If your credit or income has improved since you were first approved for your car loan, or you’re just not happy with your current auto loan, you may be able to save money by refinancing it. A refinance car loan can allow you to adjust your monthly payment, qualify for a lower interest rate — or both.
The Simple Dollar’s Best Refinance Auto Loan Companies for 2020
- Best for Online Applications: LightStream
- Best for Bad Credit: MyAutoLoan
- Best for Multiple Quotes: Autopay
- Best for Military Members and Their Families: USAA
When evaluating the best auto refinance loan options, we considered the number of loans offered, interest rates, customer service, and reputation. Each of our top picks makes it easy to find the best auto refinance rates for you.
Best for Online Applications: LightStream
Many refinance car loan companies offer an online application. But with LightStream, you can complete the entire loan process from start to finish through its website.
That’s not the only feature that sets this lender apart, though. To get approved, you don’t need an appraisal of the car, and there are no age or mileage restrictions. What’s more, you may qualify for an unsecured loan, which means you’ll own the car free and clear.
LightStream offers loans from $5,000 to $100,000, and repayment terms range from 24 to 84 months based on your loan amount. Depending on how quickly you complete the application and verification process, you may be able to get your loan funds the same day.
A division of SunTrust Bank, LightStream is pretty confident you’ll want to refinance your car loan with them. With their Rate Beat Program, if you get a lower interest rate from a competitor and meet certain conditions, LightStream will offer you a rate that’s 0.10% lower than the competition. And, if you’re not completely satisfied with the application experience, contact the company, and you’ll receive a questionnaire. Complete it within 30 days of receiving your loan, and LightStream will send you $100.
Best for Bad Credit: MyAutoLoan
With MyAutoLoan, you can get up to four refinance auto loan offers through its participating lenders. You may even qualify if you have bad credit — the minimum FICO credit score is 500.
One great perk is that you don’t need to go through the full application process to see current interest rates, estimated loan payments, and the types of offers you might receive: You can use the broker’s auto loan interest rate estimator to get an idea of what kind of terms you might qualify for based on the loan amount, your credit score, and where you live.
The amount you can borrow depends on several factors, but the minimum loan is $8,000. Also, the lender does have some minimum requirements, including:
- The vehicle can have no more than 125,000 miles.
- The vehicle must be 10 years old or newer.
- You must earn at least $1,800 per month.
Best for Multiple Quotes: Autopay
Shopping around can take a while if you have to go through the process on each lender’s website. Autopay is a marketplace where you can compare rate offers from several of its partner lenders in one place.
The prequalification process won’t impact your credit score and gives you access to the most important information you need to make a decision. You’ll also get access to multiple types of refinance car loans, including traditional, cash back, and lease payoff loans.
Traditional refinancing enables you to lower your interest rate, reduce your monthly payment, and possibly shorten your loan period. With cash back refinancing, you can receive as much as $12,000 in cash back. And lease payoff refinancing is designed specifically for car leases, allowing you to pay off your lease early and avoid high-mileage fees and other charges.
Loan amounts range from $2,500 to $100,000, and you can qualify for a loan term between 24 and 84 months.
Best for Military Members and Their Families: USAA
If you’re in the military or are related to a service member or veteran, you may be able to take advantage of certain benefits through USAA.
For example, if you’re deployed overseas, USAA allows you to take your car with you. (Other lenders may require you to keep your vehicle stateside to protect their collateral.) You can also opt to take up to 60 days before your first payment is due, giving you some time to breathe if your budget is tight.
Once you apply, you should get a decision within five minutes. If you’re not sure yet, though, USAA will lock in that rate for 45 days. To get more details and submit an application, you’ll need to be a member of USAA and log into your account with the lender.
How to Refinance a Car Loan
Refinancing a car loan is a bit different than the process of getting your first loan on the vehicle. While requirements can vary by lender, here are some general steps to take:
1. Compile your current loan information.
Gather everything about your current loan — including the lender, term, rate, and monthly payment — in one place. This will help you easily compare and contrast features and terms when shopping around.
