Auto Loan Refinancing: How it Works and How Much You Could Save

Refinancing your auto loan can lower your monthly payment or shorten your term, even in 2026's higher-rate market. The right move depends on your credit, your current APR, and how much you still owe.

Before you commit, it helps to understand how a refi works, who it suits, and what it costs. You can also compare current auto loan and refinance offers side by side to see where you stand.

Refinancing your auto loan involves replacing your existing auto loan with a new one from a new lender, or from your existing lender, if it's willing to offer you a refi. Your new lender agrees to pay off your old auto loan, and in exchange you make monthly payments to the new lender on your new loan.

The application process for an auto loan refinancing is very similar to that of a new auto loan: the lender will need some personal and financial details in order to decide whether it can approve your loan and at what rate and terms.

Refinancing your car makes sense in a handful of situations, most of them tied to your credit or to auto loan refinancing rates that have shifted since you first borrowed.

• If you think your credit has improved since you purchased your car, then you will likely be able to negotiate a better rate.

• If you purchased your car at a time when interest rates were generally higher than they are today – and your credit hasn't gotten any worse – again, you should be able to secure a better rate.

• If, for whatever reason, you can't keep up with your monthly payments, then a refinancing can give you more time to pay off your auto loan.

• Rates have dropped since you took out the loan, even if your credit is unchanged.

• You want to add or remove a co-signer from the loan.

• You want to tap equity through a cash-out refinance, which some lenders offer.

Refinancing isn't worth it in a few cases. If you're within a year of paying off the loan, owe more than the car is worth, or your current loan carries a prepayment penalty, the costs can outweigh the savings. If you're unsure whether your situation qualifies, check whether you can refinance your car loan before you apply.

The main downsides of an auto refi are the time the application takes and a possible short-term hit to your credit. Neither is a dealbreaker for most borrowers, but both are worth planning for.

The time factor is really not a disadvantage if you consider the savings you could eventually make from refinancing to a lower interest rate. Many lenders let you complete the entire process online, and some approve you within minutes and lock in your rate for up to 30 days.

As long as your new loan carries a lower rate than the old one, the main risk is simply not being able to meet the monthly payment. A common mistake is applying without doing any research first. If you learn your credit score and check current rates beforehand, that time will be well spent.

Refinancing can cause a small, temporary dip in your credit score when a lender runs a hard inquiry.

As for credit score, this depends on whether the lender makes a soft query, which shouldn't affect your credit, or a hard query, which will cause a short-term decrease in your credit score. When applying, you may want to ask your lender whether they are going to make a hard query on your credit. Having said that, the short-term reduction in your credit score should only be of concern if you are on the border between what is considered good (670-739) and very good (740+) or fair (580-669) and good (670+) (Experian), or if you are planning on applying for other loans in the short term.

If you compare several lenders within a short window, scoring models treat those inquiries as one event. FICO and VantageScore generally use a 14-to-45-day window, so shopping around won't stack up multiple dings (Experian).

You can estimate your savings by comparing your current APR and payment against a new one for the balance you still owe. Say you still owe $25,000 with 60 months to go at a subprime APR of 13.44% — the Q1 2026 average for a subprime borrower on a new car. At that rate, your payment is about $574 a month.

If your credit has since climbed into prime territory and you refinance toward the 8.05% average refinanced rate, your payment drops to about $508. That's roughly $66 less each month, and close to $4,000 less in interest over the life of the loan. To run the numbers for your own balance and rate, use our auto loan calculator.

The rate you can expect depends heavily on your credit tier. In Q1 2026, average auto loan APRs ran 6.39% for new cars and 11.43% for used cars, but the spread by credit tier was wide.

In plain terms, the stronger your credit, the less you pay. A super-prime borrower pays roughly a quarter of the used-car rate a deep-subprime borrower faces. Some lenders advertise lower starting points: Navy Federal lists auto refinance rates as low as 3.89% APR and says members who refinanced cut their payment by about $74 a month on average.

You refinance an auto loan in five steps, and most of them can be done online.

1. Check your credit score and your current loan payoff amount.

2. Gather your documents: loan or account details, vehicle information, and proof of income.

3. Shop and pre-qualify with lenders that use a soft credit pull.

4. Compare offers on APR, fees, and term length, not just the monthly payment.

5. Apply, sign, and confirm the title and lienholder transfer to your new lender.

These partners let you compare multiple refinance offers in one place. BestMoney may earn a commission when you use these links, which doesn't affect our editorial guidance.

The lowest auto refinance rate depends on the lender and your term and credit tier, but some credit unions publish among the lowest starting APRs. The partners above let you compare several offers at once. As one example, a single named lender's own published rates are shown below.

These are Navy Federal's own published "as low as" rates as of July 24, 2026. They assume strong to excellent credit and membership eligibility, since the credit union requires membership. Treat them as starting points, not guaranteed rates.

Other frequently searched lenders — such as Capital One, Ally, and Chase — set auto refinance rates individually based on your profile, so compare current offers directly rather than relying on a single advertised figure.

Whether refinancing pays off depends mostly on your credit and how much of the loan is left.

• Strong or improved credit with a year or more left: the clearest win, since a lower rate cuts both your payment and total interest.

• Fair or subprime credit: focus on lowering your rate, and check that fees don't erase the savings.

• Close to payoff: refinancing rarely helps, since most of your interest is already paid.

Your next step depends on where you are in the process.

• Estimate your savings with our auto loan calculator.

• Confirm whether you can refinance your car loan in your situation.

• Compare providers and read our car loan and refinance reviews.

How does refinancing a car loan work?

You take out a new loan that pays off your existing car loan, then make payments to the new lender, ideally at a lower rate.

Does refinancing a car hurt your credit?

It causes a small, temporary dip from the hard inquiry, but the effect usually fades within a few months.

How long does an auto refinance take?

Many lenders approve you within minutes to a few days, and the full process usually wraps up in one to two weeks.

Can you refinance a car loan with bad credit?

Yes, though your rate will be higher. Refinancing still helps if your credit or the rate environment has improved since you first borrowed.

How much can refinancing save you?

It varies, but Experian found refinancing trimmed about 2.2 percentage points off rates and saved roughly $81 a month on average in early 2026 (Experian).

This article draws on published industry data rather than a proprietary BestMoney survey. Our primary sources were Experian's State of the Automotive Finance Market data for Q1 2026, Experian's Ask Experian auto loan rate averages from July 2026, and Navy Federal Credit Union's published auto refinance rates. We translated those figures into the savings example and the rate table above.

• Experian, "New Experian Automotive Report," Q1 2026 press release (linked in the sections above).

• Experian, Ask Experian auto loan rate averages from July 2026 (linked above).

• Navy Federal Credit Union, auto refinance rates page (linked above).