Key takeaways

  • Refinancing does not require a down payment.
  • However, you may be on the hook for fees like prepayment penalties or transaction fees.
  • If you want to refinance a loan, you’ll need equity in the car, a stable or better credit score and a current loan that fits lender refinancing requirements.

Refinancing means a new lender replaced your current loan with a brand-new loan. Most borrowers seek refinancing to land better terms and refi rates.

No matter your reason for refinancing an auto loan, you may wonder if you’ll need to bring cash for your new loan. Do you need a down payment to refinance? Luckily, you do not, though you may have to cover some fees.

There may be circumstances where refinancing your loan is not the best financial option. It is important to consider the pros and cons before refinancing your auto loan.

Do you have to pay to refinance a car?

While refinancing an auto loan can save you money over time, doing so can sometimes cost the borrower more money than it will save.

You also want to look closely at the prepayment clause of your current loan. A prepayment penalty is a fee you’ll be charged for paying off the loan early or even making extra payments. If your lender charges you a prepayment penalty that exceeds your potential savings, staying put may be better than refinancing.

Other fees you might incur include:

  • Transaction fees: Your new lender may charge fees related to processing your application. Ask about waiving them.
  • Title transfer fee: Depending on your state of residence, you may incur a fee when you transfer your title from your old lender to the new one.
  • Registration fee: If your state requires you to re-register your car after refinancing, you may have to pay this fee.

Additionally, you may not qualify for a lower rate than you currently have. If rates have risen overall or your credit has not substantially improved, the refinancing terms you’re offered may not be an improvement over your current ones. Be prepared to remain in your current loan.

What you’ll need to refinance a car loan

You already made a down payment when you purchased your car — you don’t need to do so again to refinance. But you’ll want the following in place before refinancing.


First and foremost, you will need equity in your vehicle before you can consider refinancing. You’ll need to owe less on your loan than the vehicle’s current value.

Be mindful that if you owe a figure close to the vehicle’s value, you could become underwater on your new loan– a situation that can complicate your finances if you try to sell or if the vehicle is totaled.

A stable or improved credit score

If your credit score has stabilized or gone up since you borrowed your existing loan, you may see a benefit in refinancing. Your credit score significantly influences your interest rate. A higher credit score can mean a much lower interest rate on auto loans and other forms of credit.

An awareness of average car loan rates and the prime rate is also helpful when considering refinancing. Even if your credit score has not changed, market conditions may have decreased rates overall since you borrowed your current loan.

A car and current loan that meet refinancing requirements

Not every auto loan can be refinanced. Your vehicle and the current loan must meet certain eligibility requirements. You’ll need a record of on-time payments and a car that is neither too old nor too heavily used (fewer than 10 years and under 100,000 or 150,000 miles are good rules of thumb).

It’s important to note that a refinancer going up to 150,000 miles is fairly rare — lenders like RefiJet and Autopay are the exception, not the norm.

In addition, to make a refinance worth the lender’s cost and effort, they usually require you to have a minimum amount of money and time left on the loan. For example, if you only have six months’ worth of payments, you may not see a return by refinancing the loan. That minimum will vary from lender to lender.

The bottom line

Refinancing your auto loan can save you money. In some cases, though, a refinance may not be the most cost-effective option. If you struggle to make your monthly payments, consider alternatives to refinancing and run the math carefully before signing off on a refinance.