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FEB 22, 2022

Should I refinance my auto loan?



7 min read

Should I refinance my auto loan, or should I just sell my car? Should I buckle in and just keep paying my car loan off? Does it change anything if I have credit card debt?

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If you’ve asked yourself one of these questions — or maybe even all of these questions — then you’re very much not alone.

Deciding if you want to refinance your auto loan isn’t an easy decision. What’s right for you depends on your financial situation, your car, or even your current stage in life. For example, you might be trying to buy a home. Maybe your monthly car payments are getting way too expensive. Or maybe you’re just looking for more ways to save money.

Depending on your situation, refinancing your auto loan could be the best decision ever or something you should hold off on. The important thing is to make the choice that works best for you.

To help you in making your choice, we’ll look at some of the most common questions people have before they refinance their cars and give you our opinion.

But before we do that, we feel like we should state the obvious — we’re an auto refinancing company. There are situations where there is no 100% clear answer, which means that in those situations, it would be better for us to tell you “yeah, you should definitely refinance!”

With that in mind, we’ll give you all of the facts and conditions that lead to our decisions in order to avoid bias and empower you to make your own choice. But we also ask that you get a second opinion, and hold us accountable if you don’t feel like we’ve lived up to that promise.

With all of that out of the way: is it a good idea to refinance your auto loan?

I just bought a car

You can refinance a car you just bought, whether it’s a new car or a used car. When you buy your car, you might hear that you can’t refinance your loan until 6 or 12 payments are made. This is not true. As long as your vehicle is registered with the DMV, your auto loan can be refinanced. You may lose some rebates or incentives from your dealership if you refinance, though.

The reason why you’re refinancing is more important than when you bought your car. Are your payments too expensive? Can you get a better APR? How does APR compare to interest rate? Is your loan term too long? All of these are individually good reasons to refinance your vehicle.

However, high payments might also be good reasons to sell or trade in your vehicle. If an expensive new model car is the reason for your high payments, you can sell or trade in your car for something cheaper. But keep in mind that you should be comfortable with your new vehicle and your new rate or payment. It might take years for you to pay down your vehicle enough to refinance.

If your issue is a bad loan, then refinancing is the way to go.

I want to pay off my car loan sooner

Refinancing is a great idea if you’re trying to pay off your car loan sooner! It will also help you pay less interest on your loan. By using a refinance to lower your monthly payments or APR, it’s easier to pay off your loan at your own pace. You can overpay if you want to stay ahead of your payments and avoid interest. There’s pretty much no downside!

My credit score is bad

Depending on how bad your credit score is, you might not be able to get a replacement car or refinance. If your credit score is at least above 600, there’s some hope — there are lenders that will help you refinance your car to lower your APR. It could save you thousands of dollars in interest payments. If your credit score is below 600, consider finding a cosigner or a lender that works with subprime credit scores.

The idea is simple — if you can lower your APR or your monthly payments, it’s easier to make payments on time and increase your credit score. If you want to sell your car afterward, a better credit score will make it easier to replace without making a large down payment first.

I plan on keeping my car for a few more years

If you have no plans to sell your car any time soon, refinancing only helps you. With better rates or lower monthly payments, you can control your finances more easily. Refinance ASAP!

My car loan is the same as my car is worth

If your car loan is equal to your car’s value, your next steps depend on your credit score. If your credit score is good or excellent, see what refinancing options are available. If your credit score is poor, work on paying your loan down instead of refinancing. You can also pay down your loan on a good/excellent credit score — this will help you to get better refinancing options.

I owe more on my car than it’s worth

If you owe more on your car than it’s worth, that’s okay! Cars are depreciating assets — which means they keep losing value over time. Many Americans owe more than their cars are worth, so most lenders have options to help (as long as there’s not too much difference between your car’s value and your loan). You can also trade in your car in these situations, but that can make the problem worse since you’d have to pay off the difference or add it to your new car loan.

