Is It a Good Idea to Refinance a Car Loan Right Now?

Here at Indiana Members Credit Union, we get a lot of questions about auto loans, and refinancing auto loans is one of the most popular topics our advisors are asked about. 

At a high level, the process of refinancing an auto loan basically entails replacing your current loan with a new loan with terms that better fit your current situation. Another way to think about it is that you’re shopping around for a new loan to pay off what’s left on your current loan. In this blog, we’ll answer some of the key questions, so you can better understand when the right time might be for you to think about refinancing.

When Should I Refinance My Car Loan? 

At any point in time, you may find yourself wondering “is refinancing a car worth it?” Generally speaking, if you can save money through refinancing, then it’s a suitable time to consider getting in touch with a lender to discover your options. Most borrowers look into refinancing in order to either lower their interest rate or reduce their monthly payments.

Especially if your credit score has improved since securing the original loan, you can often expect lower interest rates to be made available to you. You could also tweak the length of the loan, to either spread payments out further or pay them off more quickly. It never hurts to contact a lender to see what opportunities they can offer.

Since we receive a lot of questions wondering when the best time to refinance is—including how your credit score can impact your options—we’ll go ahead and answer them here. 

How Soon Can You Refinance a Car Loan After Purchase?

While it’s usually recommended that you wait at least a few months before refinancing, you can technically refinance any time. From a logistical standpoint, though, you do need to wait at least until all of the purchasing paperwork has been completed and processed—around 90 days, typically.

Does Refinancing Help Your Credit Score?

Refinancing your auto loan—and then making your payments on time throughout the term of the loan—can help improve your credit score over time. There are two caveats worth mentioning, though:

• The process of refinancing a car loan involves what’s called a “hard inquiry” into your credit history. This can actually lower your credit score—but only temporarily for a few months!
• While it is possible to refinance a car loan with bad credit, it’s generally advisable to work on your credit score before broaching the topic of refinancing your loan. This way, you can expect more favorable terms when you refinance.

Can You Refinance With a 500 Credit Score?

Yes, you can refinance a car loan with a bad credit score, even what you might consider a really bad credit score. Just because you can refinance with such a low credit score, it’s wise to wait until you’ve made enough on-time payments to improve your score in order to be offered better rates. And just because the lowest auto refinance rates are typically reserved for those with excellent credit, it certainly doesn’t mean there won’t be value in refinancing.

What Is the Lowest Credit Score You Can Have to Refinance a Car?

There is no minimum credit score to refinance a car loan, and your credit score is not the only factor lenders will consider. To learn more about the additional factors—and what they might mean for you—reach out today.