No time restrictions or legal precedents dictate when you can refinance your loan. That said, you can refinance a car loan after six months. However, you may need to wait longer to get positive equity in the vehicle.
Most lenders suggest waiting six months after opening a loan because it gives applicants time to rebuild their credit and stabilize their financial situation. In addition, the borrower can also enjoy a six-month history of paying their monthly loan on time. This, in turn, can increase the applicant’s chances of getting approved for a new loan.
Keep in mind that you need positive equity to refinance a car loan, as most lenders consider even highly qualified applicants a high risk if they have negative equity. Positive equity means the vehicle is worth more than the amount you owe on it, while negative equity is when the loan is higher than the vehicle’s worth.
Use your amortization schedule to find your break-even point or make a lump-sum payment to get to your break-even point–that’s the schedule that shows how much each loan payment went to the principal versus the interest. This will help you track how much you have left on the loan and whether you have reached positive equity.
Once you’re ready to refinance, compare options for a good deal, like a lower interest rate. And get ready for some paperwork!