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Does refinancing start your auto loan over?

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Smiling woman in beige overcoat looking at phone while leaned against silver car
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Refinancing does start your auto loan over — but it is not a complete reset button. By refinancing your loan, you sign new loan terms and rates with the intention of saving money. But the choice to refinance is not a quick solution to a larger financial problem.

How much refinancing restarts your car loan 

If you decide that refinancing your loan is the best financial option for you, you must remember that it is not a complete fresh start. Rather, the new terms offered will make it easier to pay off your loan.  

Ideally, you can avoid “restarting” your loan by choosing a term that is the same or shorter than the remaining term on your current loan. If you have 36 months remaining on your loan, you would refinance to a 36-month loan. 

This will prevent you from paying additional interest. And, with a lower interest rate, your payments should be lower as well. 

How refinancing affects your loan term 

The most common terms that drivers are met with when financing a vehicle range from 24 to 84 months. The longer your term, the lower your monthly payment will be. But with a longer loan, you could be stuck paying hundreds of dollars more in interest than you would with a shorter loan. 

When refinancing your loan, the term length is likely what you will adjust. Although you can get a different interest rate as well, the change in term will be the main factor in whether or not you effectively “reset” your loan. The term can be shortened or made longer — and the right choice is dependent on a few factors.  

To best determine your ideal term length, take advantage of an auto loan refinance calculator to find the one that will best balance the money saved and monthly payments you can afford.

When it’s a good idea to refinance your car loan  

There are a few primary scenarios where it is a good idea to refinance your car loan. 

If you’re struggling to afford monthly payments 

By refinancing, and thus reworking your current loan, you can potentially give yourself more time to pay off your vehicle.  

But you may be able to request a loan modification from your current lender without refinancing. Don’t jump to refinancing if the terms you would get aren’t better than what you could have if you stick with your loan as it is.  

If your credit has improved 

Another situation where refinancing is the right road to take is if your credit has improved since you initially got your loan. Better credit will mean more favorable terms. This is especially true if you originally financed through a car dealership.  

Check current auto loan rates to see how much you could potentially save with lower refinance rates. But also keep in mind that extending your loan term will result in more interest paid — which could offset the benefit of a lower interest rate. 

How to refinance your car loan  

If you determine refinancing is right for you, there are a few steps to take. Reflect on your current loan and organize paperwork for your new loan application.  

  1. Review your current loan. Find the interest rate, payoff amount, months remaining and information about any fees or penalties.  
  2. Check your credit. Make sure your credit score is in good enough shape to get a decent rate. Check your credit report for errors at the same time.  
  3. Compare lenders. Don’t go with the first lender that offers a decent rate. Review several, including their eligibility criteria, penalties and what rates and terms you prequalify for.  
  4. Apply for refinancing. Once you decide on a lender, apply online or in person. From here, the lender will let you know if you qualify and how the rest of the process will work. 

The bottom line 

Refinancing your auto loan does not completely start it over. But it can lower your interest rate and save you money on a month-to-month basis. Consider the risks that come with refinancing and look for other ways to save money before signing a new loan application.

Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor
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Part of  Refinancing a Car Loan