What's the typical penalty for refinancing a car loan?

I want to refinance my car, but I've read there's a penalty for doing so. What's the typical penalty for refinancing a car loan?

The penalties you might have heard of are prepayment penalties. While most lenders have done away with them, some still sneak them into your contract as a way to keep you locked into your current loan.
In most cases, a prepayment penalty is a charge of 2% to 4% of your current car loan balance for making payments ahead of schedule. (Sometimes, prepayment penalties are disguised by language like the “rule of 78s” or “percentage loans.”)
If there are prepayment penalties in play for you, you’ll need to do some serious research to see if refinancing is the best way to go.
In some cases, refinancing will actually cost you more than a prepayment penalty. If this applies to you, it’s better to keep your current loan rather than try to refinance it.
If you want to save money in other ways, you should shop around for car insurance rates every renewal policy, or about every six months. The Jerry app makes this super easy. You’ll get to compare dozens of competitive quotes from top insurers like State Farm, Travelers, and Allstate.
Eric Schad
Answered on Nov 16, 2021
Eric Schad has been a freelance writer for nearly a decade, as well as an SEO specialist and editor for the past five years. Before getting behind the keyboard, he worked in the finance and music industries (the perfect combo). With a wide array of professional and personal experiences, he’s developed a knack for tone and branding across many different verticals. Away from the computer, Schad is a blues guitar shredder, crazed sports fan, and always down for a spontaneous trip anywhere around the globe.

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