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You refinanced your car some time ago to get a better interest rate or more affordable monthly payment, but now you’re curious to know how often you can refinance your car if you find a better rate. Or maybe you’re considering an initial refinance and wonder if you’ll be able to refinance again in the future.
Either way, it could be a wise financial decision. But you should understand the benefits and drawbacks and requirements to refinance before moving forward. You may find that other options that don’t involve refinancing are more viable.
How many times can you refinance a car?
If you’ve already refinanced your car, you can do it again. In fact, there’s no legal limit on the number of times you can refinance if you’re able to find a lender willing to assist you with the transaction.
“Vehicle refinancing is only limited to the age and value of the vehicle,” says Christina Naylor, chief operations officer at Carolina Trust Federal Credit Union.
However, after refinancing several times, you could find it more challenging to secure a new auto loan with competitive terms. Some lenders assess steeper interest rates as the risk of default is higher.
“The question is, why do they keep refinancing?” Naylor says. Are they using the equity or cash out to pay down revolving debt and then immediately running up the credit card balances again? That is a risk for the lender and it’s a bad strategy for the borrower.”
How soon can you refinance a car?
There’s no legal requirement specifying a particular waiting period for refinancing. If a lender is willing to refinance your loan soon after it’s funded, you could be in luck.
Still, it may not be a smart financial decision, particularly if you’re considering a refinance when the depreciation rate is at its highest early in the car’s life.
Why you may not want to refinance more than once
Although it often results in cost savings, there are instances where refinancing more than once isn’t sensible.
- You may face a prepayment penalty. Your current lender could charge you a prepayment penalty for paying the loan off early.
- Fees add up. There are also loan origination and title transfer fees, which are standard with refinancing transactions. These costs can add up after several refinances, along with the additional interest you may pay if you extend the loan term.
- You may owe more than the car is worth. Another important consideration of refinancing several times is how it affects depreciation. You’ll generally find that refinancing more than once and extending the term causes you to owe more than the car’s worth, which is referred to as being upside down on your auto loan. This can be problematic if you wish to trade or sell your car before it’s paid off or if your vehicle becomes inoperable.
- You may damage your credit score. Credit inquiries linger on your credit report for up to two years, but only impact your score for 12 months. If you refinance more than once within a short period, the additional inquiries may slightly ding your score.
Lenders often have guidelines you must meet to refinance your car, including:
- Age: Most lenders require that your car is no more than 10 years old. But if you are refinancing for a second, third or even fourth time, your car’s age may exceed the limit, making it ineligible for refinancing.
- Value: The vehicle should not be worth less than you owe on the loan. It’s easy to get upside down in your auto loan if you refinance more than once, making this requirement problematic for some borrowers.
- Mileage: Most lenders limit vehicle mileage to 100,000 or 150,000 miles on refinances. If you’ve had the car for some time, you may have accumulated far more miles than many lenders allow.
How to lower your monthly payment
If you want to save on your monthly payment but find that refinancing isn’t the right fit, consider these alternatives:
- Modify your loan. Contact your lender and ask to speak to someone in the loss mitigation department to modify your car loan. Notify the representative that you’re experiencing financial hardship and inquire about options to make your auto loan more affordable and avoid repossession.
- Swap your car for a cheaper option. Explore the inventory at local dealerships and make a list of vehicles with lower price points and monthly payments that won’t stretch your budget too thin. Narrow down your list of options, visit the dealership and negotiate a deal that gets you a fair price for your trade-in and the car you purchase.
- Sell your car privately. You may get top dollar for your vehicle by selling it on your own. Once the transaction is complete, use those funds to make a down payment on a new or used car. Remember that the current new car shortage has driven up price points, so it could take some time to find the right vehicle at an attractive price.
Whether your credit has improved since you took out your car loan or you have already refinanced before and want better loan terms and a lower monthly payment, you can take another shot at refinancing. But before you move forward, ensure the benefits outweigh the costs and research lenders to find the best deals to maximize your dollars.
Otherwise, consider modifying your current loan to get a better deal if refinancing doesn’t make financial sense. You can also trade your car in or sell it privately if refinancing isn’t the best decision for you.