How do you refinance a car loan?

When you refinance a car loan, a new lender pays off your existing loan balance and issues you a replacement loan — typically with a different interest rate, term, or both. You keep driving the same car; only the loan changes. The primary motivation is saving money through a lower rate, but some borrowers refinance to lower their monthly payment by extending the term (which increases total interest paid) or to remove a co-borrower.

When refinancing makes sense

Refinancing is most likely to save money when: (1) your credit score has improved since you took the original loan — better credit means better rate offers; (2) interest rates have fallen broadly since you financed; (3) you financed through the dealership at a higher rate and didn't shop outside offers at the time; or (4) your financial situation has changed and you need a lower monthly payment. The CFPB's auto loan resource provides a framework for evaluating whether refinancing makes financial sense.

The refinance process, step by step

• Check your current loan payoff amount — call your lender or log into your account to get the exact balance, not just the remaining scheduled payments.
• Review your credit report and score so you know what rate tier to expect. Access your report free at AnnualCreditReport.com.
• Shop multiple lenders — banks, credit unions, and online lenders — and apply within a short window so multiple inquiries count as one under FICO rate-shopping rules. Direct lenders like Capital One Auto Refinance offer a soft-pull pre-qualification, so you can see a real rate estimate before any hard inquiry.
• Compare the total cost of each offer: rate, term, any origination fees, and whether there's a prepayment penalty on your existing loan.
• Accept an offer, complete the new lender's application with vehicle details (VIN, mileage, title), and let the new lender pay off the old balance directly.
• Update your automatic payment to the new lender once the old loan is confirmed paid off.

Costs and considerations

Most auto refinance loans have minimal fees — some lenders charge no origination fee at all. Check whether your current lender charges a prepayment penalty (most don't, but confirm). Also consider the vehicle's age and mileage: many lenders won't refinance vehicles older than 7-10 years or over 100,000-150,000 miles. If you're upside down on the loan — owing more than the car is worth — some lenders will still refinance, but your options narrow. The FTC's car financing guide explains your rights in loan transactions.