If you can, the best move is to pay down your loan a little first. That will get you better refinancing offers and prevent you from having to pay extra in a trade-in situation. Otherwise, refinancing is the best option here!

I already have a good APR on my auto loan

If you already have a good APR, think about your monthly payments and loan length. You can extend your loan to decrease your monthly payments, or increase your monthly payments to shorten your loan. Refinancing lets you pick the best option for your finances. Plus, there’s always the chance that you can make a good APR better.

I want to buy a house soon

Refinancing when you want to buy a house depends on a lot of details. We’ll do our best to cover some of the most common situations that may affect you:


If you are less than a year away from buying a house, do NOT refinance yet. You’ll want to wait until after you’ve bought your house so that you can get the best possible rate on your mortgage. Refinancing your car a year or more before you buy a house is generally fine.

Your credit score

If you have excellent credit, refinance away! If your credit is only good (or worse), then your focus should be building credit. Not only will this help you to buy your new home, but you’ll also get a better deal when you eventually refinance your car.

Your car payments

If your car payments are too high AND you’re a year (or more) away from buying a home, refinance the car. You can lower your payments to help you build your credit score for your home purchase.

I only have a few years left on my auto loan

Depending on your rate, it can be a good idea to refinance if you only have a few years left on your auto loan.

If your rate is already really low, it will just cost you money to refinance your car when you’re already deep into your loan. In this case, we recommend just paying off your auto loan.

But if you don’t already have a really low rate, then even if you extend your loan, you can overpay to finish your loan at the same time. Lower monthly payments will give you extra breathing room, and you’ll have less money going towards interest. Win-win!

My interest rate on my car is REALLY high

If your interest rate is extremely high, you’ll definitely want to refinance your car at the first opportunity. Your credit score, timing, type of lender, and other factors all affect your interest rate. When any of these things change, you have an opportunity to improve your interest rate and save more money.

More often than not, refinancing your car is a great idea that helps you to take control of your finances. But it’s not always the best idea or the best time.

If you’ve decided that a refinance is the best option for you, click the button below. There’s no obligation and no hard credit check to see the refinancing offers you can get from Caribou's network of top lenders.

With Caribou, you could start saving today!

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Contact Details
NMLS #1746612

Mon - Fri: 9am - 8pm EST

Sat - Sun: 9am - 4pm EST

1717 Rhode Island Ave, NW, Suite 500 Washington, DC 20036

Caribou Insurance Services, LLC
Mon - Fri: 9am - 8pm ET

* Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.

+ To check the refinance rates and terms you qualify for, we conduct a soft credit pull that will not affect your credit score. However, if you choose a loan product and continue your application, we or one of our lending partners will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

++ Social security number is required should you choose to move forward in the loan application process.

** APR is the Annual Percentage Rate. Your actual APR may be different. Your APR is based on multiple factors including your credit profile and the loan to value of the vehicle. Advertised 1.99% APR is based on a representative example of refinancing a 2021 or newer vehicle with mileage of less than 85,000 miles and a FICO score higher than 740. Lowest Rate not available in CA, ME, MD, MS, NE, NV, PA, WV, WI and VT. Not all borrowers will receive the lowest rate. All applications are subject to verification of employment. We do not guarantee that you will receive any loan offers or that your loan application will be approved. If approved, your actual rate will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors. Insurance savings will not result from lower APR.

Terms and Conditions apply. Caribou reserves the right to modify or discontinue products and benefits at any time without notice. Participating lenders, rates and terms are also subject to change at any time without notice. The information you provide to us is an inquiry to determine whether our lenders can make you a loan offer. If any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. We do not guarantee that you will receive any loan offers or that your loan application will be approved. If approved, your actual rate will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors.

Insurance products offered through Bindable and Caribou Insurance Services, LLC. Caribou is working with Bindable who owns MyLifeProtected and MassDrive Insurance Group, LLC, the licensed agent for all products.

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