Also, get a 10-day payoff amount from your current lender to show the refinance lender how much you’ll need.
2. Check your credit score and report.
If your credit has improved since you got your first loan, you could get more favorable rates with a refinance auto loan. Check your credit report — you can get a free copy of your report from each of the three credit bureaus once a year at AnnualCreditReport.com — to make sure there aren’t any errors.
Then, check your credit score to get an idea of what range of rates you may qualify for when refinancing.
- Read more: Three Ways to Raise Your Credit Score Fast
3. Shop around for the best auto refinance rates.
Compare our recommended lenders and others to get multiple quotes. You’ll want to get at least three or four quotes to get a good idea of what your best options are before making a decision.
In addition to rates and repayment terms, also be mindful of other features and fees, as well as a lender’s customer service track record.
4. Apply and refinance.
Once you’ve found the best auto refinance rate for you, you can start the application process. Remember, some lenders may have different requirements. Comply with them as quickly as possible to get a decision.
Once you get approved, the lender will likely pay off your current loan for you. If you have a payment coming up, let the lender know that, and make the payment to avoid potential problems.
What to Know About Refinance Car Loan Interest Rates
When it comes to auto loans, there are two different ways that interest can be calculated: Simple interest loans and pre-computed interest loans. The same goes for refinancing your auto loan, so be sure to understand exactly what type of interest lenders are offering.
Simple interest loans offer a dynamic principal to interest ratio that changes based on the amount of principal owed, while pre-computed interest loans offer fixed rates.
Simple Interest Loans
In a simple interest auto loan, interest is calculated only on the principal still owed on the loan. Instead of paying a locked rate, interest is amortized — meaning that the more you pay down the principal, the less interest you’re charged.
Because simple interest is amortized, you’ll be paying more in interest than principal at the start of your loan. But as you pay down your principal amount, the less interest you pay, until your payments go more towards principal than they do interest. However, monthly payments remain the same.
Anyone with a simple interest loan can reduce the interest they’ll have to pay by contributing a little extra towards the principal whenever possible.
If you do choose a simple interest loan, be sure to consider the length of your loan carefully. While longer loans will net you a smaller monthly bill, less money will go toward the principal, and thus you’ll end up paying more in the long run.
Pre-computed Interest Loans
Pre-computed interest loans much more resemble a personal or fixed-rate loan. Instead of a more dynamic interest-principal ratio, buyers are required to stick to a fixed payment schedule.
Your monthly payments are allocated toward interest and principal at a fixed, ongoing ratio. While pre-computed interest loans can seem like the most secure choice, they don’t make as much sense for someone who wants the ability to pay off their car early.
Refinancing an Auto Loan With Bad Credit
Your credit score is one of the most important factors lenders consider when determining whether to approve your application. But that doesn’t mean having a bad credit score eliminates your chances altogether.
Some lenders, like those that partner with MyAutoLoan, specialize in working with people with bad credit. You can also improve your chances of getting approved if you have a co-signer with good credit.
It can also help if the loan amount you’re looking to refinance is much lower than the value of the car, because it reduces the amount of risk the lender has to take on.
Whether or not you get approved for a refinance auto loan now, work on improving your credit so you can potentially refinance again with better terms in the future.
The Bottom Line
Figuring out how to refinance a car loan is simple. But ensuring that you get the best deal available for your situation can take some time and effort.
As you consider these and other auto loan refinancing companies, the more time you spend researching your options, the better your chances will be of saving money.
Just be sure that your new loan will actually save you money over the life of your loan. Extending your car loan for additional months or years, even at a lower interest rate, will lower your monthly payment — but you run the risk of developing negative equity in your car, and paying a lot more in total interest than you need to.
If you choose to refinance your car loan, go into it with a clear understanding of how much you’ll actually be spending over the course of your new loan, and look for a lender that’s flexible, transparent, and easy to work with.