How Long Before I Can Refinance My Auto Loan?

It’s not uncommon for people to come down with a bad case of buyer’s remorse after buying a car. Often, it’s not the car that’s the problem, it’s the auto loan.

If you just got financing through the dealer without shopping around or if you got an auto loan despite bad credit, you might have a very high interest rate, large monthly payments, and a sense that your loan is way more expensive than it should be for your car. You want to refinance as soon as possible.

How long do you have to wait before refinancing your auto loan?

Wait at Least Until the Title Transfers

No matter how eager you are to refinance, you likely have to wait at least until the title legally transfers from the manufacturer or previous owner before considering refinancing your auto loan. In fact, most lenders won’t even consider offering you a refinancing offer until this important legal milestone has been reached.

Most of the time, this takes 60-90 days, though it can take longer depending on how overworked the staff is at the county clerk’s office.

For the Best Deals, Wait at Least Six Months

However, even if you have good credit, the best advice is to wait at least six months before refinancing your auto loan. That’s because the process of getting your auto loan, which added a lot of debt, has likely impacted your credit score. Getting a loan too soon means you won’t be able to get as good an interest rate on your refinanced auto loan, which will cost you much more in the long run than making a few extra payments at the higher rate.

Let’s consider an example where you financed $40,000 of your new car’s cost for 72 months at 8% interest. Your monthly payment would be $701.33. Let’s say you refinance after 90 days at 6% interest. Your new payment would drop to about $664 and you would save about $2600 over the life of the loan. If, on the other hand, you waited six months and refinanced at 5.5% interest, your payment would drop to about $656, and you would save nearly $3000.

In this example, paying just over $100 more in three monthly payments at the higher rate would save you nearly $400 more over the course of the loan.

If You Have Poor Credit, Wait at Least a Year

wait a year to refinance your car loan if you have bad credit The above example assumes that a person has reasonable credit that has only been slightly dinged by taking out an auto loan. People with little credit or poor credit should wait longer. That’s because making payments on your current loan is one of the best ways to improve your credit so you can get a better interest rate.

We understand: you might have gotten slapped with an abysmal 10% interest rate, and now your monthly payments on the auto loan are over $741 a month. You want to refinance as soon as possible. However, making the outrageous payments will help your refinanced auto loan in three ways:

Spreading out new debt
Building up credit score
Reducing total debt

Every time you get financing or credit, your credit score goes down. If you seek new debt too often, your credit score will be penalized. You want to wait long enough for your credit score to recover from the getting your auto loan.

If you have poor or no credit, you need to build up a payment history to improve your credit rating. The same is true for reducing your total debt. When lenders determine the rate for your auto loan refinancing, they will look at your total debt. They also consider the amount you’re refinancing. Paying down the amount you still owe on the car will help improve these.

Having an entire year of made payments can make a big difference in your total savings when you refinance. Increasing your credit score by 20-40 points and reducing your debt could drop your interest rate by a whole percentage point. That translates to nearly $20 a month in reduced payments and nearly $1000 in additional savings over the life of the loan. That’s savings worth waiting for.

When You’re Ready to Refinance Your Auto Loan

If it’s time to refinance your auto loan, iLending can help. It just takes two minutes to complete your preliminary application, where, if you qualify, will receive an offer that details how much you can save. At iLending, we make car loan refinancing easy. Our exclusive You First Approach™ ensures you have a hassle-free experience from start to finish. Your personal loan consultant will guide you though the process. We have access to an extensive network of lenders, ensuring we can recommend the best loan option for your unique needs.

What would you do with an extra $132* in your pocket?