How Much Does It Cost to Refinance an Auto Loan?

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Refinancing your car loan could help you save money with a lower interest rate or monthly payment. However, depending on which lender you choose and how you handle the process, costs may be involved. 

The cost to refinance an auto loan is often low—in some cases, refinancing involves no costs at all. And iit could be worth the fees if you can save more money in the long run.

How does refinancing an auto loan work?

Refinancing an auto loan involves replacing your loan with a new one, often with a different lender. Here’s how the process works: 

1. Evaluate your current loan: Review your current loan terms, including your balance, interest rate, monthly payment, and time remaining, to determine whether refinancing is right for you. For example, if your credit has improved since you first took out the loan or market rates have decreased, you may be eligible for a lower rate. 
2. Shop around: Get prequalified or preapproved with the top auto loan refinance lenders to get an idea of what terms you qualify for and how they compare to your current loan. 
3. Submit an application: Once you’ve determined which lender offers the best terms, you can typically apply through its website. You’ll need to provide some details about yourself, your vehicle, and your current loan, including the lender and payoff amount. 
4. Close the deal: If you’re approved, review the final terms and loan agreement before signing. After you close on the new loan, the lender will pay off your old loan and give you a new payment due date. Be sure to keep making payments on the old loan until you confirm it’s paid off.

How much does it cost to refinance a car?

In many cases, lenders don’t charge upfront fees when you refinance your auto loan. However, it’s crucial that you review the new loan contract and your current loan agreement to make sure you understand the potential costs. Here’s what to watch for:

• Application fee: Lenders incur certain costs during the underwriting process, and in some cases, they may pass some of those costs on to you in the form of an application fee. This cost may also be referred to as a processing fee, administrative fee, transaction fee, or lender fee. These fees can vary by lender.
• Title transfer fee: Your new lender will typically need to pay a fee to transfer the vehicle’s title into its name, and it may have you cover that cost. The fee amount will depend on where you live.
• Registration fee: Some states require you to reregister your vehicle when you switch lenders. In this case, you’ll typically pay the fee to your state’s Department of Motor Vehicles (DMV). 
• Prepayment penalty: Some auto lenders assess a prepayment penalty if you pay off your loan too early. This charge is typically 2% of your loan balance. You won’t need to worry about this penalty if your original loan’s repayment term was more than 60 months or you live in a state that prohibits lenders from charging one. 
• Late fee: If you miss a payment on your original loan while waiting for the new lender to pay it off, your original lender could assess a late fee. The same is true if you don’t set up payments by your new loan’s first payment due date. Late fees can vary by lender. 

Fee example

Let’s say you want to refinance your car loan, which has a current balance of $15,000, a 7% interest rate, and a $325 monthly payment. 

You can qualify for a five-year loan with a 5% interest rate, but the new lender charges a $20 application fee and a $50 title transfer fee. Your state also requires you to reregister your car, charging a $100 fee for the service. 

You notice that your current lender charges a 2% prepayment penalty, and you’re still within the penalty period. Here’s how those costs will break down:

Cost	Amount	Paid to
Application fee	$20	New lender
Title transfer fee	$50	New lender
Registration fee	$100	State DMV
Prepayment penalty	$300	Original lender
Total	$470

However, with the new loan term, your monthly payment drops to $283, which is a $42 cutback compared to your original loan—and the new loan will save you $542 in total interest charges, outpacing the upfront costs. 

You can use an online auto refinance calculator to help you crunch the numbers.

Also, remember that many auto lenders don’t charge refinance fees, so it’s possible that your upfront costs will be minimal or even nonexistent. Take your time to shop around and compare several lenders before settling on one. 

Should you refinance your auto loan?

Refinancing has several clear benefits, but it’s important to evaluate your situation and options to determine whether it’s the right move for you. 

Here are situations where it may make sense to refinance your auto loan:

• You can get a lower rate: If you’ve determined you can get a lower interest rate than you’re currently paying, refinancing could reduce your monthly payment and save you money on interest.
• You can’t afford your payment: Even if you don’t qualify for a lower interest rate, you could reduce your monthly payment by extending your loan term. However, this may result in more total interest charges. 
• Savings outweigh the costs: If the savings on the new loan exceed the upfront costs, you’ll be better off in the long run.
• You need access to cash: If you have significant equity in your vehicle—meaning it’s worth far more than you owe on the loan—you may be able to tap some of it with a cash-out auto refinance. 

Here are situations where you may want to reconsider refinancing your car loan:

• The potential savings are insufficient: If you don’t qualify for a lower interest rate or face excessive fees, the long-term savings might be insufficient to make refinancing worthwhile. 
• You’re almost finished repaying the loan: If you have a few thousand dollars or a year or two left on your current loan, it may make sense to stick with your current lender unless the potential refinance savings are significant.
• You have an older vehicle: If your vehicle is 10 years old or has more than 100,000, you may have a harder time finding a lender willing to refinance your loan. 

Ask the expert

Erin Kinkade

CFP®

If interest rates are high—for example, in May 2024, they’re at a 10-year high—or if the borrower’s financial condition or credit has not improved since the loan originated, I do not recommend refinancing. This would be an ideal time to improve your credit history and score to be ready to refinance your vehicle when interest rates drop. Even if your credit and financial condition have improved, with the projected lower interest rate environment in what will ideally be the near future, it could benefit you to wait until that opportunity presents itself.

Where do you refinance your auto loan?

Several types of financial institutions offer auto refinance loans, including banks, credit unions, online lenders, and online marketplaces. Understanding your options can help you determine the best path forward for you:

• Banks: Banks don’t have membership requirements to get approved, and if you prefer in-person service, you can get it from a local branch. However, traditional banks may charge higher interest rates and fees.
• Credit unions: Credit unions are not-for-profit organizations, so they can typically offer lower interest rates and few or even no fees. They also tend to offer superior services to banks. However, they may require you to meet certain criteria to become a member and qualify for a loan.
• Online lenders: With no physical locations to support, online lenders often have a low-cost model that allows them to offer low interest rates and fees. In some cases, they can even beat out credit unions, but you’re unlikely to get in-person service.
• Online marketplaces: Auto refinance marketplaces are platforms that partner with various lenders, allowing you to compare multiple offers in one place. They can save you time during the comparison process and give you a better chance of getting a solid deal. However, they don’t work with all lenders, so you’re not guaranteed to get the absolute best deal available.

Shopping for an auto refinance loan can be an overwhelming process. To help you get started, check out our picks for the best auto loan refinance companies. 

FAQ

Does it cost money to refinance a car?

Yes, refinancing a car comes with costs. As the borrower, you will encounter charges, such as origination, lienholder, and state reregistration fees. Some lenders may charge these as separate fees, making them easier to track.

What is the downside of refinancing a car?

Refinancing a car may lower monthly payments, but an extended loan term may result in higher total costs over the life of the loan due to accrued interest. Potential fees related to the refinance process may also outweigh the potential savings.

Does car refinancing hurt your credit?

Applying for refinancing will result in a hard inquiry on your credit report, which can lower your credit score by a few points. However, consistent on-time payments post-refinance may, over time, contribute to an improved credit score.

Will I save money if I refinance my car?

This depends on several factors, including the current interest rate, the new proposed rate, the remaining loan term, and the total cost of refinancing. It’s important to evaluate all these factors against potential savings before deciding to proceed with refinancing. Remember, the aim of refinancing should be to reduce your overall financial burden.

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