How to Refinance a Car

Posted by Frank Gogol
Updated on August 2, 2022

Many people think they should refinance a personal loan in order to save money on it. But can you do the same thing when it comes to car loans?

Some individuals who go for auto loans are not always lucky enough to get good rates, so they may deal with high interest or high monthly payments. The good news is that you may be able to do something to reduce these costs and have an easier time paying them off later.

So, how to refinance a car loan? Here is everything you need to know.

What Is Auto Refinancing?

Auto refinancing refers to the act of taking out a fresh car loan in order to repay a car loan you already have. There are many reasons why people do this.

Some decide to refinance their auto loan to decrease their monthly payments or lower the interest rates, while others refinance an auto loan to remove a cosigner. Usually, auto refinancing is the best decision only in situations when you can get better rates with the new loan.

How Does Car Refinancing Work?

When you refinance your auto loan, you are taking out a new loan to replace your old one. So, in other words, when you take the new amount of money, it will pay off the existing loan. This means you no longer have to pay off the same monthly amounts and the same interest. Instead, you will start making payments towards the fresh loan.

What’s great is that not only will people get more convenient rates as a result of the refinancing process, but they will also be able to repay it quickly.

How to Refinance Your Car Loan

Have you decided that it is time to take the next step to refinance your loan? If you have a good credit history and a good credit score, it may be the best decision for you.

The refinancing process is not difficult. It will be similar to the process you went through when applying for the loan in the first place. Here are the steps you will have to follow to refinance:

1. Make Sure This Is the Best Decision for You

Refinancing is not ideal for everyone, so this is why you must look at the circumstances and make sure that this can have a good impact on your life and finances.

People who refinance often do it because they are having a hard time making monthly payments or because they are looking for better rates.

If you think that you have to spend way too much money from your monthly income to pay off your loan, refinancing the auto loan can help. It will make your repayment term length, but the monthly amount due will go down.

Similarly, if the rates were high when you first took the auto loan, you have the chance to get better rates by refinancing – especially if your credit score has gotten better in the meantime.

2. Take a Look at Your Credit Score

When you apply for any loan, a lender will check your credit score to ensure that lending you money is not a risky move. This will apply even when you’re refinancing.

If you were a responsible person and made all your payments on time, you will have a better score. So, a lender will be more likely to accept your refinancing request.

Also, better credit scores will bring you better interest rates.

3. Look at the Current Loan’s Rate

It’s crucial to know how much you are paying on your current loan before you apply for refinancing. You will not be eligible for refinancing if you have a payoff amount that is lower than the minimum of the lender.

This is why when you refinance, you must know what your payoff amount is, as lenders will have a specific minimum sum when granting money.

4. Collect the Right Documents

You will need a bunch of documents when refinancing your auto loan. Ideally, you should have them ready so you don’t waste too much time when refinancing. Some documents you will need include:

  • Insurance proof
  • Driver’s license
  • Social Security number
  • Proof of income such as pay stubs

On top of that, an original loan contract copy will also be necessary.

5. Look for the Best Rates

Spend time shopping around for the most convenient refinancing rates. Look at all your options and determine whether one lender would be able to make your life better.

Compare all the lenders you discover before settling for one.

When to Consider Refinancing Your Auto Loan

Even though it could save you from the burden of your old loan, car loan refinancing is not always the best option. In fact, it may not be suitable for all individuals.

In some cases, people may not be able to enjoy the advantages that come with refinancing. So, you must make sure that this is the best decision for you and that it will benefit you in the long run.

Here are some situations when auto loan refinancing will be good for you:

When Your Credit Score Goes Up

You must be aware of the importance of your credit score. Lenders usually check people’s credit ratings when considering if they should lend you the money.

If you want to refinance and your credit score is good, you will have the opportunity to lower your monthly payments or interest rate by refinancing. It’ll all work in your favor.

When Your Monthly Payment Is Too High

Having a high monthly payment for your car loan can be extremely troublesome – especially if your income is not that good or if you already have to deal with a lot of other payments.

Fortunately, refinancing your loan can lower the payments and ensure you have to give less towards your loan every month.

It is important to keep in mind that refinancing may extend the loan’s length, which is what could decrease monthly payments. But this may also boost the interest amount you pay during the loan.

If You Didn’t Shop Around for Rates When You Purchased

Chances are that you might’ve spent way too much when you first got the car loan. A lot of buyers aren’t aware that they should shop around for rates if they want to get a good deal. They don’t always look for the best interest rates or don’t consider their credit score. As a result, they have to deal with less convenient terms.

Refinancing can save you from this and can get you a better interest.

When Interest Rates Have Dropped

You can start saving some money through refinancing if the interest rates were high when you purchased your vehicle. If you do not decide to increase the loan term, then you can enjoy an interest rate decrease that could have a positive impact on your savings.

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Final Thoughts

Refinancing your car loan is a great way to get better interest rates or decrease your monthly payments. Make sure to shop around for the best lender rates. Also, ensure that you have a good credit score, but also that you have all the documents ready for the process.

Need a Loan? Get One in 3 Simple Steps

If you are considering applying for a personal loan, just follow these 3 simple steps.


Apply online for the loan amount you need. Submit the required documentation and provide your best possible application. Stronger applications get better loan offers.


If your application meets the eligibility criteria, the lender will contact you with regard to your application. Provide any additional information if required. Soon you’ll have your loan offer. Some lenders send a promissory note with your loan offer. Sign and return that note if you wish to accept the loan offer.


The loan then gets disbursed into your U.S. bank account within a reasonable number of days (some lenders will be as quick as 2-3 business days). Now you need to set up your repayment method. You can choose an autopay method online to help you pay on time every month.


About Stilt

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We take a holistic underwriting approach to determine your interest rates and make sure you get the lowest rate possible. 

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