to. If you’re working with a reputable lender, these amounts should be the same you agreed to informally, but it’s not unheard of for lenders to make subtle changes without consulting a buyer. Always check before you sign.
Minimum requirements to refinance your car
Do you qualify for auto loan refinancing? There’s no single test that can determine your eligibility—but the tabs below outline some common limits that lenders place on refinancing.
Credit score
There’s no concrete credit requirement for auto loan refinance, but you’re not likely to find a refinancing deal that’s worth it if your score is under 600.
Debt-to-income (DTI) ratio
Your debt-to-income (DTI) ratio—that is, the total of your monthly debt payments vs. your monthly pre-tax income—is a key factor in your approval odds for auto loan refinance. A DTI under 50% gives you the best odds of approval.
Income
There’s no universal income required to refinance your car loan, but most lenders look for a monthly income of at least $1,500. If you make less than this—or if you have no income—you’ll have a difficult time qualifying for refinancing.
Time left on loan
Lenders typically won’t refinance a loan that’s been active for less than six months—and it’s generally recommended to wait at least a year before refinancing a loan. Likewise, if you’ve got less than a year left on your loan, you’re less likely to qualify for refinancing.
Value of loan
Many lenders won’t refinance loans with less than $5,000 to $8,000 left on the loan. The exact minimum amount varies from lender to lender—another reason that comparing refinance offers is worth your time.
Mileage
Many lenders are hesitant to refinance high-mileage vehicles. The mileage cap for most lenders is in the neighborhood of 100,000 to 150,000 miles.
Age of vehicle
The limit for vehicle age is much harder than other requirements: most lenders won’t refinance a vehicle that’s more than 10 years old. Some will even set a hard limit at eight years. If you’re trying to refinance a car that’s more than 10 years old, it’s not impossible, but you’ll likely need to turn to a specialized lender.
What you need to apply
If you want to apply for auto loan refinance, you’ll need to have some documentation on hand. Here’s what you need to line up before you can apply.
Proof of identity
A driver’s license, passport, or other government photo ID should work as proof of identity for auto loan refinance.
Proof of income
You must demonstrate to your new lender that you have the funds necessary to repay the loan. Recent pay stubs, bank statements, and/or a W2 form can all function as proof of income, but your lender may also reach out to your employer directly to verify your income. For self-employed applicants, tax documents are the most important proof of income.
Social Security number
Your Social Security number (SSN), along with your name and other personal information, allows a lender to check your credit and banking history. This is also how a lender will calculate your debt-to-income ratio.
Proof of residence
Proof of residence is required by the federal government for any application for auto loan refinancing. Many lenders will accept the address on your driver’s license as proof of residence, but if you don’t have a license—or if that address is not current—you may need to provide additional documentation, such as a utility bill, mortgage statement, or homeowners or renters insurance policy.
Vehicle information
Here’s where financing through a dealership is easier: if your dealer sets up your auto loan, they’ll automatically provide the lender with all the necessary information on your vehicle.
If you’re refinancing on your own, you’ll need to gather this info. Luckily, it’s pretty simple: you’ll need your car’s purchase price, vehicle identification number (VIN), and the year, make, and model. (For a used car loan, mileage and lien documents may also be required.)
Proof of insurance
In order to finalize your auto loan, you’ll need to prove that you have a car insurance policy that meets your state’s minimums—and there may be additional requirements from your lender. Although no state laws require drivers to carry collision or comprehensive auto insurance, many lenders require both.
Where you live is a factor
Average auto loan rates differ from state to state based on market conditions. New Hampshire car loan payments, for instance, are typically lower than Louisiana car loan costs. The amount you can save by refinancing also varies from state to state, with the biggest savings in Alaska and Nevada.
The car-buying process also differs based on your location, especially if you’re buying the car from a private seller. Some states require more documentation, have a higher sales tax, or place extra regulations on the car-buying process.
Car loans for car types can be different
The more expensive your car is, the higher your loan payments will be.
But overall value isn’t the only thing that affects your auto loan. For instance, used cars tend to carry higher interest rates, and most lenders won’t approve a refinance application for a car more than 10 years old.
Want to see what average interest rates and refinancing offers might look like for your future car? Take a look at the features below.
- BMW Car Loan
- Buick Car Loan
- Cadillac Car Loan
- Chevrolet Car Loan
- Chrysler Car Loan
- Dodge Car Loan
- Fiat Car Loan
- GMC Car Loan
- Honda Car Loan
- Hyundai Car Loan
Car buying guides
Want some smart tips for buying different types of cars? Jerry’s got you covered. Check out our car-buying guides below.
Should you lease or buy?
For drivers who want to use a more expensive vehicle without taking on unmanageable ownership costs, leasing is an increasingly popular alternative to auto financing. Leasing allows you to drive a new vehicle for a monthly amount that’s lower than the average loan payment.
But you should only consider leasing if you don’t want to own the vehicle you drive. If you want to invest in your vehicle as property, make any modifications, or put a lot of mileage on the car, buying is the better option.
- Acura Car Lease
- Hyundai Car Lease
- Kia Car Lease
- Lexus Car Lease
- Mazda Car Lease
- Tesla Car Lease
- Toyota Car Lease
Already bought that new car?
Refinancing an auto loan isn’t the only way Jerry can help drivers save on car-related expenses. In fact, Jerry’s kind of a super app when it comes to cars: not only can we help you lower your loan payments, but we’ll also find you cheap car insurance and help you estimate the cost of important car repairs (and even show you how to do some of them yourself!).
As a licensed insurance broker and a car loan genius, Jerry is the trusted partner you need on your side to keep your car ownership costs low. Here are some advantages of letting Jerry save you money:
- Jerry will never sell your personal information to a third party (translation: no spam calls!)
- Jerry is partnered with over 55 of the nation’s top insurance providers
- Jerry can compare car insurance rates from 55+ insurers in under a minute (try us!)
- Jerry’s insurance agents can help you switch to a new policy without a single phone call
The average annual savings Jerry customers find on car insurance is over $600
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Licensed Insurance Agent
R.E. Fulton is an expert insurance writer specializing in car ownership topics from car shopping and loan advice to insurance and repair guides. R.E.’s mission is to create unique and accessible content that helps readers to become more successful and independent car owners. R.E. has written and edited over 900 high-performing articles for Jerry, with an average of 1 million+ views. As a senior writer on Jerry’s editorial team, R.E. draws on over 10 years of experience as a professional writer and digital publishing specialist. Prior to joining Jerry’s editorial team in 2021, R.E. worked as a writing coach at Columbia University, the Rochester Institute of Technology (RIT), and the University of Rochester. They serve as a managing editor for peer-reviewed history publication Nursing Clio, where their work has appeared regularly since 2015.
Jessica Barrett is a senior insurance writer and editor with 10 years of experience in the automotive and travel industries. A specialist in car insurance, car loans, and car ownership, Jessica’s mission is to create comprehensive content that car owners can use to manage their costs and improve their lives. As a managing editor for a team of writers and insurance specialists, Jessica has edited over 2,000 articles for Jerry on topics ranging from local insurance shopping tips to refinancing car loans with bad credit. Before joining Jerry as a senior content editor in 2021, Jessica created visual content for clients such as Expedia, Vivid Seats, Budget Direct Car Insurance, Angie’s List, and HomeAdvisor. Her content was published in Business Insider, Forbes, Apartment Therapy, and the BBC.
